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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrantx
Filed by a Party other than the Registrant¨
Check the appropriate box:
¨ | Preliminary Proxy Statement | ¨ | Confidential, for Use of the Commission Only (as permitted by 14a-6(e)(2)) | |||
x | Definitive Proxy Statement | |||||
¨ | Definitive Additional Materials | |||||
¨ | Soliciting Material Under §240.14(a)-12 |
IKANOS COMMUNICATIONS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
x | No fee required. |
¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
(1) | Title of each class of securities to which transaction applies: |
(2) | Aggregate number of securities to which transaction applies: |
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
(4) | Proposed maximum aggregate value of transaction: |
(5) | Total fee paid: |
¨ | Fee paid previously by written preliminary materials. |
¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
(1) | Amount Previously Paid: |
(2) | Form, Schedule or Registration Statement No.: |
(3) | Filing Party: |
(4) | Date Filed: |
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IKANOS COMMUNICATIONS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 4, 2013
2:00 P.M. PACIFIC DAYLIGHT TIME
We cordially invite you to attend the 2013 annual meeting of stockholders of Ikanos Communications, Inc. The meeting will be held on Tuesday, June 4, 2013 at 2:00 p.m., Pacific Daylight Time, at 47669 Fremont Boulevard, Fremont, CA 94538. At the meeting we will:
1. | Elect the Class II directors to serve a term of three years or until they retire, resign or their successors are duly elected and qualified; and |
2. | Ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 29, 2013. |
These items are fully discussed in the following pages, which are made part of this Notice of Annual Meeting of Stockholders. Stockholders who owned shares of our common stock as of the close of business on Monday, April 15, 2013, may vote at the meeting. Even if you plan to attend the meeting, we request that you vote your shares as promptly as possible.
We have elected to provide our proxy materials to our stockholders via the Internet under the U.S. Securities and Exchange Commission’s “notice and access” rules. We believe that this process allows us to provide our stockholders with the information they need in a timelier manner, while reducing the environmental impact and lowering the costs of printing and distributing our proxy materials. The Notice of Internet Availability of Proxy materials contains instructions on how to access our proxy materials via the Internet and how to request a paper copy of those documents. All stockholders who have previously requested a paper copy of our proxy materials will continue to receive a paper copy of our proxy materials by mail.
Your vote is important. Whether or not you plan to attend the meeting, I hope that you will vote as soon as possible. You may vote your shares by telephone or via the Internet. If you requested a proxy card or voting instruction card by mail, you may submit your proxy by completing, signing, dating and mailing your proxy card or voting instruction card in the envelope provided along with the card. Stockholders of record attending the meeting may vote in person, even if you have already voted your shares by telephone, via the Internet or by returning a proxy card or voting instruction card.
Sincerely, |
/s/ DENNIS BENCALA |
Dennis Bencala Chief Financial Officer & Vice President of Finance and Secretary |
Fremont, California
April 24, 2013
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2013 ANNUAL MEETING OF STOCKHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
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IKANOS COMMUNICATIONS, INC.
PROXY STATEMENT
FOR THE
2013 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 4, 2013
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The board of directors (Board) of Ikanos Communications, Inc. (Ikanos or the Company) is soliciting proxies for the 2013 Annual Meeting of Stockholders to be held at our principal executive offices at 47669 Fremont Boulevard, Fremont, CA 94538 on Tuesday, June 4, 2013, at 2:00 p.m., Pacific Daylight Time (the Annual Meeting). This Proxy Statement contains important information for you to consider when deciding how to vote on the matters set forth in the attached Notice of Annual Meeting. Please read it carefully.
Internet Availability of Proxy Materials
Under the rules adopted by the U.S. Securities and Exchange Commission (SEC), we furnish our proxy materials to our stockholders via the Internet, rather than mailing printed copies of those materials to each stockholder. You will not receive a printed copy of the proxy materials unless you request one or have previously indicated such request. If you would like to receive a printed copy of our proxy materials, please follow the instructions included in the Notice Regarding the Availability of Proxy Materials (the Notice).
We anticipate that the Notice will be mailed to stockholders on or about April 24, 2013.
Costs of Solicitation
We will pay the costs of soliciting proxies from stockholders. We are required to request brokers and nominees who hold shares of our common stock in their name to furnish our proxy materials to beneficial owners of such shares of common stock. We will reimburse such firms and nominees for their reasonable expenses in forwarding the proxy materials to these beneficial owners. Certain of our directors, officers and employees may solicit proxies on our behalf, without additional compensation, personally or by written communication, telephone, facsimile or other electronic means.
Record Date and Shares Outstanding
Only stockholders of record at the close of business on April 15, 2013 (Record Date) are entitled to vote at the Annual Meeting. On the Record Date 70,825,167 shares of our common stock were outstanding and held of record. The closing price of our common stock on the NASDAQ Capital Market on the Record Date was $1.99 per share.
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Although we encourage you to read the Proxy Statement in its entirety, we include this question and answer section to provide some background information and brief answers to several questions you might have about the Annual Meeting.
Q: | Why are we providing the proxy materials? |
A: | Our Board is providing these proxy materials to you in connection with the Annual Meeting, which will take place on Tuesday, June 4, 2013, at 2:00 p.m., Pacific Daylight Time. Stockholders are invited to attend the Annual Meeting and are requested to vote on the proposals described in this Proxy Statement. |
Q: | What information is contained in these proxy materials? |
A: | The information included in this Proxy Statement relates to the proposals to be voted on at the Annual Meeting, the voting process, the compensation of directors and our most highly paid executive officers, and certain other required information. |
Q: | What proposals will be voted on at the Annual Meeting? |
A: | There are two proposals scheduled to be voted on at the Annual Meeting: |
Proposal One | Election of the Class II directors. | |
Proposal Two | Ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 29, 2013. |
Q: | What are the Board’s voting recommendations? |
A: | Our Board recommends that you vote your shares as follows: |
Proposal One | FOR the election of the nominee for Class II director for a term of three years or until his successor is duly elected and qualified. | |
Proposal Two | FOR the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm (Independent Auditors) for the fiscal year ending December 29, 2013. |
Q: | Who can vote at the Annual Meeting? |
A: | All stockholders who owned shares of our common stock at the close of business on the Record Date may vote at the Annual Meeting. Each stockholder is entitled to one vote for each share of common stock held as of the Record Date on all matters to be voted on. Stockholders do not have the right to cumulate votes. As of the close of business on the Record Date, 70,825,167 shares of our common stock were outstanding. |
Q: | What is the difference between holding shares as a stockholder of record and as a beneficial owner? |
A: | Most of our stockholders hold their shares through a broker, bank or other nominee rather than directly in their own name, which is referred to as being beneficially owned. As summarized below, there are some distinctions between shares held of record and those owned beneficially. |
Stockholder of Record—If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company (Transfer Agent), you are considered the stockholder of record with respect to those shares and the Notice is being sent directly to you by our Transfer Agent. As the
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stockholder of record, you have the right to grant your proxy directly to us or to vote in person at the Annual Meeting. You may vote by telephone or via the Internet as described below under “How can I vote my shares without attending the Annual Meeting?” If you request a printed copy of the proxy material, you will also be mailed a proxy card for you to use.
Beneficial Ownership—If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in “street name” and the Notice is being forwarded to you by your broker, bank or nominee who is considered the stockholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker, bank or nominee on how to vote and are also invited to attend the Annual Meeting. However, since you are not the stockholder of record, you may not vote these shares in person at the Annual Meeting unless you receive a legal proxy from your broker, bank or nominee. Your broker, bank or nominee has provided you with a voting instruction card for you to use in directing the broker, bank or nominee regarding how to vote your shares. You also may vote by telephone or via the Internet as described below under “How can I vote my shares without attending the Annual Meeting?”
Q: | How many votes does Ikanos need to hold the Annual Meeting? |
A: | A majority of our outstanding shares as of the Record Date must be present in person or by proxy at the Annual Meeting in order to hold the Annual Meeting and conduct business. This is called a quorum. Both abstentions and broker non-votes are counted as present for the purpose of determining the presence of a quorum. |
Shares are counted as present at the Annual Meeting if you:
• | are present and vote in person at the Annual Meeting; or |
• | voted by telephone, via the Internet or have properly submitted a proxy card or voter instruction card. |
Q: | How are votes counted? |
A: | You may vote either “FOR” or “WITHHOLD” with respect to the nominee for director. You may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to the ratification of the appointment of PricewaterhouseCoopers as our independent registered public accounting firm. If you abstain from voting on a proposal, it has the same effect as a vote against. If you just sign your proxy card with no further instructions, your shares will be counted as a vote “FOR” each of the proposals described above. |
The term broker non-votes refers to shares held by a brokerage firm, bank or other nominee (for the benefit of its client) that are represented at the Annual Meeting, but with respect to which such broker, bank or nominee is not instructed to vote on a particular proposal and does not have discretionary authority to vote on that proposal. Brokers, banks and nominees do not have discretionary voting authority on certain non-routine matters and accordingly may not vote on such matters absent instructions from the beneficial holder, such as the election of directors. Consequently, there likely will be broker non-votes on Proposal One. Broker non-votes are counted for the purpose of establishing a quorum for the Annual Meeting as described above under the caption “How many votes does Ikanos need to hold the Annual Meeting” but are not counted as shares present and entitled to be voted with respect to the matter on which the broker has expressly not voted.
Q: | What is the voting requirement to approve each of the proposals? |
A: | With respect to Proposal One (the election of our directors), one of the two nominees is elected by a plurality vote, and therefore the individual receiving the highest number of “FOR” votes will be elected. One of the nominees is elected by the vote of the Tallwood Investors as described under the caption “Proposal One—Election of Directors—General.” Votes of “WITHHOLD” and broker non-votes have no legal effect on the election of directors due to the fact that such election is by a plurality. |
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Q: | Can I vote my shares by filling out and returning the Notice? |
A: | No. The Notice does, however, provide instructions on how to vote by telephone or via the Internet, by requesting and returning a paper proxy card or voting instruction card, or by submitting a ballot in person at the Annual Meeting. |
Q: | How can I vote my shares in person at the Annual Meeting? |
A: | Shares held directly in your name as the stockholder of record may be voted in person at the Annual Meeting. If you have requested a paper copy of the proxy card, please bring the proxy card or proof of identification to the Annual Meeting. Even if you plan to attend the Annual Meeting, we recommend that you vote your shares in advance as described below so that your vote will be counted if you later decide not to attend the Annual Meeting. This will not limit your right to vote at the Annual Meeting. If you hold your shares in street name, you must request a legal proxy from your broker, bank or nominee in order to vote at the Annual Meeting. |
Q: | How can I vote my shares without attending the Annual Meeting? |
A: | Whether you hold shares directly as a stockholder of record or beneficially owner of shares in street name, you may vote without attending the Annual Meeting. |
BY TELEPHONE OR VIA THE INTERNET—if you hold your shares directly as a stockholder of record and you have telephone or Internet access, you may submit your proxy by telephone or via the Internet as indicated on the Notice.
If your shares are registered in the name of a broker, bank or other nominee and they participate in a program provided through Broadridge Financial Solutions that offers telephone and Internet voting options, you may vote those shares by telephone or via the Internet as provided in the voter instruction card you receive from your broker, bank or other nominee at Broadridge Financial Solutions’ voting website (www.proxyvote.com).
Votes submitted by telephone or via the Internet must be received by 11:59 p.m., Eastern Time, on June 3, 2013. The telephone and Internet voting procedures are designed to authenticate stockholders’ identities, to allow stockholders to give their voting instructions and to confirm that stockholders’ instructions have been recorded properly. Stockholders voting via the Internet should understand that there may be costs associated with electronic access, such as usage charges from telephone companies and Internet access providers that must be borne by the stockholder.
BY MAIL—if you request printed proxy materials, you may submit your proxy by mail by signing your proxy card or the voter instruction card provided by your broker, bank or nominee, and mailing it in the provided pre-paid return envelope. If you provide specific voting instructions, your shares will be voted as you have instructed. Your proxy must be received by 11:59 p.m. Eastern Time on June 3, 2013.
Q: | How can I change my vote after I vote or return my proxy card? |
A: | You may revoke your proxy and change your vote at any time before the final vote at the Annual Meeting. If you are a stockholder of record, you may do this by: |
• | voting by telephone or via the Internet, either of which must be completed by 11:59 p.m. Eastern Time on June 3, 2013 (your latest telephone or Internet proxy is counted); |
• | signing and submitting a new proxy card with a later date; or |
• | attending the Annual Meeting and voting in person. |
Attending the Annual Meeting alone will not revoke your proxy unless you specifically request your proxy to be revoked. If you hold shares through a broker, bank or other nominee, you must contact that broker, bank or other nominee directly to revoke any prior voting instructions.
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Q: | Where can I find the voting results of the Annual Meeting? |
A: | The preliminary voting results will be announced at the Annual Meeting. The final voting results will be reported on a Current Report on Form 8-K, which will be filed with the SEC within four business days after the Annual Meeting. If our final voting results are not available within four business days after the Annual Meeting, we will file a Current Report on Form 8-K reporting the preliminary voting results and subsequently file the final voting results in an amendment to the Current Report on Form 8-K within four business days after the final voting results are known to us. |
Q: | Who are the proxies and what do they do? |
A: | A proxy is your legal designation of another person to vote on your behalf. Dennis Bencala, our Chief Financial Officer, was designated by our Board as the proxy holder. By voting as provided above, you are giving the proxy the authority to vote your shares in the manner you indicate when you vote by telephone, via the Internet or as indicated on your proxy card. All properly executed proxies will be voted (except to the extent that authority to vote has been withheld) and where a choice has been specified by the stockholder as provided in the proxy card, it will be voted in accordance with the instructions you indicate on the proxy card. If you submit your proxy, but do not indicate your voting instructions, your shares will be voted “FOR” Proposals One and Two. |
Unless you otherwise indicate on the proxy card, you also authorize your proxy holder to vote your shares on any matters not known by our Board at the time this Proxy Statement was printed and which, under our bylaws, may be properly presented for action at the Annual Meeting.
Q: | What does it mean if I receive more than one Notice? |
A: | You may receive more than one Notice. For example, if you hold your shares in more than one brokerage account, you may receive a separate Notice for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you will receive more than one Notice. Please follow the instructions for all Notices you receive. If you share an address with another stockholder and received only one Notice and would like to request an additional Notice, please send your request to Investor Relations, Ikanos Communications, Inc., 47669 Fremont Boulevard, Fremont, CA 94538 or to ir@ikanos.com or call us at (510) 438-5360. You may also contact us if you received multiple copies of the Notice and would prefer to receive a single copy in the future. |
Q: | What happens if additional proposals are presented at the Annual Meeting? |
A: | Other than the two proposals described in this Proxy Statement, we do not expect any additional matters to be presented for a vote at the Annual Meeting. If you grant a proxy, the proxy holders will have the discretion to vote your shares on any additional matters properly presented for a vote at the Annual Meeting. If for any unforeseen reason one or more of our nominees is not available as a candidate for director, the persons named as proxy holders will vote your proxy for such other candidate as may be nominated by our Board or the Nominating and Corporate Governance Committee. |
Q: | Who will bear the cost of soliciting votes for the Annual Meeting? |
A: | We will pay the entire cost of preparing, assembling, printing, mailing and distributing these proxy materials. In addition to any mailing of these proxy materials, the solicitation of proxies or votes may be made in person, by telephone or by electronic communication by our directors, officers and employees, who will not receive any additional compensation for such solicitation activities. We may retain the services of a third party firm to aid in the solicitation of proxies. If we do engage a third party firm, we will pay the customary costs associated with such engagement. In addition, we may reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in forwarding solicitation material to such beneficial owners. |
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DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Our stockholders may submit proposals that they believe should be voted upon at next year’s annual meeting of stockholders. Stockholders may also recommend candidates for election to our Board. See“Corporate Governance and Other Matters-Consideration of Stockholder Recommendations and Nominations.” Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the Exchange Act), some stockholder proposals may be eligible for inclusion in our 2014 proxy statement. Any such stockholder proposals must be submitted in writing to the attention of the Corporate Secretary, Ikanos Communications, Inc., 47669 Fremont Boulevard, Fremont, CA 94538, no later than December 25, 2013, which is 120 calendar days prior to the anniversary of the mailing date of this Proxy Statement. Stockholders interested in submitting such a proposal are advised to contact knowledgeable legal counsel with regard to the detailed requirements of applicable securities laws. The submission of a stockholder proposal does not guarantee that it will be included in our 2014 proxy statement.
Alternatively, under our Bylaws, a proposal or a nomination for candidates for election to our Board that the stockholder does not seek to include in our 2014 proxy statement pursuant to Rule 14a-8 of the Exchange Act may be submitted in writing to the Corporate Secretary, Ikanos Communications, Inc., 47669 Fremont Boulevard, Fremont, CA 94538, no later than January 24, 2014 for the 2014 annual meeting of stockholders, which is 90 calendar days prior to the anniversary of the mailing date of this Proxy Statement; provided, however, that in the event that no annual meeting was held in the previous year or the mailing date of the annual meeting has been changed by more than 30 days from the date of the prior year’s annual meeting, notice by the stockholder must be received not later than the close of business on the tenth day following the day notice of the date of the Annual Meeting was mailed or public disclosure was made, whichever occurs first.
As described in our Bylaws, the stockholder notice must set forth the following: a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; the name and address, as they appear on our books, of the stockholder proposing such business; the class and number of our shares that are beneficially owned by the stockholder; any material interest of the stockholder in such business; and any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Exchange Act, in such stockholder’s capacity as a proponent to a stockholder proposal. If a stockholder gives notice of such a proposal after the deadline computed in accordance with our Bylaws, the stockholder will not be permitted to present the proposal to our stockholders for a vote at the 2014 annual meeting. In addition to the notice above, when seeking to include a nomination, the stockholder must also include: the name, age, business address and residence address of the nominee; the principal occupation or employment of the nominee; the class and number of shares of the corporation that are beneficially owned by the nominee; a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder; and any other information relating to such person that is required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including without limitation such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected).
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Board Independence
Our Board is the ultimate decision-making body for Ikanos, except with respect to those matters reserved for the approval of stockholders. In 2012 our Board has reviewed the independence of each director and director nominee, and concluded that, other than Omid Tahernia, current directors Diosdado Banatao, Danial Faizullabhoy, Frederick Lax, R. Douglas Norby, George Pavlov, and James Smaha have had no material relationship with Ikanos or any of its subsidiaries or affiliates and, therefore, are independent under the listing rules of the NASDAQ Stock Market (the NASDAQ Rules). Effective April 1, 2013, Mr. Norby resigned from our Board.
Effective August 24, 2009, pursuant to the Securities Purchase Agreement dated April 21, 2009, by and among us, Tallwood III, L.P., a Delaware limited partnership, Tallwood III Partners, L.P., a Delaware limited partnership, Tallwood III Associates, L.P., a Delaware limited partnership, and Tallwood III Annex, L.P., a Delaware limited partnership (collectively, the Tallwood Investors or Tallwood), and the terms of our Certificate of Designation of Series A Preferred Stock (Certificate of Designation), the Tallwood Investors appointed to our Board Mr. George Pavlov as a Class I director, Mr. James Smaha as a Class II director, and Mr. Diosdado Banatao as a Class III director.
Our Board has determined that all directors serving as members of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee are independent under the NASDAQ Rules and the rules of the SEC.
Consideration of Stockholder Recommendations and Nominations
The Nominating and Corporate Governance Committee of our Board will consider both recommendations and nominations from stockholders for candidates to our Board. A stockholder who desires to nominate a candidate for election to our Board shall direct the nomination in writing to the Corporate Secretary, Ikanos Communications, Inc., 47669 Fremont Boulevard, Fremont, CA 94538, and shall follow the rules set forth by the SEC and meet the deadlines and other requirements set forth in our Bylaws. See “Deadline for Receipt of Stockholder Proposals” above. For a stockholder recommendation to be considered by the Nominating and Corporate Governance Committee as a potential candidate at an annual meeting, recommendations for nominations must be received on or before the deadline for receipt of stockholder proposals. See“Deadline for Receipt of Stockholder Proposals.” A recommendation or nomination must also include a statement from the recommending or nominating stockholder in support of the candidate, particularly within the context of the criteria for Board membership, including issues of character, integrity, judgment, diversity of experience, independence, area of expertise, corporate experience, potential conflicts of interest, other commitments and personal references.
Identifying and Evaluating Nominees for Director
The Nominating and Corporate Governance Committee uses the following procedures to identify and evaluate any individual recommended or offered for nomination to our Board:
• | The Nominating and Corporate Governance Committee will consider candidates recommended by stockholders in the same manner as candidates recommended to the Nominating and Corporate Governance Committee from other sources. |
• | In its evaluation of director candidates, including the members of our Board eligible for re-election, the Nominating and Corporate Governance Committee will consider the following: |
¡ | The current size and composition of our Board and the needs of our Board, including the committees of our Board; |
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¡ | Such factors as character, integrity, judgment, diversity of experience, diversity of personal background that may enable a candidate to offer unique perspectives relevant to our business, independence, area of expertise, corporate experience, potential conflicts of interest, other commitments and the like, and length of service with respect to candidates eligible for re-election. The Nominating and Corporate Governance Committee evaluates these factors, among others, and does not assign any particular weighting or priority to any of these factors; and |
¡ | Other factors that the Nominating and Corporate Governance Committee may consider appropriate. |
• | The Nominating and Corporate Governance Committee requires the following minimum qualifications to be satisfied by any nominee for a position on our Board: |
¡ | The highest personal and professional ethics and integrity; |
¡ | Proven achievement and competence in the nominee’s field and the ability to exercise sound business judgment; |
¡ | Skills that are complementary to those of the existing Board members; |
¡ | The ability to assist and support management and make significant contributions to our success; and |
¡ | An understanding of the fiduciary responsibilities that are required of a member of our Board and the commitment of time and energy necessary to diligently carry out those responsibilities. |
• | If the Nominating and Corporate Governance Committee determines that an additional or replacement director is required, the Nominating and Corporate Governance Committee may take such measures that it considers appropriate in connection with its evaluation of a director candidate, including candidate interviews, inquiry of the person or persons making the recommendation or nomination, engagement of an outside search firm to gather additional information, or reliance on the knowledge of the members of the Nominating and Corporate Governance Committee, our Board or management. |
• | The Nominating and Corporate Governance Committee may propose to our Board a candidate recommended or offered for nomination by a stockholder as a nominee for election to our Board. |
Stockholder Communication with our Board of Directors
As our stockholder, you may contact any of our directors by writing to them by certified mail to the Board of Directors, c/o Ikanos Communications, Inc., 47669 Fremont Boulevard, Fremont, CA 94538. Any stockholder communication directed to our Board (other than concerns regarding questionable accounting or auditing matters, which will be directed directly to the Audit Committee) will first go to the Corporate Secretary, who will log the date of receipt of the communication as well as (for non-confidential communications) the identity of the correspondent in our stockholder communications log.
Unless the communication is marked “confidential,” the Corporate Secretary will review, summarize and, if appropriate, draft a response to the communication, and forward a copy of the stockholder communication and draft response to the chairperson of the Nominating and Corporate Governance Committee. The summary and response will become part of the stockholder communications log maintained with respect to all stockholder communications. Any stockholder communication marked “confidential” will be logged as “received” but will not be reviewed by the Corporate Secretary. Such confidential correspondence will be immediately forwarded to the chairperson of the Nominating and Corporate Governance Committee for appropriate action.
At least quarterly, or more frequently as may be appropriate, the Nominating and Corporate Governance Committee will forward copies of all such original stockholder communications along with the related memos and responses to our Board for review.
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Code of Business Conduct and Ethics
We have a Code of Business Conduct and Ethics applicable to all our employees. Our Code of Business Conduct and Ethics is available at our investor relations website at http://www.ikanos.com/investor/governance/. The information on our website does not form any part of this report. Any waiver or amendment to our Code of Business Conduct and Ethics that applies to our Chief Executive Officer or Chief Financial Officer and other officers providing financial information will be disclosed on our website at www.ikanos.com or in a Current Report on Form 8-K filed with the SEC. Currently, there are no waivers or amendments.
Board Leadership Structure
Our Board has determined that having a non-management, independent director serve as Chairman of the Board is in the best interest of our stockholders at this time. The structure ensures a greater role for the independent directors in the oversight of our company, including the oversight of risks, and active participation of the independent directors in setting agendas and establishing priorities and procedures for our Board. An independent Chairman of the Board allows our Board to have an independent perspective, which works in tandem with the viewpoint of our Chief Executive Officer, to provide robust review of our business and strategies. The Chairman of the Board has the following responsibilities:
• | presiding over all meetings of our Board; |
• | preparing the agenda for Board meetings in consultation with the Chief Executive Officer and other members of our Board; |
• | calling and presiding over meetings of the independent directors; and |
• | working with the Chairman of the Nominating and Corporate Governance Committee to oversee our Board’s process for annual director self-assessment and evaluation of our Board and of the Chief Executive Officer. |
Attendance by Board Members at the Annual Meeting of Stockholders
We do not have a policy regarding director attendance at the Annual Meeting of Stockholders; however, our Board is encouraged to attend the Annual Meeting. All directors serving on our Board at the time of our 2012 Annual Meeting of Stockholders attended our 2012 Annual Meeting of Stockholders.
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ELECTION OF DIRECTORS
General
We currently have authorized seven directors and our Board currently consists of six members. Our Board is divided into three classes, each composed of two directors. The directors in each class serve a three-year term. The terms of each class expire at successive annual meetings so that the stockholders elect one class of directors at each annual meeting.
The current composition of our Board is as follows:
Class II Directors (term expiring at this Annual Meeting) | Danial Faizullabhoy James Smaha | |
Class III Directors (serving until 2014 Annual Meeting) | Diosdado Banatao Omid Tahernia | |
Class I Directors (serving until 2015 Annual Meeting) | Frederick Lax George Pavlov |
Our directors hold office until their successors have been elected or qualified or until the earlier of their death, resignation, disqualification or removal. There are no family relationships among any of our directors and executive officers. All of the directors are incumbent directors. Unless otherwise instructed, the holders of proxies solicited by this Proxy Statement will vote the proxies received by them “FOR” the Class II nominee, Mr. Faizullabhoy. In the event that a nominee is unable or declines to serve as director at the time of the Annual Meeting, the proxy holders will vote for a nominee designated by our present Board to fill the vacancy. We are not aware of any reason that Mr. Faizullabhoy will be unable or will decline to serve as director. Our Board recommends a vote “FOR” the election of Mr. Faizullabhoy as a Class II director.
The other nominee for Class II director, Mr. Smaha, will be elected by the Tallwood Investors pursuant to the terms of our Certificate of Designation (the Tallwood Nominee). One of the Tallwood Investors, Tallwood III Partners, L.P., controls the single outstanding voting share of our Series A Preferred (the Voting Share). As the holder of the Voting Share, Tallwood III Partners L.P., along with the other Tallwood Investors, has the right to elect three members out of seven members to our Board while the Tallwood Investors hold at least 35% of our outstanding common stock. If at any time the Tallwood Investors’ ownership in our common stock falls below 35%, they will promptly notify us, the number of directors the Tallwood Investors are entitled to elect to our Board will be reduced proportionally, and if required under the terms of the Certificate of Designation, one or more Tallwood-elected directors will resign. The Tallwood Investors re-elected George Pavlov to our Board in June 2012 and re-elected Mr. Banatao to our Board in June 2011. Mr. Smaha’s term expires at this Annual Meeting, and the Tallwood Investors have informed us that Mr. Smaha is the Tallwood Nominee and that they intend to re-elect Mr. Smaha as a Class II director.
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Directors’ Principal Occupation, Business Experience, Qualifications, and Directorships
The names of the members of our Board, including the Class II nominees, their ages as of April 15, 2013 and certain other information about them including any legal or administrative proceedings, if applicable, are set forth below.
Diosdado Banatao | Age: 67 |
Director Since: August 2009 |
Chairman of the Board |
Committee: Member of the Strategic Committee |
Principal Occupation: Founder and Managing Partner of Tallwood Venture Capital (Tallwood) since July 2000. From April 2010 to July 2010 and from June 2011 to June 2012, Mr. Banatao served as our Interim President & CEO. From April 2008 to June 2009, Mr. Banatao served as Interim Chief Executive Officer of SiRF Technology Holdings, Inc., a publicly-traded company that was acquired by CSR plc in June 2009 (SiRF). From October 2006 to August 2007, Mr. Banatao served as Interim President and Chief Executive Officer of Inphi Corporation. Prior to forming Tallwood, Mr. Banatao was a venture partner at the Mayfield Fund, a venture capital firm, from January 1998 to May 2000. Mr. Banatao co-founded three technology startups: S3 Graphics Ltd in 1989, Chips & Technologies, Inc. in 1985 and Mostron in 1984. |
Education: B.S.E.E. from the Mapua Institute of Technology in the Philippines and an M.S. in Electrical Engineering from Stanford University. |
Board Member: Mr. Banatao has served as Chairman of the Board of Inphi Corporation since December 2000. Mr. Banatao served on the board of directors of CSR plc, a public company traded on the London Stock Exchange, from July 2009 to October 2010, and SiRF prior to its acquisition by CSR plc, from February 1995 to June 2009, and Sequoia Communications from March 2003 to September 2009. Mr. Banatao also serves on the boards of directors of Alphion Corporation, Pixim Inc., Quintic Corporation, T-RAM Semiconductor, Inc., Wave Semiconductor and Wilocity Ltd., each a private company. |
Mr. Banatao’s background as an engineer, as well as a senior manager of, board member of, and investor in numerous semiconductor companies provides a diversity of experience for his service on our Board. The companies with which he has been involved range from start-up companies to very large public corporations. Mr. Banatao was appointed to our Board by the Tallwood Investors and serves at their discretion. |
Danial Faizullabhoy* | Age: 51 |
Director Since: July 2001 |
Committees: Member of the Audit Committee and the Compensation Committee and Chair of the Nominating and Corporate Governance Committee |
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Principal Occupation: Since January 2013, Mr. Faizullabhoy has worked as an independent consultant providing operational, financial and strategic advice. From July 2006 thru December 2012, he served as President and Chief Executive Officer of BroadLogic Network Technologies, Inc., a video-processing mixed signal semiconductor design and supply company. |
From July 1998 to July 2006, Mr. Faizullabhoy held various positions at Walden International Investment Group, a venture capital firm, including Venture Consultant, Venture Partner and Managing Director. From 1986 to 1998, Mr. Faizullabhoy held various positions at Adaptec Inc., including Applications Engineer, Product/Marketing Manager, and Vice President and General Manager of its Target and Optical peripheral solutions group. Prior to that, Mr. Faizullabhoy was a design engineer at Production Automation. |
Education: B.S.E.E. from Norwich University and a M.B.A. from Santa Clara University. |
Board Member: Currently a member of the Board of Trustees of Norwich University, a non-profit organization. Mr. Faizullabhoy also served on the board of directors of the following private companies: BroadLogic Network Technologies 1999 thru 2012, Matisse Networks, Inc. from May 2001 to April 2007, Sierra Atlantic, Inc. from July 1999 to April 2007 and Airtight Networks, Inc. from March 2004 to April 2007. |
Mr. Faizullabhoy brings an important breadth of perspective and experience to our Board, based upon his exposure to numerous technology companies through his role at Walden International Investment Group. In addition, his operational and financial experience as Chief Executive Officer of BroadLogic Network Technologies, Inc. enables him to provide us with insights related to the communications semiconductor industry. |
Frederick M. Lax | Age: 60 |
Director Since: January 2008 |
Committees: Chair of the Audit Committee and member of the Compensation and Nominating and Corporate Governance Committees |
Principal Occupation: Since 2006, Mr. Lax has worked as an independent communications executive advisor. From February 2001 to January 2006, Mr. Lax was employed by Tekelec Inc., a developer of next-generation switching and signaling telecommunications and network performance management technology, serving initially as its Chief Operating Officer and subsequently as President and Chief Executive Officer. Prior to his tenure at Tekelec, Mr. Lax held a number of senior executive positions within Bell Laboratories which was part of AT&T, Inc. from June 1974 to September 1996 and Lucent Technologies from September 1996 to January 2001. Prior to his tenure at Tekelec, Mr. Lax held a number of senior executive positions at Bell Laboratories, AT&T, and Lucent Technologies. |
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Education: B.S.E.E. from the University of Notre Dame and a M.S. in Electrical Engineering and Computer Science from the Massachusetts Institute of Technology. |
Board Member: Tekelec Inc., a public company, from February 2003 to January 2006. Chairman of the Board at Argent Networks, Ltd., a private company, from April 2006 to February 2008. |
Mr. Lax has a long tenure in the communications systems business, including service at certain of our current customers. His insights as a former senior executive and current independent communications executive advisor enable Mr. Lax to provide guidance to our management on a wide variety of governance, strategic and operations matters. |
George Pavlov | Age: 52 |
Director Since: August 2009 |
Committee: Chair of the Compensation Committee |
Principal Occupation: Since 2002, Mr. Pavlov has been General Partner of Tallwood. Prior to joining Tallwood, Mr. Pavlov was Chief Executive Officer of eTime Capital from April 2000 to July 2001 and a General Partner and Chief Financial Officer of Mayfield, a venture capital fund, from April 1996 to April 2000. Before the Mayfield fund, Mr. Pavlov was the Chief Financial Officer and Managing Director of Blum Capital Partners from May 1991 to April 1996 and he held several financial and sales management positions at NeXT Computer, Inc. from April 1987 to May 1991. |
Education: B.S. in Accounting from Boston College. |
Board Member: Alphion Corporation from May 2008 to the present, Amulaire Thermal Technology Inc. from July 2005 to January 2013, Chairman of the Board of Astute Networks Inc. from November 2005 to the present, Audience Inc. from December 2003 to the present, Calypto Design Systems Inc. from December 2002 to the present, Chairman of the Board of Crossing Automation Inc. from September 2005 to November 2012, Quintic Corporation from September 2006 to the present, and SVTC Technologies from March 2007 to January 2012, each a private company. |
With an extensive career as a finance and operations executive, Mr. Pavlov brings to our Board executive leadership, finance, operations and technology industry experience. In addition, with his experience as a director for several companies, he has extensive corporate governance experience. Mr. Pavlov was appointed to our Board by the Tallwood Investors and serves at their discretion. |
James Smaha** | Age: 77 |
Director Since: April 2010 |
Committees: Member of the Audit Committee and Compensation Committee |
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Principal Occupation: Mr. Smaha’s experience includes over 30 years in the semiconductor industry, including service as President and Executive Vice President of the Semiconductor Group of National Semiconductor Corporation as well as other senior roles at National Semiconductor Corporation from March 1974 to March 1989. Upon retiring in 1989, Mr. Smaha served as an independent consultant, including with S3 Graphics Ltd. and interWAVE Communications International Ltd., a communications company. |
Education: B.A. in mathematics from the University of Maine. |
Board Member: SiRF from October 2000 to June 2009. |
Mr. Smaha brings to our Board the insights of a lengthy career as an engineer and senior executive in large semiconductor companies. Mr. Smaha was appointed to our Board by the Tallwood Investors and serves at their discretion. |
Omid Tahernia | Age: 52 |
Director Since: June 2012 |
Principal Occupation: Since June 2012 Mr. Tahernia has served as our President, Chief Executive Officer and a member of our Board. Prior to joining Ikanos Mr. Tahernia served as President and Chief Executive Officer of Tilera Corporation from October 2007 to October 2011. Mr. Tahernia was with Xilinx first as Vice President and General Manager of the DSP Division from July 2004 to June 2006 and later as Vice President and General Manager of the Processing Solutions Group from June 2006 to September 2007. Mr. Tahernia served as Vice President and Director of Strategy and Business Development of the Motorola, Inc. Semiconductor Group from June 2003 to July 2004 and Vice President and General Manager of the Wireless & Mobile Systems Division from December 1998 until June 2003. |
Education: B.S.E.E. from Virginia Polytechnic Institute & State University, and an M.S.E.E. from Georgia Institute of Technology. |
As our President and Chief Executive Officer, Mr. Tahernia brings to our Board extensive leadership and industry experience, as well as an understanding of our business, research and development activities, operations, employees, risks and management’s current and future plans and strategies. |
* | Denotes nominee for election by the stockholders at the Annual Meeting. |
** | Denotes nominee for election by the Tallwood Investors at the Annual Meeting. |
Board Meetings
Our Board held 11 meetings in fiscal year 2012. During fiscal year 2012, all directors attended at least 75% of the aggregate of the total number of meetings of our Board (held during the period for which he was a director) and the total number of meetings held by all committees of our Board on which such director served (held during the period that such director served). Generally, our non-management directors met without management present each time the full Board convened for a regularly scheduled meeting.
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Board Committees
Our Board currently has a standing Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee and Strategic Committee. Each committee, other than the Strategic Committee, has a written charter that has been approved by our Board or a committee thereof, copies of which can either be viewed at the investor relations section of our website at http://www.ikanos.com/investor/governance/ or may be obtained from us upon request. The table below shows current membership for each of the standing committees of our Board.
Audit Committee | Compensation Committee | Nominating & Corporate Governance Committee | Strategic Committee | |||||
Diosdado Banatao | — | — | — | Member | ||||
Danial Faizullabhoy | Member | Member | Chair | — | ||||
Frederick Lax | Chair | Member | Member | — | ||||
R. Douglas Norby (1) | — | — | Member | — | ||||
George Pavlov | — | Chair | — | — | ||||
James Smaha | Member | Member | — | — |
(1) | Effective April 1, 2013, Mr. Norby resigned from our Board. |
Audit Committee. The Audit Committee is responsible for the oversight of our accounting, reporting and internal financial control structure. Among other functions, the Audit Committee is responsible for:
• | Overseeing and monitoring our accounting, financial reporting processes, audits and the integrity of our financial statements; |
• | Selecting, engaging and overseeing the work of our independent registered public accounting firm (independent auditors) and reviewing the adequacy of our system of overseeing the independent auditors’ qualifications, independence and performance; |
• | Assisting our Board in the oversight and monitoring of our compliance with legal and regulatory requirements; |
• | Reviewing our internal accounting and internal financial control structure; and |
• | Reviewing our audited financial statements and internal management reports and discussing the statements and reports with management and our independent auditors, including any significant adjustments, management judgments and estimates, new accounting policies and independent auditors’ disagreements with management. |
Mr. Lax, Chair, joined the committee in March 2008, Mr. Faizullabhoy joined the committee in November 2009, Mr. Smaha joined the committee in July 2010 and Mr. Norby joined the committee in January 2011 as a member and Chair. Mr. Norby resigned from the Audit Committee in December 2012.
Our Board has determined that each of the members of the Audit Committee is “independent,” as defined under and required by the NASDAQ Rules and Rule 10A-3(b)(1) under the Exchange Act. Frederick M. Lax was appointed Chair of the Audit Committee in December 2012 when Mr. Norby resigned from the Audit Committee. Our Board has determined that Mr. Lax qualifies as an “Audit Committee financial expert” under the federal securities laws and has the “financial sophistication” required under the NASDAQ Rules.
The Audit Committee held 9 meetings in fiscal year 2012.
Compensation Committee. The Compensation Committee is primarily responsible for reviewing and approving general compensation policies, the compensation, benefits, corporate goals and objectives of our Chief Executive Officer and our other executive officers, evaluating the performance of our key executive officers, administering our employee benefit plans and making recommendations to our Board regarding these matters.
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The Compensation Committee has the sole authority to retain and terminate any compensation consultant to be used by Ikanos to assist in the evaluation of the compensation of our Chief Executive Officer or other executive officers and has the sole authority to approve the consultant’s fees and other retention terms. The Compensation Committee also has authority to obtain advice and assistance from internal or external legal, accounting or other advisors. Our executive officers’ role in determining executive compensation is limited to recommendations made by our Chief Executive Officer to the Committee when they make compensation decisions; provided, however, our Chief Executive Officer does not participate in the Compensation Committee’s review and setting of his compensation. From time to time, our Chief Executive Officer and Vice President of Human Resources attend Compensation Committee meetings.
Mr. Pavlov, Chair, joined the committee in August 2009, Mr. Faizullabhoy joined the committee in September 2001, Mr. Lax joined the committee in March 2008 and Mr. Smaha joined the committee in January 2011.
The Compensation Committee held 17 meetings in fiscal year 2012.
Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee identifies, evaluates and recommends, or selects, nominees for our Board and its committees, including reviewing director candidates recommended by our stockholders, conducts searches for appropriate directors, and evaluates the performance of our Board and of individual directors. The Nominating and Corporate Governance Committee is also responsible for reviewing developments in corporate governance, evaluating the adequacy of our corporate governance practices, reporting and making recommendations to our Board and management concerning corporate governance matters and reviewing any related party transactions.
Mr. Faizullabhoy, Chair, joined the committee in August 2005, Mr. Lax joined the committee in May 2008 and Mr. Norby joined the committee in January 2011. Mr. Norby resigned from the committee effective April 1, 2013.
The Nominating and Corporate Governance Committee held 7 meetings in fiscal year 2012.
Strategic Committee. The Strategic Committee provides guidance to management regarding potential strategic transactions that we evaluate from time to time. Such strategic transactions include, for example, the acquisition of DSL assets from Centillium Communications announced in January 2008 and the acquisition of the Broadband Access product line from Conexant Systems, Inc. in August 2009 (the BBA Acquisition). During 2012, the Strategic Committee included Mr. Banatao.
Mr. Banatao joined the Strategic Committee in August 2009.
The Strategic Committee held no meeting in fiscal year 2012. The Strategic Committee does not meet regularly and has no formal charter.
The Board of Director’s Role in Risk Oversight
One of our Board’s functions is oversight of risk management at Ikanos. Risk is inherent in business, and our Board in conjunction with the committees seeks to understand and advise management on the appropriate level of risk the business should undertake.
Defining Risk. Our Board and management consider “risk” to be the possibility that an undesirable event could occur that results in a negative outcome or otherwise interferes with the successful accomplishment of a corporate objective. Risks vary in type and magnitude, and often can be obscured by the complexity of a particular business activity. Therefore, our Board and management may not be able to foresee or understand a particular risk to accurately assess the likelihood or magnitude of the potential consequences if the undesirable event actually occurs.
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Assessing General Financial Risk. The Audit Committee is responsible for oversight of our risks relating to accounting matters, financial reporting and legal and regulatory compliance. To satisfy these oversight responsibilities, the Audit Committee meets at regularly scheduled meetings with our Chief Financial Officer, legal counsel for legal and regulatory compliance, and other members of management, and separately in executive sessions with our independent auditors, to discuss and review our financial statements, internal controls, and auditing, accounting and financial reporting processes, and the adequacy of the resources devoted to these functions. In addition, the Audit Committee chairman regularly meets between formal Audit Committee meetings with our independent auditors and from time to time with our Chief Financial Officer. The Audit Committee also receives regular reports at Audit Committee meetings regarding issues such as the status and findings of audits being conducted by the independent auditors, accounting changes that could affect our financial statements and proposed audit adjustments, if any.
Assessing Compensation-Related Risk. Consistent with SEC disclosure requirements, we have assessed our compensation programs and have concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on us. The Compensation Committee and our management assessed the executive and broad-based compensation and benefits programs on a worldwide basis to determine if the programs’ provisions and operations create undesired or unintentional risk of a material nature. This risk assessment process included a review of program policies and practices, program analysis to identify risk and risk control related to the programs, and determinations as to the sufficiency of risk identification. Although we reviewed all compensation programs, we focused on the programs with variability of payout, with the ability of a participant to directly affect payout and the controls on participant action and payout. Our compensation philosophy supports the use of base salary and, where appropriate, performance-based compensation. In all cases, the compensation policies and practices are centrally designed and administered. Field sales personnel are paid substantially on a performance basis, consisting of sales commissions and performance objectives.
Based on the foregoing, we believe that our compensation policies and practices do not create inappropriate or unintended significant risk to Ikanos as a whole. We also believe that our incentive compensation arrangements provide incentives that do not encourage risk-taking beyond our ability to effectively identify and manage significant risks, are compatible with our effective internal controls and the risk management practices and are supported by the oversight and administration of the Compensation Committee with regard to executive compensation programs.
Director Compensation
Our Board determines compensation for our non-employee directors. We use a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on our Board. In 2012, during his tenure as our Executive Chairman and Interim President and Chief Executive Officer, Mr. Banatao received compensation as a non-employee director and did not receive any additional compensation as Interim President and Chief Executive Officer.
Cash Compensation
During 2012 our non-employee directors received an annual retainer of $35,000, which includes 10 qualifying meetings. Our non-employee directors also received, for each additional meeting, $1,500 per in-person meeting and $750 per telephonic meeting. An in-person meeting counted as one qualifying meeting and a telephonic meeting counted as one half of a qualifying meeting. Our non-employee Chairman of the Board also received an annual retainer of $12,000. The members of the Audit Committee received an additional annual retainer of $12,000, which included up to eight qualifying meetings. The members of the Compensation Committee received an additional annual retainer of $5,000, which included up to six qualifying meetings. The members of the Nominating and Corporate Governance Committee received an additional annual retainer of $5,000 and included up to four qualifying meetings. In addition, the committee chairs received an additional annual retainer as follows: $8,000 to the Audit Committee chair, $6,000 to the Compensation Committee chair
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and $4,000 to the Nominating and Corporate Governance Committee chair. For each additional qualifying meeting, each committee member received an additional $1,000 per in-person committee meeting and $500 per telephonic meeting.
Our Board reviews its compensation policy on a regular basis or when market or business conditions warrant a review. The cash compensation amounts paid to our non-employee directors in 2012 were approved by our Board in December 2009. No adjustment to its compensation was made during fiscal year 2010 or 2011.
Based in part on data from Compensia regarding the benchmarking of director compensation, the Nominating and Corporate Governance Committee recommended and our Board approved the following cash compensation fees for Board of Directors and Committee services, effective January 1, 2013:
• | Annual Board retainer remained $35,000; |
• | Annual Audit Committee chair retainer was increased from $20,000 to $20,500; |
• | Annual Audit Committee non-chair retainer was decreased from $12,000 to $10,000; |
• | Annual Nominating and Corporate Governance Committee chair retainer was increased from $9,000 to $9,500; |
• | Annual Nominating and Corporate Governance Committee non-chair retainer was decreased from $5,000 to $3,500; |
• | Annual Compensation Committee chair retainer remained $11,000; |
• | Annual Compensation Committee non-chair retainer remained $5,000; and |
• | Per meeting fees remained $1,500 per in-person Board Meeting, $750 per telephonic Board meeting, $1,000 per in-person committee meeting and $500 per telephonic meeting. |
Stock Option Program
Our Amended and Restated 2004 Equity Incentive Plan provides for the automatic grant of options to our non-employee directors. During 2012 each new non-employee director appointed or elected to our Board received an option to purchase 45,000 shares upon such appointment or election, except for those directors who become non-employee directors by ceasing to be employee directors. This first option grant vested at the rate of one-third on the one year anniversary of the vesting commencement date, and 1/12th of the remaining shares each quarter thereafter on the same day of the month as the vesting commencement date, subject to the director continuing to serve as a director on each vesting date. In addition, non-employee directors received a subsequent option grant immediately following each annual meeting of our stockholders as follows: 10,000 shares if such director has served on our Board for at least one year as of the date of grant; 15,000 shares if such director has served on our Board for at least two years as of the date of grant; 20,000 shares if such director has served on our Board for at least three years as of the date of grant; and 25,000 shares if such director has served on our Board for at least four years as of the date of grant. The subsequent option grants vest as to 1/12th of the shares each month following the date of grant, subject to the director’s continuing to serve as a director on each vesting date.
In 2009, when our Board last reviewed our non-employee director compensation, the revised total non-employee director compensation delivered more compensation than our previous Board compensation package but remained below the 50th percentile for a peer group against which our Board compensation was measured, and equity value delivered was between the 10th and 25th percentiles. Including service on the various Board committees, our total non-employee director compensation rose from under the 10th percentile to just above the 10th percentile.
Based in part on data from Compensia regarding the benchmarking of director compensation, the Nominating and Corporate Governance Committee recommend and our Board amended and restated the 2004 Plan to provide the following annual equity compensation for Board of Director services, effective January 1, 2013:
• | Initial award granted upon appointment to our Board, remained an option to purchase 45,000 shares; and |
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• | Annual award of options and restricted stock awards as follows: |
o | For one year of service, the annual equity award was revised from 10,000 options to 8,500 options and a restricted stock award of 3,000 shares; |
o | For two years of service, the annual equity award was revised from 15,000 options to 12,500 options and a restricted stock award of 4,000 shares; and |
o | For three or more years of service, the annual equity award was revised from 25,000 options to 19,500 options and a restricted stock award of 7,000 shares with immediate vesting. |
The subsequent option grants vest as to 1/12th of the shares each month following the date of grant, subject to the director’s continuing to serve as a director on each vesting date. The restricted stock award will vest immediately on date of grant.
Each of the options to purchase shares of common stock granted to our non-employee directors is subject to acceleration of vesting upon a change of control pursuant to the provisions of each respective Stock Option Agreement by and between Ikanos and each of our non-employee directors. Pursuant to these provisions, all of the unvested stock options held by each of our non-employee directors will automatically vest in full and become exercisable upon a change of control. Generally, pursuant to these provisions, a change of control means the occurrence of any of the following events:
• | if any person is or becomes the beneficial owner, directly or indirectly, of our securities representing 50% or more of the total voting power represented by our then outstanding voting securities; or |
• | a change in the composition of our Board as a result of which fewer than a majority of the directors are incumbent directors; or |
• | our stockholders approve a merger or consolidation of Ikanos with any other entity, other than a merger or consolidation that would result in our voting securities outstanding immediately prior thereto continuing to represent at least fifty percent (50%) of the total voting power represented by our voting securities or such surviving entity or such surviving entity’s parent outstanding immediately after such merger or consolidation, or our stockholders approve a plan of complete liquidation of Ikanos or an agreement for the sale or disposition by us of all or substantially all of our assets. |
In addition, in October 2012, based on the recommendation of the Nominating and Corporate Governance Committee, our Board granted a one-time discretionary restricted stock award to each non-employee member of the Board of Directors. Under the terms of the Non-Employee Director Restricted Stock Agreement, each non-employee received 9,000 shares which were fully vested on the effective date of grant, October 31, 2012. The market value of the stock on the date of grant was $1.39 per share.
The table below summarizes the compensation paid by us to our non-employee directors for the fiscal year ended December 30, 2012, including all payments paid to Mr. Banatao, who served as Executive Chairman and Interim President and Chief Executive Officer until June 2012, for all services he rendered during the fiscal year.
Director Compensation for Fiscal Year Ended December 30, 2012
Name | Fees Earned or Paid in Cash | Stock Awards (1) | Options Awards (1)(2) | Total | ||||||||||||
Diosdado Banatao | $ | 47,000 | $ | 12,510 | $ | 5,228 | $ | 64,738 | ||||||||
Danial Faizullabhoy | $ | 65,000 | $ | 12,510 | $ | 8,713 | $ | 86,223 | ||||||||
Frederick Lax | $ | 61,000 | $ | 12,510 | $ | 8,713 | $ | 82,223 | ||||||||
R. Douglas Norby | $ | 60,000 | $ | 12,510 | $ | 3,485 | $ | 75,995 | ||||||||
George Pavlov | $ | 49,500 | $ | 12,510 | $ | 5,228 | $ | 67,238 | ||||||||
James Smaha | $ | 56,000 | $ | 12,510 | $ | 5,228 | $ | 73,738 |
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(1) | In accordance with SEC rules, these columns represent the value of the stock awards based on the fair value of the stock and the value of the option awards based on the fair value of the options as of the grant date calculated in accordance with Accounting Standards Codification 718, Stock Compensation (ASC 718). The calculation for Option Awards excludes any estimate of future forfeitures. See Note 12 of the Notes to Consolidated Financial Statements in Item 8 in our Annual Report on Form 10-K for the fiscal year ended December 30, 2012, for the assumptions made in determining ASC 718 values. Regardless of the value on the grant date, the actual value that may be recognized by the directors will depend on the market value of our common stock on a date in the future when an option is exercised. |
(2) | The following table lists all outstanding options and restricted stock held by our non-employee directors as of December 30, 2012: |
Director | Options | Restricted Stock | Total | |||||||||
Diosdado Banatao | 70,000 | 9,000 | 79,000 | |||||||||
Danial Faizullabhoy | 206,000 | 9,000 | 215,000 | |||||||||
Frederick Lax | 135,000 | 9,000 | 144,000 | |||||||||
R. Douglas Norby | 55,000 | 9,000 | 64,000 | |||||||||
George Pavlov | 70,000 | 9,000 | 79,000 | |||||||||
James Smaha | 70,000 | 9,000 | 79,000 |
Vote Required
With the exception of Mr. Smaha who is the Tallwood Nominee, Mr. Faizullabhoy shall be elected by a plurality vote. The Class II director nominee, other than Tallwood Nominee, who receives the highest number of affirmative votes of the shares entitled to be voted, shall be elected as director. The holder of the Voting Share shall elect the Tallwood Nominee as a director. Votes against, abstentions and broker non-votes have no legal effect on the election of directors due to the fact that such election is by a plurality. If you own shares through a bank, broker or other holder of record, you must instruct your bank, broker or other holder of record how to vote in order for them to vote your shares so that your vote can be counted on this proposal. Unless marked to the contrary, proxies received from stockholders of record will be voted “FOR” approval.
Board Recommendation
OUR BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE PROPOSED NOMINEE FOR CLASS II DIRECTOR.
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RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee has appointed PricewaterhouseCoopers LLP as our independent registered public accounting firm (Independent Auditors) for the fiscal year ending December 29, 2013.
Stockholder ratification of the selection of PricewaterhouseCoopers LLP as our Independent Auditors is not required by our Bylaws or other applicable legal requirement. However, our Board considers submitting the selection of PricewaterhouseCoopers LLP to our stockholders for ratification to be a matter of good corporate practice. If our stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to continue to retain that firm. Even if the selection is ratified, the Audit Committee at its discretion may direct the appointment of different independent auditors at any time during the year if it determines that such a change would be in our best interests and the best interests of our stockholders.
PricewaterhouseCoopers LLP was originally appointed as our Independent Auditors to perform the annual audit of our financial statements for the fiscal year ended December 31, 2001. A representative of PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting. He will have an opportunity to make a statement, if he desires to do so, and is expected to be available to respond to appropriate questions from our stockholders.
Audit and Non-Audit Fees
The following table sets forth fees for services PricewaterhouseCoopers LLP provided during fiscal years 2012 and 2011:
2012 | 2011 | |||||||
Audit fees (1) | $ | 1,156,000 | $ | 958,000 | ||||
Audit-related fees | — | — | ||||||
Tax fees (2) | 64,000 | 105,000 | ||||||
All other fees | — | — | ||||||
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Total | $ | 1,220,000 | $ | 1,063,000 | ||||
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(1) | Represents fees for professional services provided in connection with the audit of our annual financial statements and review of our quarterly financial statements, audit of the effectiveness of our internal control over financial reporting and review of documents provided in connection with other statutory or regulatory filings. The audit fees for fiscal years 2012 and 2011 represent the amount billed or expected to be billed to us as of the date of this Proxy Statement. |
(2) | Represents statutory tax compliance and transfer pricing services. |
The Audit Committee has considered whether the non-audit services provided by PricewaterhouseCoopers LLP are compatible with maintaining the independence of PricewaterhouseCoopers LLP and has concluded that the independence of PricewaterhouseCoopers LLP is maintained and is not compromised by the services provided. In accordance with its charter, the Audit Committee approves in advance all audit and non-audit services to be provided by PricewaterhouseCoopers LLP. During fiscal years 2012 and 2011, 100% of these services were pre-approved by the Audit Committee in accordance with this policy.
Board Recommendation
OUR BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 29, 2013.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the beneficial ownership of our common stock, as of April 15, 2013, for:
• | each person or entity known to us to beneficially own more than 5% of our common stock; |
• | each of our directors and nominees for director; |
• | each of our named executive officers set forth in the 2012 Summary Compensation Table; and |
• | all of our current directors and executive officers as a group. |
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Except as indicated by footnote, and subject to applicable community property laws, each person identified in the table possesses sole voting and investment power with respect to all shares of common stock shown as held by them. Information related to holders of more than 5% of our common stock was obtained from the stockholder or filings with the SEC pursuant to Sections 13(d) or 13(g) of the Exchange Act. The number of shares of common stock outstanding used in calculating the percentage for each listed person includes shares of common stock underlying the outstanding warrants and stock options held by such person that are exercisable within 60 calendar days of April 15, 2013, but excludes shares of common stock underlying warrants or options held by any other person. Percentage of beneficial ownership is based on 70,825,167 shares of common stock outstanding as of April 15, 2013. Except as indicated by footnote, the address of the beneficial owners is c/o Ikanos Communications, Inc., 47669 Fremont Boulevard, Fremont, CA 94538.
Name | Shares Beneficially Owned | Percentage Beneficially Owned | ||||||
Greater than 5% Stockholders: | ||||||||
Tallwood (1) | 37,416,475 | 48 | % | |||||
Francis Capital Management (2) | 5,800,000 | 7 | % | |||||
Entities Affiliated with Diker Management LLC (3) | 5,209,783 | 7 | % | |||||
Directors & Executive Officers: | ||||||||
Diosdado Banatao (1) (4) | 37,492,350 | 48 | % | |||||
Danial Faizullabhoy (5) | 185,166 | * | ||||||
Frederick Lax (6) | 141,916 | * | ||||||
R. Douglas Norby (7) | 51,916 | * | ||||||
George Pavlov (1) (8) | 37,492,350 | 48 | % | |||||
James Smaha (9) | 77,750 | * | ||||||
Omid Tahernia | 20,000 | * | ||||||
Dennis Bencala (10) | 230,312 | * | ||||||
Michael Kelly (11) | — | — | ||||||
Jim Murphy (12) | 187,500 | * | ||||||
Debajyoti Pal (13) | 478,437 | 1 | % | |||||
All current directors and executive officers as a group (10 persons) (14) | 38,941,222 | 50 | % |
* | Represents less than 1% of beneficial stock ownership |
(1) | Includes warrants to purchase 7,800,000 shares, which are exercisable within 60 days of April 15, 2013. Tallwood III, L.P. (Tallwood III), Tallwood III Partners, L.P. (Tallwood III Partners), Tallwood III Associates, L.P. (Tallwood III Associates) and Tallwood III Annex, L.P. (Tallwood III Annex and, together with Tallwood III, Tallwood III Partners and Tallwood III Associates, the Tallwood Funds) directly own 10,074,743; 1,275,771; 78,057 and 18,187,904 shares of our common stock, respectively. Tallwood III, Tallwood III Partners, Tallwood III Associates and Tallwood III Annex directly own warrants to purchase 3,274,291; 414,626; 25,369 and 4,085,714 shares of our common stock, respectively. |
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Tallwood III Management, LLC (Tallwood Management) is the general partner of Tallwood III, Tallwood III Partners and Tallwood III Associates. Tallwood III Annex Management, LLC (Tallwood Annex Management) is the general partner of Tallwood III Annex. Tallwood Management may be deemed to share voting and dispositive power with respect to the shares and warrants owned by Tallwood III, Tallwood III Partners and Tallwood III Associates, but disclaim such beneficial ownership except to the extent of its pecuniary interest therein. Tallwood Annex Management may be deemed to share voting and dispositive power with respect to the shares and warrants owned by Tallwood III Annex, but disclaim such beneficial ownership except to the extent of its pecuniary interest therein. Messrs. Banatao and Pavlov are the Managing Members of Tallwood Management and Tallwood Annex Management and may be deemed to beneficially own the shares and warrants held by the Tallwood Funds, but disclaim such beneficial ownership except to the extent of their pecuniary interest therein. The business address of each of the foregoing entities is Tallwood Venture Capital, 3000 Sand Hill Road, Building 3, Suite 240, Menlo Park, CA 94025. |
(2) | Based solely on a Schedule 13G filed on February 5, 2013, these shares are held by Francis Capital Management, LLC (FCM) in its capacity as investment adviser to certain managed accounts (Managed Accounts) and two pooled investment vehicles, Catalysis Partners, LLC (Catalysis LLC) and Catalysis Offshore, Ltd. (Catalysis Ltd. and together with Catalysis LLC, the Funds), may be deemed to be the beneficial owner of 5,800,000 shares of our common stock owned by the Funds and Managed Accounts, as in its capacity as investment adviser it has the power to dispose and direct the disposition of the shares of our common stock owned by the Funds and the Managed Accounts, and has the power to vote the shares of our common stock owned by the Funds and owned by certain of the Managed Accounts. Specifically, Catalysis LLC is the record and beneficial owner of 2,793,990 shares of our common stock, Catalysis Ltd. is the record and beneficial owner of 1,506,010 shares of our common stock and the Managed Accounts are the record and beneficial owners of 1,500,000 shares of our common stock. John P. Francis is a part-owner of FCM and its Managing Member. As the controlling person of FCM, he may be deemed to beneficially own 5,800,000 shares of the issuer owned by the Funds and Managed Accounts. Pursuant to Rule 13d-4, Mr. Francis disclaims beneficial ownership of the securities owned by the Funds and Managed Accounts |
(3) | Based solely on a Schedule 13G/A filed on February 15, 2013, these shares are held by Diker Value Tech Fund, LP, Diker Value Tech QP Fund, LP, Diker Small Cap Fund, LP, Diker Small Cap QP Fund, LP and Diker Micro Cap Fund, LP (collectively, the Diker Funds). As the sole general partner of the Diker Funds, Diker GP, LLC (Diker GP), has the power to vote and dispose of the shares of the Common Stock owned by the Diker Funds and, accordingly, may be deemed the beneficial owner of such shares. Pursuant to investment advisory agreements, Diker Management LLC (Diker Management) serves as the investment manager of the Diker Funds. Accordingly, Diker Management may be deemed the beneficial owner of shares held by the Diker Funds. Charles M. Diker and Mark N. Diker are the managing members of each of Diker GP and Diker Management, and in that capacity direct their operations. Therefore, Messrs. Diker and Diker may be beneficial owners of shares beneficially owned by Diker GP and Diker Management. Diker GP, Diker Management, and Messrs. Diker and Diker each disclaim all beneficial ownership, however, as affiliates of a Registered Investment Adviser, and in any case disclaim beneficial ownership except to the extent of their pecuniary interest in the shares. |
(4) | Includes options to purchase 66,875 shares that are exercisable within 60 days after April 15, 2013. |
(5) | Includes options to purchase 176,166 shares that are exercisable within 60 days after April 15, 2013. |
(6) | Includes options to purchase 132,916 shares that are exercisable within 60 days after April 15, 2013. |
(7) | Includes options to purchase 42,916 shares that are exercisable within 60 days after April 15, 2013. |
(8) | Includes options to purchase 66,875 shares that are exercisable within 60 days after April 15, 2013. |
(9) | Includes options to purchase 68,750 shares that are exercisable within 60 days after April 15, 2013. |
(10) | Consists of options to purchase 230,312 shares that are exercisable within 60 days after April 15, 2013. |
(11) | Mr. Kelly resigned as of March 13, 2013. He has no shares that are exercisable within 60 days after April 15, 2013. |
(12) | Consists of options to purchase 187,500 shares that are exercisable within 60 days after April 15, 2013. |
(13) | Consists of options to purchase 478,437 shares that are exercisable within 60 days after April 15, 2013. |
(14) | Includes warrants to purchase 7,800,000 shares, options to purchase 1,450,747 shares that are exercisable within 60 days after April 15, 2013 held by current executive officers and directors. |
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Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides information regarding our compensation programs during fiscal year 2012 for our named executive officers (NEOs), which include our Chief Executive Officer, our Chief Financial Officer, our three other most highly compensated executive officers as of December 30, 2012, and the former Interim President and Chief Executive Officer:
Named Executive Officers
Omid Tahernia, President and Chief Executive Officer
Dennis Bencala, Chief Financial Officer and Vice President of Finance
Debajyoti Pal, Senior Vice President and Chief Technology Officer
Michael Kelly, Vice President of Worldwide Sales
Jim Murphy, Vice President of Human Resources
Diosdado Banatao, Former Interim President and Chief Executive Officer
On June 11, 2012, Mr. Diosdado Banatao resigned as our Interim President and Chief Executive Officer. Mr. Banatao continues to serve as chairman of our Board of Directors. On June 11, 2012, our Board of Directors appointed Omid Tahernia as our President and Chief Executive Officer, effective on that date, and also elected him to our Board of Directors.
Advisory Vote on Executive Compensation
At the 2011 Annual Meeting of Stockholders, our stockholders provided an advisory vote regarding our executive compensation policies and practices as well as an advisory vote on the frequency that we should hold such an advisory vote. The advisory vote on executive compensation received the favorable support of more than 99% of the votes cast on the proposal. Although pleased by the endorsement of our executive compensation practices, the Compensation Committee, nevertheless, continues to review and revise those compensation practices as warranted. More than 68% of the votes cast favored holding a non-binding, advisory vote on executive compensation every three years. The Compensation Committee has endorsed this result and will conduct a non-binding, advisory vote on executive compensation at least every three years or more often if they believe necessary. We currently plan to conduct another such vote in conjunction with our 2014 annual meeting of stockholders.
Overview and Philosophy of the Compensation Program
Our philosophy is to provide compensation to our executive officers in such a manner as to attract and retain the best available personnel for positions of substantial responsibility within Ikanos, to provide incentives for such persons to perform to the best of their abilities for Ikanos and to promote the success of our business. To foster long-term decision making and promote stockholder wealth creation, a particular emphasis is placed on equity incentives.
The objectives of our compensation program are as follows:
• | Provide competitive compensation programs that attract, motivate and retain talent at all levels in Ikanos with the requisite skills for success; |
• | Motivate employees to align their individual performance with achievement of our objectives; |
• | Align our financial interests and those of our employees with our stockholders via equity-based awards; and |
• | Create a direct link between our performance and individual contribution and bonuses and equity awards. |
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Role of the Compensation Committee
The Compensation Committee is comprised of four independent, outside, non-employee members of our Board. The Compensation Committee determines and recommends to the non-employee members of our Board for approval, the Chief Executive Officer’s compensation, without the participation of the Chief Executive Officer. The Compensation Committee is also responsible for reviewing the performance of our Chief Executive Officer. With respect to our other NEOs, our Chief Executive Officer makes recommendations regarding appropriate compensation based on the evaluation of each executive. The Compensation Committee also approves the Executive Bonus Plan.
Our Vice President of Human Resources, from time to time, provides market data and other information to assist the Compensation Committee in determining appropriate compensation levels for our executive officers. Under its charter, the Compensation Committee has the authority, without seeking the approval of our Board, to select, retain, terminate and approve, at our expense, outside compensation, legal, accounting or other consultants to advise the Compensation Committee and to authorize or conduct investigations into any matters within the scope of its responsibilities and to approve related fees and retention terms.
Executive Compensation Components
The Compensation Committee’s general philosophy of executive compensation is to make our compensation program competitive with other similar companies in our industry. The primary components of our executive compensation program are salary; potential cash bonus based upon our attainment of pre-established objectives; and eligibility for long-term, equity-based incentive awards designed to align and strengthen the mutuality of interests between our executive officers and our stockholders. In addition, we provide change-in-control severance packages and other benefits to our executive officers. Various components of the compensation programs are designed to drive our short-term and long-term strategic goals, and values and to reward contributions toward these goals. Short-term compensation is mainly comprised of salary and cash bonuses. Long-term compensation is comprised mainly of equity incentives.
Base Salary
Base salaries are a standard component of executive compensation that we provide to be competitive. Base salaries are the component of our executive compensation program that provides a degree of financial certainty and stability. The base salaries of our executive officers are, in general, established on the basis of skills, accomplishments, the scope of the job and prevailing market conditions. The salary for each executive officer is determined by evaluating the responsibilities of the position held and the experience and performance of the individual, with reference to the competitive marketplace for executive talent, including a comparison to base salaries for comparable positions in technology-based companies of reasonably similar size. The Compensation Committee generally reviews executive officer salaries annually and adjusts them as appropriate to reflect changes in the market conditions and individual performance and responsibility. In establishing the base salaries for fiscal year 2012, the Compensation Committee reviewed data from the most recent annual Radford Global Technology Survey to obtain a general understanding of the current compensation practices of companies in the technology industry in California.
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Cash Incentive Plans
Executive Incentive Plan
The Executive Incentive Plan (E.I.P.) for fiscal year 2012 was designed to align an executive officer’s performance with our overall goals and stockholders’ interests, and to create incentives for the different members of our executive team to perform in a complementary manner to achieve the same goals. The 2012 E.I.P. focused the executive team toward achievement of critical product delivery, product development, and financial goals. Each NEO’s cash bonus under the E.I.P. was based upon a percentage of his base salary as set forth in the following table:
Executive (1) | Title | Base Salary ($) (2) | On-Target Bonus % | On-Target Bonus ($) | ||||||||||
Omid Tahernia (3) | President and CEO | 224,359 | 100 | % | 223,077 | |||||||||
Dennis Bencala | CFO and Vice President of Finance | 251,250 | 50 | % | 125,625 | |||||||||
Jim Murphy | VP, Human Resources | 237,083 | 50 | % | 118,542 | |||||||||
Debajyoti Pal | Sr. VP and Chief Technology Officer | 267,083 | 50 | % | 133,542 | |||||||||
Michael Kelly (4) (5) | VP, Worldwide Sales | 249,167 | 30 | % | 74,750 |
(1) | Mr. Banatao did not participate in the E.I.P. |
(2) | Weighted average salary in 2012 |
(3) | On-target bonus prorated for period service during 2012 |
(4) | Mr. Kelly participates in a sales incentive plan. See below. |
(5) | Mr. Kelly resigned effective March 13, 2013. |
Executive officers were compensated according to the following allocation of the total on-target bonus in three different performance categories as set forth below. For each performance category specific measurable goals were set for threshold, target, and maximum level of performance. Although these specific goals were set, under the terms of the E.I.P., the Compensation Committee retained the discretion to modify pay-outs based upon the Compensation Committee’s consideration of factors not specifically included in the specific performance goals. The discretionary component for the Chief Executive Officer is determined by the Compensation Committee and the discretionary component for the other executive officers is determined by the Compensation Committee after input from our Chief Executive Officer.
• | Vx18x and Vx17x(33.33% total incentive): The Vx18x and Vx17x processors with A/VDSL targeted for the Customer Premises Equipment segment of our business were a critical new product introduction for us in 2012. As such, the entire executive team was incentivized to attain certain goals related to this product introduction. These goals were: to attain a specified target of chip sets shipped and to improve the gross margin of the chipsets. |
• | Velocity-3 (33.33% of total incentive): The Velocity-3 chip set will showcase Ikanos’ NodeScale Vectoring technology for the Central Office segment of our business. As such, the entire executive team was incentivized to attain certain goals related to this product’s development and market acceptance. These goals were: to provide a silicon based system demonstration of the product at a major industry event and to attain specified customer engagement milestones. |
• | Financial Results (33.33% of total incentive): In addition to the aforementioned product goals, the E.I.P. specified two financial goals for the entire executive team. These goals were: to attain a non-GAAP net operating loss for fiscal year 2012 of no more than $(15.3) million and to attain a cash balance at the end of fiscal year 2012 of at least $22.2 million. The results were: the non-GAAP net operating loss for fiscal year 2012 was $(11.6) million and the cash balance at the end of fiscal year 2012 was $28.4 million. |
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Based on the level of achievement of these goals, the Compensation Committee approved payments under the E.I.P. of 101% of target for Messrs. Tahernia, Bencala, Pal, Kelly and Murphy. These amounts are included in the 2012 Summary Compensation Table.
Sales Incentive Plan
The 2012 Sales Incentive Plan (S.I.P.) is intended to drive revenue attainment goals for the worldwide sales force. The S.I.P. is based 70% on revenue attainment and 30% on key business objectives. For 2012, these business objectives were in the areas of design wins, forecasting accuracy, carrier relations, and software sales and maintenance agreements. The revenue objective target for fiscal year 2012 was $110.0 million. The actual revenue attained was $125.9 million.
Based on the results of actual sales to target revenue and on the attainment of certain key business objectives, Mr. Kelly received an S.I.P. bonus of $55,300. This amount is included in the overall incentive payment made to Mr. Kelly in the 2012 Summary Compensation Table.
Equity-Based Incentives
The Compensation Committee believes that the granting of stock options is an important method of rewarding and motivating our employees by aligning employees’ interests with those of our stockholders. The Compensation Committee also recognizes that a stock incentive program is a necessary element in a competitive compensation package. We utilize a vesting schedule to encourage our executive officers to continue in our employ and to encourage executive officers to maintain a long-term perspective. In determining the size of equity award grants, the Compensation Committee focuses on the executive officers’ current and expected future value to us, as well as the relative current value of their previous equity awards.
We do not have any program, plan or policy to grant equity compensation to executive officers on specified dates, however, we do attempt to coordinate annual equity grants to executive officers to be shortly after quarterly earnings releases. Options granted to our executive officers have an exercise price at the fair market value of our common stock at the close of business on the date of grant. The date of grant is determined on the date the grant receives approval from the Compensation Committee or, for non-executive employees, the Equity Award subcommittee. All equity awards to our employees, including our executive officers, have been granted and reflected in our consolidated financial statements, based upon the applicable accounting guidance, at fair market value on the grant date in accordance with FASB ASC Topic 718.
The Compensation Committee reviewed data from the most recent annual Radford Global Technology Survey to obtain a general understanding of the current compensation practices of companies in the technology industry in California to aid in establishing the equity awards for our executive officers.
A complete listing and description of all equity grants to our NEOs during the fiscal year 2012 appears in the table below titled, “Grants of Plan-Based Awards for Fiscal Year Ended December 30, 2012.” The option grants generally vest as to 25% of the shares one year from the vesting commencement date and 1/12th of the total grant per quarter thereafter.
We do not offer traditional employee equity grants to our employees residing in the People’s Republic of China. Due to the complexity and cost of issuing our securities in compliance with Chinese securities laws, the Compensation Committee decided to offer our Chinese employees stock appreciation rights that may only be settled in cash. These stock appreciation rights mimic the value appreciation available to holders of stock options; however, the stock appreciation rights offered in China may not be exchanged for any of our equity when they vest. Rather, the right converts directly to cash when vested.
Our 2004 Employee Stock Purchase Plan (ESPP) is tax-qualified and is generally available to all employees including executive officers. The 2004 ESPP is intended to qualify under Section 423 of the Code and provides
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for consecutive, overlapping 24-month offering periods. Each offering period includes four 6-month purchase periods and allows participants, including our executive officers, to purchase our common stock through payroll deductions at a discount from the fair market value.
Change-in-Control and Severance Agreements
In certain instances, either as a condition of employment or to continue employment, our executive officers have received a change-in-control and/or termination of employment severance agreements. The Compensation Committee believes these types of agreements are necessary in recruiting and retaining our executive officers. The Compensation Committee considers all factors necessary to induce and retain employment with us, which includes individual change-in-control and termination of employment severance agreements. These arrangements are made on a case-by-case basis, and typically include accelerated vesting of equity incentives and/or cash compensation. All of our change-in-control and termination of employment severance agreements are described in detail under the caption “Post-Employment/Change-in-Control Payments.”
From time to time, we have offered termination of employment severance packages to terminated executive officers who did not have an agreement in place prior to their termination. There is not a set policy for determining severance packages, but generally we have provided severance based on years of service, past performance and factors relating to the executive officer’s termination. These severance packages are evaluated and recommended by the Compensation Committee for approval by the full Board as necessary. These severance packages are described in detail under the caption “Post-Employment/Change-in-Control Payments.”
Other benefits/perquisites
Our NEOs receive no benefits from us under defined benefit or defined contribution plans other than the tax-qualified 401(k) plan.
Our Named Executive Officer 2012 Compensation
Mr. Banatao’s 2012 Compensation
Mr. Banatao became our Executive Chairman and Interim President and Chief Executive Officer on June 14, 2011 when Mr. Quigley resigned as President and Chief Executive Officer. Mr. Banatao continued in that position until June 11, 2012 when Mr. Tahernia was named as President and Chief Executive Officer. Subsequent to June 11, 2012, Mr. Banatao has continued to serve as our Chairman of the Board. As Interim President and Chief Executive Officer, Mr. Banatao did not receive any salary or cash bonus and was not granted any equity awards. However, he received compensation for his responsibilities as Executive Chairman and Chairman of the Board, as well as a restricted stock award and options to purchase shares of our common stock automatically granted to our non-employee directors under our Amended and Restated 2004 Equity Incentive Plan. For more detailed information see the section entitled “Director Compensation for the Fiscal Year Ended December 30, 2012”above.
Mr. Tahernia’s 2012 Compensation
Mr. Tahernia has served as our President, Chief Executive Officer and as a Director since June 11, 2012. Mr. Tahernia’s annual base salary as the President and Chief Executive Officer was set at $400,000. He was eligible to receive up to 100% of his base salary under the E.I.P. Mr. Tahernia does not receive any additional compensation for his service as a director. Mr. Tahernia was granted an option to purchase 2,100,000 shares of our common stock as an inducement to join our company (the Option). The Option has been classified as a non-qualified stock option; has an exercise price equal to $0.89 (the fair market value on the grant date); and has a seven year term.
With respect to 1,500,000 shares subject to the Option (Time-Based Option Shares), 25% of such shares shall vest twelve months from the June 11, 2012 (Vesting Commencement Date) on the same day of the month as
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the Vesting Commencement Date and 6.25% of the shares shall vest each quarter thereafter on the same day of the month as the Vesting Commencement Date, subject to Mr. Tahernia’s continued employment through each such date, such that all 1,500,000 shares shall have vested on the four year anniversary of the Vesting Commencement Date, unless that date falls on a non-business date, in which case the next business date shall apply.
With respect to the remaining 600,000 shares subject to the Option (“Performance-Based Option Shares”), (i) 300,000 shares begin vesting when the average closing stock price of our common stock on the Nasdaq Capital Market over any period of twenty (20) consecutive trading days reaches $2.50; and (ii) the remaining 300,000 shares begin vesting when the average closing stock price of our common stock on the Nasdaq Capital Market over any period of twenty (20) consecutive trading days reaches $3.50. The Performance-Based Option Shares will vest in equal quarterly installments over the one year period after the respective stock price target is achieved, subject to Mr. Tahernia’s continued employment. The Performance-Based Option Shares were valued using the Monte Carlo model to simulate future stock price movements in order to determine the fair values of a performance option grant. The simulations account for the vesting and exercise provisions of the grant.
Vesting and price targets are subject to certain acceleration if the Company should terminate Mr. Tahernia’s employment without Cause or if Mr. Tahernia should terminate his employment for Good Reason as defined in his offer letter.
2012 ($) | 2011 ($) | Change (%) | ||||||||||
Salary (1) | 224,359 | — | — | |||||||||
Cash Bonus | 224,700 | — | — | |||||||||
Equity Compensation (2) | 680,550 | — | — | |||||||||
Other Compensation (Term Life Insurance Premium) | 643 | — | — |
(1) | Amount actually paid in 2012 was pro-rated for partial year of service. |
(2) | Represents the value of options based on the fair value of the options as of the grant date and does not reflect the actual economic value received. |
Mr. Bencala’s 2012 Compensation
Mr. Bencala was hired in June 2010 to serve as our Chief Financial Officer and Vice President of Finance. Mr. Bencala’s annual base salary as the Chief Financial Officer and Vice President of Finance was set at $245,000 in July 2011 and was increased to $260,000 August 2012. He was eligible to receive up to 50% of his base salary under the E.I.P. In October 2012 Mr. Bencala was also granted an option to purchase 125,000 shares of our common stock, which option vests over four years. Mr. Bencala received a cash bonus of $126,500 for fiscal 2012 under theE.I.Pas discussed above.
2012 ($) | 2011 ($) | Change (%) | ||||||||||
Salary | 251,250 | 240,000 | 5 | % | ||||||||
Cash Bonus | 126,500 | — | — | |||||||||
Equity Compensation (1) | 87,213 | 35,975 | 142 | % | ||||||||
Other Compensation (Term Life Insurance Premium) | 2,219 | 2,219 | — |
(1) | Represents the value of options based on the fair value of the options as of the grant date and does not reflect the actual economic value received. |
Mr. Murphy’s 2012 Compensation
Mr. Murphy was hired in June 2010 to serve as our Vice President of Human Resources. Mr. Murphy’s annual base salary as the Vice President of Human Resources was set at $235,000 in 2010 and was increased to 240,000 in August 2012. He was eligible to receive up to 50% of his base salary under the E.I.P. In 2012,
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Mr. Murphy was also granted an option to purchase 100,000 shares of our common stock, which option vests over four years. Mr. Murphy received a cash bonus of $119,300 for fiscal 2012 under theE.I.P.
2012 ($) | 2011 ($) | Change (%) | ||||||||||
Salary | 237,083 | 235,000 | 1 | % | ||||||||
Cash Bonus | 119,300 | — | — | |||||||||
Equity Compensation (1) | 69,770 | — | — | |||||||||
Other Compensation (Term Life Insurance Premium) | 2,219 | 2,219 | — |
(1) | Represents the value of options based on the fair value of the options as of the grant date and does not reflect the actual economic value received. |
Mr. Pal’s 2012 Compensation
Mr. Pal was hired in July 2009 as Senior Vice President and Chief Technology Officer. His base salary was set at $265,000 in 2011 and in August 2012 was increased to $270,000. He was eligible to receive up to 50% of his base salary under the E.I.P. In October 2012, Mr. Pal was granted an option to purchase 60,000 shares of our common stock, which option vests over a four year period. Mr. Pal received a cash bonus of $134,400 for fiscal 2012 under theE.I.P.
2012 ($) | 2011 ($) | Change (%) | ||||||||||
Salary | 267,083 | 262,500 | 2 | % | ||||||||
Cash Bonus | 134,400 | — | — | |||||||||
Equity Compensation (1) | 41,862 | 26,164 | 60 | % | ||||||||
Other Compensation (Term Life Insurance Premium) | 1,187 | 1,187 | — |
(1) | Represents the value of options based on the fair value of the options as of the grant date and does not reflect the actual economic value received. |
Mr. Kelly’s 2012 Compensation
Mr. Kelly was hired in July 2010 to serve as our Vice President of Worldwide Sales. His salary was set at $245,000 in July 2011 and was increased to $255,000 in August of 2012. Mr. Kelly’s on-target bonus was 50% of salary, 30% of which was based on theE.I.P. and 20% of which was based on the Sales Incentive Plan. In October 2012, he was granted an option to purchase 125,000 shares of our common stock, which option vests over four years. Mr. Kelly received a cash bonus of $75, 200 under the E.I.P. and $55,300 under the Sales Incentive Plan.
2012 ($) | 2011 ($) | Change (%) | ||||||||||
Salary (1) | 249,167 | 240,000 | 4 | % | ||||||||
Sales Incentive Compensation | 55,300 | 45,560 | 21 | % | ||||||||
Bonus | 75,200 | — | — | |||||||||
Equity Compensation (2) | 87,213 | 42,516 | 105 | % | ||||||||
Other Compensation (Term Life Insurance Premium) | 3,406 | 2,219 | 53 | % |
(1) | Mr. Kelly resigned effective March 13, 2013. |
(2) | Represents the value of options based on the fair value of the options as of the grant date and does not reflect the actual economic value received. |
Tax and Accounting Implications
The philosophy of the Compensation Committee is to provide a comprehensive compensation package for each executive officer that is well suited to support accomplishment of our business strategies, objectives and initiatives. For incentive-based compensation, the Compensation Committee has considered the desirability of
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qualifying for deductibility by us under Section 162(m) of the Internal Revenue Code, as amended. Section 162(m) provides that non-performance-based compensation in excess of $1,000,000 paid to certain executive officers is not deductible unless the provisions of the plan comply with the requirements of Section 162(m) and are approved periodically by our stockholders. To maintain flexibility in compensating executive officers in a manner designed to promote corporate goals, our compensation programs are intended to be deductible under Section 162(m). As such, the Compensation Committee reaches its compensation decisions with a view towards our overall financial performance. Non-performance-based compensation for our executive officers for fiscal year 2012 did not exceed the $1,000,000 limit per officer. Any grants of options having an exercise price equal to or greater than the fair market value of the stock on the date of grant made from the Amended and Restated 2004 Equity Incentive Plan are generally intended to be performance-based compensation under Section 162(m). Restricted stock and restricted stock unit awards that are not subject to performance vesting do not qualify as performance-based compensation.
We account for equity compensation paid to our employees in accordance with FASB ASC Topic 718, which requires us to estimate and record an expense over the service period of the award. Accounting rules also require us to record cash compensation as an expense at the time the obligation is accrued. Unless and until we achieve sustained profitability, the availability to us of a tax deduction for compensation expense will not be material to our financial position. We structure cash bonus compensation so that it is taxable to our executive officers at the time it becomes available to them. We currently intend that all cash compensation paid will be tax deductible for us. However, with respect to equity compensation awards, while any gain recognized by employees from the exercise of nonqualified options should be deductible by us, to the extent that an option constitutes an incentive stock option, gain recognized by the optionee will not be deductible if there is no disqualifying disposition by the optionee. In addition, if we grant restricted stock or restricted stock unit awards that are not subject to performance vesting, they may not be fully deductible by us at the time the award is otherwise taxable to the employee.
Compensation Committee Interlocks and Insider Participation
George Pavlov, Danial Faizullabhoy, Frederick Lax and James Smaha served as members of the Compensation Committee during the fiscal year 2012. None of the members of the Compensation Committee is or has in the past served as an officer or employee of Ikanos. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board or Compensation Committee.
The following report of the Compensation Committee does not constitute solicitation material, and shall not be deemed filed or incorporated by reference into any other filing by Ikanos under the Securities Act of 1933, or the Exchange Act.
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to our Board that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into our Form 10-K for the fiscal year ended December 30, 2012.
Respectively submitted on April 11, 2013, by the members of the Compensation Committee of the Board:
George Pavlov, Chair
Danial Faizullabhoy
Frederick Lax
James Smaha
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2012 Summary Compensation Table
Name & Principal Position | Year | Salary $ | Option Awards $ (1) | Restricted Stock Awards $ (1) | Non-Equity Incentive Plan Compensation $ | All Other Compensation $ (2) | Total $ | |||||||||||||||||||||
Diosdado Banatao (3) | 2012 | — | 17,738 | 12,510 | — | 47,000 | 64,738 | |||||||||||||||||||||
Interim President & Chief Executive Officer | 2011 | — | 6,664 | — | — | 47,000 | 53,664 | |||||||||||||||||||||
Omid Tahernia (4) | 2012 | 224,359 | 680,550 | — | 224,700 | 643 | 1,130,252 | |||||||||||||||||||||
President & Chief Executive Officer | ||||||||||||||||||||||||||||
Dennis Bencala | 2012 | 251,250 | 87,213 | — | 126,500 | 2,219 | 467,182 | |||||||||||||||||||||
Chief Financial Officer | 2011 | 240,000 | 35,975 | — | — | 2,219 | 278,194 | |||||||||||||||||||||
2010 | 131,058 | 284,910 | — | 13,100 | 1,280 | 430,348 | ||||||||||||||||||||||
Jim Murphy | 2012 | 237,083 | 69,770 | — | 119,300 | 2,219 | 428,372 | |||||||||||||||||||||
Vice President of Human Resources | 2011 | 235,000 | — | — | — | 2,219 | 237,219 | |||||||||||||||||||||
2010 | 139,192 | 274,825 | — | 14,000 | 1,365 | 429,382 | ||||||||||||||||||||||
Debajyoti Pal | 2012 | 267,083 | 41,862 | — | 134,400 | 1,187 | 444,532 | |||||||||||||||||||||
Chief Technology Officer | 2011 | 262,500 | 26,164 | — | — | 1,187 | 289,851 | |||||||||||||||||||||
2010 | 254,615 | 63,050 | — | 20,000 | 1,187 | 338,852 | ||||||||||||||||||||||
Michael Kelly (5) | 2012 | 249,167 | 87,213 | — | 130,500 | 3,406 | 470,286 | |||||||||||||||||||||
Vice President of Worldwide Sales | 2011 | 240,000 | 42,516 | — | 45,560 | 2,219 | 330,295 | |||||||||||||||||||||
2010 | 126,933 | 232,155 | — | 8,000 | 1,109 | 368,197 |
(1) | In accordance with SEC rules, these columns represent the value of restricted stock awards and the value of options awards based on the fair value of the option as of the grant date calculated in accordance with Accounting Standards Codification 718, Stock Compensation (ASC 718), excluding any estimate of future forfeitures. See Note 12 of the Notes to Consolidated Financial Statements in Item 8 in our Annual Report on Form 10-K for the fiscal year ended December 30, 2012, for the assumptions made in determining ASC 718 values. Regardless of the option value on the grant date, the actual value that may be recognized by the optionee will depend on the market value of our common stock on a date in the future when an option is exercised. |
(2) | Unless otherwise noted, these amounts reflect term life insurance premiums. |
(3) | Mr. Banatao served as Interim President and Chief Executive Officer until June 11, 2012. He received no compensation for this role. These amounts reflect compensation for services on our Board and are also set forth in “Director Compensation for Fiscal Year Ended December 30, 2012.” |
(4) | Mr. Tahernia was appointed as President, Chief Executive Officer and Director on June 11, 2012. |
(5) | Mr. Kelly resigned effective March 13, 2013. |
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Grants of Plan-Based Awards for Fiscal Year Ended December 30, 2012
Estimated Possible Payouts Under Non-Equity Incentive Plan (1) | All Other Stock Awards, Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise Price Exercise of Option Awards $ /sh | Grant Date Fair Value of Stock and Option Awards (2) | ||||||||||||||||||||||||||||
Name | Grant Date | Threshold $ | Target $ | Maximum $ | ||||||||||||||||||||||||||||
Diosdado Banatao (3) | 6/5/2012 | — | — | — | — | 15,000 | $ | 0.75 | $ | 6,664 | ||||||||||||||||||||||
10/31/2012 | — | — | — | 9,000 | — | — | $ | 12,510 | ||||||||||||||||||||||||
Omid Tahernia | — | 400,000 | 800,000 | — | — | — | — | |||||||||||||||||||||||||
6/11/2012 | 2,100,000 | $ | 0.89 | $ | 680,550 | |||||||||||||||||||||||||||
Dennis Bencala | — | 130,000 | 260,000 | — | — | — | — | |||||||||||||||||||||||||
10/31/2012 | 125,000 | $ | 1.39 | $ | 87,213 | |||||||||||||||||||||||||||
Debajyoti Pal | — | 135,000 | 270,000 | — | — | — | — | |||||||||||||||||||||||||
10/31/2012 | 60,000 | $ | 1.39 | $ | 41,862 | |||||||||||||||||||||||||||
Michael Kelly (4) | — | 127,500 | 255,000 | — | — | — | — | |||||||||||||||||||||||||
10/31/2012 | 125,000 | $ | 1.39 | $ | 87,213 | |||||||||||||||||||||||||||
Jim Murphy | — | 120,000 | 240,000 | — | — | — | — | |||||||||||||||||||||||||
10/31/2012 | 100,000 | $ | 1.39 | $ | 69,770 |
(1) | Amounts shown are estimated payouts for fiscal year 2013 under the cash incentive plans based on the individual’s fiscal year 2012 ending base salary and position. |
(2) | In accordance with SEC rules, this column represents the value of the restricted stock award and options based on the fair value as of the grant date calculated in accordance with Accounting Standards Codification 718, Stock Compensation (ASC 718), excluding any estimate of future forfeitures. See Note 12 of the Notes to Consolidated Financial Statements in Item 8 in our Annual Report on Form 10-K for the fiscal year ended December 30, 2012, for the assumptions made in determining ASC 718 values. Regardless of the option value on the grant date, the actual value that may be recognized by the optionee will depend on the market value of our common stock on a date in the future when an option is exercised. |
(3) | Consists of compensation for his service on our Board. See “Director Compensation for Fiscal Year Ended December 30, 2012.” |
(4) | Mr. Kelly resigned effective March 13, 2013. |
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Narrative to 2012 Summary Compensation Table and Grants of Plan-Based Awards for Fiscal Year Ended December 30, 2012
See Compensation Discussion and Analysis above for a complete description of the compensation plans pursuant to which the amounts listed under the 2012 Summary Compensation Table and Grants of Plan-Based Awards for Fiscal Year Ended December 30, 2012 were paid or awarded and the criteria for such payment, including targets for payment of annual incentives, as well as performance criteria on which such payments were based. The Compensation Discussion and Analysis also describes the option grants.
Outstanding Equity Awards at December 30, 2012
The following table lists all outstanding equity awards held by our NEOs as of December 30, 2012.
Name | Grant Date | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable (1) | Option Exercise Price | Option Expiration Date | |||||||||||||||
Diosdado Banatao (2) | 8/24/09 | 25,000 | 5,000 | $ | 1.77 | 8/24/19 | ||||||||||||||
12/21/09 | 15,000 | — | $ | 1.91 | 12/21/16 | |||||||||||||||
6/7/11 | 10,000 | — | $ | 1.41 | 6/7/18 | |||||||||||||||
6/5/2012 | 7,500 | 7,500 | $ | 0.75 | 6/5/19 | |||||||||||||||
Omid Tahernia (3) | 6/11/12 | — | 2,100,000 | $ | 0.89 | 6/11/19 | ||||||||||||||
Dennis Bencala | 6/14/10 | 187,500 | 112,500 | $ | 1.82 | 6/14/17 | ||||||||||||||
8/3/11 | 17,187 | 37,813 | $ | 1.27 | 8/3/18 | |||||||||||||||
10/31/12 | — | 125,000 | $ | 1.39 | 10/31/19 | |||||||||||||||
Michael Kelly (4) | 7/7/10 | 154,687 | 120,313 | $ | 1.63 | 7/7/17 | ||||||||||||||
8/3/11 | 20,312 | 44,688 | $ | 1.27 | 8/3/18 | |||||||||||||||
10/31/12 | — | 125,000 | $ | 1.39 | 10/31/19 | |||||||||||||||
Jim Murphy | 6/2/10 | 156,250 | 93,750 | $ | 2.11 | 6/2/17 | ||||||||||||||
10/31/12 | — | 100,000 | $ | 1.39 | 10/31/19 | |||||||||||||||
Debajyoti Pal | 9/13/09 | 345,312 | 79,688 | $ | 1.77 | 9/13/16 | ||||||||||||||
11/9/10 | 50,000 | 50,000 | $ | 1.18 | 11/9/17 | |||||||||||||||
8/3/11 | 12,500 | 27,500 | $ | 1.27 | 8/3/18 | |||||||||||||||
10/31/12 | — | 60,000 | $ | 1.39 | 10/31/19 |
(1) | These options vest as to 25% of the shares on the one year anniversary and the remainder of the shares vest 1/12 each quarter thereafter. |
(2) | Mr. Banatao received these options and restricted stock awards for service on our Board. These shares are also included as set forth in “Director Compensation for Fiscal Year Ended December 30, 2012” above. |
(3) | Mr. Tahernia received three option awards at employment date. The first tranche of 1,500,000 is time-based that will vest over a four year period; the second and third tranches of 300,000 options each will vest over one year with vesting commencing when the stock price reaches and maintains $2.50 for a period of twenty days (tranche two) and when the stock price reaches and maintains $3.50 for a period of twenty days (tranche three), respectively. |
(4) | Mr. Kelly resigned effective March 13, 2013. |
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POST-EMPLOYMENT/CHANGE-IN-CONTROL PAYMENTS
Individual Offer Letters and/or Employment Agreements
The following narratives and tables describe the payments and/or benefits that are payable by us to the named executive officers upon termination of employment or in the event of a change-in-control under various applicable scenarios pursuant to such named executive officer’s offer letter, equity grant agreements and/or employment agreement with us. The amounts provided in examples are estimates only and may not reflect the actual amounts payable to our named executive officers.
Omid Tahernia
Overview of Potential Post-Employment/Change-in-Control Benefits
Mr. Tahernia is entitled to certain severance benefits upon termination of his employment with us in certain scenarios pursuant to his Offer Letter. The estimated potential severance benefits payable to Mr. Tahernia in the various termination scenarios is described below. The relevant definitions follow the tabular description.
(1) Involuntary Termination. In the event that we terminate his employment without Cause (as defined below), or he terminates his employment for Good Reason (as defined below), then subject to his execution and non-revocation of a Release (as described below), we shall provide him with the following:
(i) a lump sum cash severance payment equal to twelve (12) months of his then-current base salary, plus an amount equal to a pro-rated portion of his then-current annual target bonus under the Incentive Plan for the year in which his employment terminates (pro-rated based on the number of days that he is employed during the year in which his employment terminates), payable on the sixtieth (60th) day following his termination of employment,
(ii) payment by us of the premiums necessary for him and his eligible dependents to continue his/their Company group health insurance benefits under the Consolidated Omnibus Reconciliation Act of 1985 (COBRA) for twelve (12) months from the termination date (which premium payment obligation will terminate upon his acceptance of subsequent employment with a company where comparable health insurance benefits are offered),
(iii) accelerated vesting of the Time-Based Option Shares that would have vested during the period through and including the quarterly installment vesting date that falls on (if his termination date is a quarterly installment vesting date), or the first such date that falls after (if his termination date is not a quarterly installment vesting date), the anniversary of his termination date, and
(iv) if either or both of the above stock price targets ($2.50/$3.50) for the Performance-Based Option Shares have been achieved prior to the date on which his employment terminates, the respective tranche(s) of Performance-Based Option Shares will fully vest upon his date of termination. If the average closing price of the Company’s common stock over the twenty (20) consecutive trading day period ending on (and including) his date of termination (or ending on the last trading day before his termination date if he is terminated on a Saturday, Sunday, or holiday) (the “Closing Price”) is equal to or in excess of $1.75 per share, but less than the stock price target for a tranche, a pro rata portion of the shares subject to that tranche will vest upon his date of termination based on the ratio of (x) the excess of the Closing Price over the exercise price, to (y) the excess of the applicable stock price target over the exercise price, multiplied by the number of shares subject to that tranche, and the balance of the shares subject to that tranche will terminate as of the date of his termination. For example, if the exercise price is $1.00 per share and the Closing Price is $2.25 per share, 125/150 of the 300,000 shares subject to the $2.50 stock price target tranche will vest, and 125/250 of the 300,000 shares subject to the $3.50 stock price target tranche will vest. If the Closing Price is less than $1.75 per share, each tranche will terminate as of the date of his termination.
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(2) Termination In Connection with a Change of Control. If we terminate his employment without Cause, or he terminates his employment for Good Reason, within 90 days prior to, or on or within twelve (12) months following, a Change of Control of the Company (as defined below), then subject to his execution and non-revocation of a Release (as described below), the Company shall provide him with the following compensation and benefits in lieu of those described in subsection (1) above:
(i) a lump sum cash severance payment equal to:
(A) if the Change of Control closes within the first twelve (12) months of his employment, twenty-four (24) months of his then-current base salary, plus an amount equal to a pro-rated portion of his then-current target annual bonus under the Incentive Plan for the year in which his employment terminates (pro-rated based on the number of days that he was employed during the year in which his employment terminates), payable on the sixtieth (60th) day following the later of his termination of employment or the close of the Change of Control, or
(B) if the Change of Control closes after the first twelve (12) months of his employment, twelve (12) months of his then-current base salary, plus an amount equal to one times his then-current target annual bonus under the Incentive Plan, plus an amount equal to a pro-rated portion of his then-current target annual bonus under the Incentive Plan for the year in which his employment terminates (pro-rated based on the number of days that he is employed during the year in which his employment terminates), payable on the sixtieth (60th) day following the later of his termination of employment or the close of the Change of Control,
(ii) payment by us of the premiums necessary for him and his eligible dependents to continue his/their group health insurance benefits under COBRA for twelve (12) months from the termination date (which premium payment obligation will terminate upon his acceptance of subsequent employment with a company where comparable health insurance benefits are offered),
(iii) the Time-Based Option Shares will become fully vested upon such termination or, if later, the close of the Change of Control, and
(iv) if such termination occurs within ninety (90) days prior to the Change of Control, he would be entitled to accelerated vesting of the Performance-Based Option Shares as described in the letter of employment based on the Change of Control “deal price” as if he were still employed through the close of the Change of Control.
Severance benefits are contingent upon Mr. Tahernia’s executing and not revoking a standard settlement and release of claims agreement.
Estimated Value of Change in Control and Severance Benefits (1)
NEO Terminated With Good Reason or Without Cause Unrelated to a Change in Control | NEO Terminated With Good Reason or Without Cause Related To a Change in Control | |||||||
Compensation & Benefits | ||||||||
Base Salary (2) | $ | 400,000 | $ | 800,000 | ||||
Bonus (3) | $ | 400,000 | $ | 400,000 | ||||
Acceleration of Vesting of Time-Based Option Shares (4)(5) | $ | 438,750 | $ | 1,170,000 | ||||
Acceleration of Vesting of Performance-Based Option Shares (4)(5) | — | — | ||||||
Health Care Benefits (6) | $ | 23,111 | $ | 23,111 |
(1) | All amounts are estimated based on an assumed triggering date of December 30, 2012 and a per share price of $1.67, which was the closing sales price of our common stock on the NASDAQ Capital Market on December 28, 2012, which was the last trading day of the fiscal year ended December 30, 2012. |
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(2) | Represents severance pay equal to twelve months for termination unrelated to a change of control and twenty-four months for termination related to a change of control of base salary of $400,000 in effect as of December 30, 2012. |
(3) | Bonus at termination and/or change of control based on percentage of his salary for the year employed. |
(4) | In the case of termination unrelated to a change of control, the value of the accelerated vesting of stock options represents the intrinsic value of outstanding and unvested options that would vest within twelve months of termination. The intrinsic value is calculated by multiplying (i) the amount by which the fair market value of our common stock on December 30, 2012 exceeded the applicable exercise price by (ii) the number of shares that would be subject to such acceleration. |
(5) | In the case of termination unrelated to a change of control, the value of the accelerated vesting of stock options represents the acceleration of all unvested options. In this scenario only the Timed-Based Options would vest. The intrinsic value is calculated by multiplying (i) the amount by which the fair market value of our common stock on December 30, 2012 exceeded the applicable exercise price by (ii) the number of shares that would be subject to such acceleration. This also assumes that any sales price does not exceed $1.75. |
(6) | Represents the premiums to be paid by us for twelve months continuation of health care benefits. |
Definitions
The following are the definitions that are applicable to the Tahernia Offer Letter:
“Cause” means: the willful and continued refusal to adhere to, or to carry out, in any material respect, any legal and reasonable directive of the Board after his receipt of written notice from the Board of, and a reasonable opportunity to cure, such refusal, his engaging in any act of dishonesty, fraud or misrepresentation in connection with his employment with the Company; his knowing violation of any federal or state law or regulation directly applicable to the business of the Company or its affiliates; his breach of any confidentiality agreement or invention assignment agreement between him and the Company; or his being convicted of, or entering a plea ofnolo contendere to, any crime which reflects conduct or character that the Board reasonably and in good faith determines is inconsistent with continued employment.
“Change of Control” means the occurrence of any of the following events: (i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities; (ii) The consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; (iii) A change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” means directors who either (A) are Directors as of the effective date of the Plan, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but will not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or (iv) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.
“Good Reason” means any of the following that occurs without his express written consent: a material reduction of his duties, position, authority, or responsibilities (provided that for this purpose, his duties, position, authority, and responsibilities will not be deemed to be materially reduced if following a Change of Control (as defined below) you retain the same duties, position, authority, and responsibilities with respect to the Company business or the business with which such business is operationally merged or subsumed (as, for example, where you remain the Chief Executive Officer of the Company as the surviving entity following a Change of Control,
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but are not made the Chief Executive Officer of the acquirer); a material reduction by the Company in his base salary as in effect immediately prior to such reduction; a material reduction by the Company in the kind or level of employee benefits to which you are entitled immediately prior to such reduction with the result that his overall benefits package is materially reduced; or a material change in the geographic location at which you must perform services (in other words, his relocation to a facility or a location more than fifty (50) miles from his current residence on his employment commencement date); provided, however, that termination of employment shall not be considered for “Good Reason” unless you terminate his employment within ninety (90) days following the initial occurrence of one of the foregoing events, after providing the Company with written notice of the occurrence thereof and an opportunity to cure of at least (30) days.
Dennis Bencala—Jim Murphy
Overview of Potential Post-Employment/Change-in-Control Benefits
Messrs. Bencala and Murphy are entitled to certain severance benefits upon termination of their respective employment with us in certain scenarios pursuant to their Offer Letters (collectively, the Bencala and Murphy Offer Letters). The estimated potential severance benefits payable to Messrs. Bencala and Murphy in the various termination scenarios are described below. The relevant definitions follow the tabular description.
If within 12 months following a Change of Control, either Messrs. Bencala or Murphy resigns from his employment with us for Good Reason or we terminate his employment without Cause, he would receive the following severance package, subject to his executing and not revoking a separation agreement and release of claims against us: severance pay equal to six months of his then current base salary on the date of termination; fifty percent (50%) of his annual target bonus for the year in which the termination occurs; accelerated vesting of all outstanding and unvested equity awards with respect to 50% of his then unvested portion of any such award; and reimbursement by us for payments made by Messrs. Bencala and Murphy for health insurance benefits under the Consolidated Omnibus Reconciliation Act of 1985 (COBRA) for six months starting from the termination date or until Messrs. Bencala or Murphy obtains substantially similar coverage under another employer’s group insurance plan, whichever date occurs first.
Estimated Value of Change in Control and Severance Benefits (1)
NEO Terminated with Good Reason or without Cause Related to a Change in Control | ||||||||
Compensation & Benefits | Dennis Bencala | Jim Murphy | ||||||
Base Salary (2) | $ | 130,000 | $ | 120,000 | ||||
Bonus (3) | $ | 65,000 | $ | 60,000 | ||||
Acceleration of Vesting of Stock Options (4) | $ | 7,125 | $ | 3,500 | ||||
Health Care Benefits (5) | $ | 11,555 | $ | 7,517 |
(1) | All amounts are estimated based on an assumed triggering date of December 30, 2012 and a per share price of $1.67, which was the closing sales price of our common stock on the NASDAQ Capital Market on December 28, 2012, the last trading day of the fiscal year ended December 30, 2012. |
(2) | Represents severance pay equal to six months of Mr. Bencala’s base salary of $260,000 and Mr. Murphy’s base salary of $240,000, in effect as of December 30, 2012. |
(3) | Represents 50% of the annual target bonus which would be 25% the base salaries for Messrs. Bencala and Murphy. |
(4) | Represents the intrinsic value of 50% of the outstanding and unvested options that would vest within twelve months of termination. The intrinsic value is calculated by multiplying (i) the amount by which the fair market value of our common stock on December 30, 2012 exceeded the applicable exercise price by (ii) the number of shares that would be subject to such acceleration. |
(5) | Represents the premiums to be paid by us for six months continuation of health care benefits. |
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Definitions
The following are the definitions that are applicable to the Bencala and Murphy Offer Letters:
“Cause” means: the executive’s failure to perform his assigned duties or responsibilities after notice thereof from us describing his failure to perform such duties or responsibilities; engaging in any act of dishonesty, fraud or misrepresentation; violation of any federal or state law or regulation directly applicable to our business; breach of any confidentiality agreement or invention assignment agreement between the executive and us; or being convicted of, or entering a plea of nolo contendere to, any crime or committing any act of moral turpitude.
“Change of Control” means either: our acquisition by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation or stock transfer, but excluding any such transaction effected primarily for the purpose of changing our domicile), unless our stockholders of record immediately prior to such transaction or series of related transactions hold, immediately after such transaction or series of related transactions, at least 50% of the voting power of the surviving or acquiring entity (provided that the sale by us of our securities for the purposes of raising additional funds will not constitute a Change of Control hereunder); or a sale of all or substantially all of our assets.
“Good Reason” means any of the following that occurs on or following a Change of Control and without the executive’s express written consent: a reduction of his duties, position or responsibilities; a reduction by us in his base salary as in effect immediately prior to such reduction; a material reduction by us in the kind or level of employee benefits to which he is entitled immediately prior to such reduction with the result that his overall benefits package is significantly reduced; or a material change in the geographic location at which he must perform services (in other words, his relocation to a facility or a location more than fifty (50) miles from his then present location).
Debajyoti Pal
Overview of Potential Post-Employment/Change-in-Control Benefits
Mr. Pal is entitled to certain severance benefits upon termination of his employment with us in certain scenarios pursuant to his offer letter (Pal Offer Letter).
If within 12 months following a Change of Control or, Mr. Pal resigns from his employment with us for Good Reason, or we terminate his employment without Cause or in the event we terminate Mr. Pal’s employment with us unrelated to a Change of Control and without Cause, then he will be entitled to receive the following severance: continuing payments of severance pay equal to twelve months of his then current base salary on the date of termination (or, if greater, as in effect immediately prior to the Change of Control), payable in accordance with our normal payroll procedures and subject to the usual, required withholding; 100% of Mr. Pal’s target bonus for the year in which the termination occurs (or, if greater, his target bonus as in effect immediately prior to the Change of Control), to be paid in equal installments over the twelve month period from the date of such termination, payable in accordance with our normal payroll procedures and subject to the usual, required withholding; accelerated vesting of outstanding and unvested equity awards with respect to that portion of the award that would have vested during the twelve month period following his date of termination if he had remained employed with us through such period; and provided Mr. Pal constitutes a qualified beneficiary, as defined in Section 4980B(g)(l) of the Code, and Mr. Pal elects health insurance continuation coverage under COBRA within the time period prescribed pursuant to applicable law, we will reimburse his health insurance premiums until the earlier of twelve months or until he obtains substantially similar coverage under another employer’s group insurance plan.
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Severance benefits are contingent upon Mr. Pal’s executing and not revoking a standard settlement and release of claims agreement.
Estimated Value of Change in Control and Severance Benefits (1)
NEO Terminated With Good Reason or Without Cause Related and/or Unrelated to a Change in Control | ||||
Compensation & Benefits | ||||
Base Salary (2) | $ | 270,000 | ||
Bonus (3) | $ | 135,000 | ||
Acceleration of Vesting of Stock Options (4) | $ | 10,225 | ||
Health Care Benefits (5) | $ | 23,111 |
(1) | All amounts are estimated based on an assumed triggering date of December 30, 2012 and a per share price of $1.67, which was the closing sales price of our common stock on the NASDAQ Capital Market on December 28, 2012, which was the last trading day of the fiscal year ended December 30, 2012. |
(2) | Represents severance pay equal to twelve months of base salary of $270,000 in effect as of December 30, 2012. |
(3) | Represents 100% of the annual target bonus, which is equal to 50% of his base salary. |
(4) | Represents the intrinsic value of outstanding and unvested options that would vest within twelve months of termination. The intrinsic value is calculated by multiplying (i) the amount by which the fair market value of our common stock on December 30, 2012 exceeded the applicable exercise price by (ii) the number of shares that would be subject to such acceleration. |
(5) | Represents the premiums to be paid by us for twelve months continuation of health care benefits. |
Definitions
The following are the definitions that are applicable to the Pal Offer Letter:
“Cause” means: the executive’s failure to perform his assigned duties or responsibilities after written notice thereof from us describing his failure to perform such duties or responsibilities and his inability to correct such failure within thirty (30) days after such written notice; engaging in any act of dishonesty, fraud or misrepresentation; intentional violation of any federal or state law or regulation directly applicable to our business; breach of any confidentiality agreement or invention assignment agreement between the executive and us; or the executive being convicted of, or entering a plea of nolo contendere to, any crime or committing any act of moral turpitude.
“Change of Control” means either: our acquisition by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation or stock transfer, but excluding any such transaction effected primarily for the purpose of changing our domicile), unless our stockholders of record immediately prior to such transaction or series of related transactions hold, immediately after such transaction or series of related transactions, at least 50% of the voting power of the surviving or acquiring entity (provided that the sale by us of our securities for the purposes of raising additional funds will not constitute a Change of Control under the Pal Offer Letter); or a sale of all or substantially all of our assets.
“Good Reason” means any of the following that occurs on or following a Change of Control and without the executive’s express written consent: a material reduction of his duties, position or responsibilities; a material reduction by us in his base salary as in effect immediately prior to such reduction; a material reduction by us in the kind or level of employee benefits to which he is entitled immediately prior to such reduction with the result that his overall benefits package is significantly reduced; or a material change in the geographic location at which
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he must perform services (in other words, relocation to a facility or a location more than fifty (50) miles from his then present location); provided, however, that before the executive may terminate his employment for Good Reason, the executive must provide written notice to us, within 90 days of the initial existence of the Good Reason condition, setting forth the reasons for his intention to terminate his employment for Good Reason and we must have an opportunity within 30 days following delivery of such notice to cure the Good Reason condition. In no instance will a resignation be deemed to be for Good Reason if it is made more than 12 months following the initial occurrence of any of the events that otherwise would constitute Good Reason under the Pal Offer Letter.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than 10% of our common stock, to file initial reports of ownership of our securities on Form 3 and changes in ownership on Forms 4 or 5 with the SEC. Such officers, directors and 10% stockholders are also required by SEC rules to furnish us with copies of all Section 16(a) forms that they file. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that, during the last fiscal year, all Section 16(a) filing requirements applicable to our officers, directors and 10% stockholders were met, except that there were one late Form 3 filing for Mr. Norby and three late Form 4 filings, one for each of Messrs. Bencala, Kelly and Pal.
Certain Relationships and Related Person Transactions
In addition to the compensation arrangements with directors and executive officers described elsewhere in this Proxy Statement, the following is a description of each transaction since January 3, 2011 and each currently proposed transaction in which:
• | we have been or are to be a participant; |
• | the amount involved exceeds or will exceed the lesser of $120,000 or 1% of the average of our total assets as of January 1, 2012 and December 30, 2012; and |
• | any of our directors, executive officers or beneficial holders of more than 5% of our capital stock, or any immediate family member of or person sharing the household with any of these individuals (other than tenants or employees), had or will have a direct or indirect material interest. |
Securities Purchase Agreement
On April 21, 2009, we entered into a Securities Purchase Agreement (the SPA) with the Tallwood Investors pursuant to which we agreed to sell and the Tallwood Investors agreed to purchase 24,000,000 shares of our common stock and one share of Series A Preferred Stock to Tallwood for $42,000,000. We also issued warrants to the Tallwood Investors to purchase an aggregate of 7,800,000 shares of our common stock at the exercise price of $1.75 (Warrants), which expire five years after the issuance date. The common stock owned by Tallwood Investors represented approximately 42% of the outstanding shares of our common stock (excluding the exercise of Warrants) as of April 15, 2013. Assuming the full exercise of the Warrants, the common stock owned by the Tallwood Investors would represent 47% of the outstanding shares of our common stock.
Stockholder Agreement
Pursuant to the SPA, we also entered into a Stockholder Agreement with the Tallwood Investors pursuant to which, following the closing of the transactions contemplated by the SPA:
• | the Tallwood Investors have agreed to vote any shares of common stock representing voting power in excess of the 35% of the common stock outstanding, proportionately as all our other stockholders vote; |
• | the Tallwood Investors have agreed to vote all shares of common stock they hold proportionately with respect to the election of the directors other than the directors elected by the Tallwood Investors; |
• | for a period of two years, the Tallwood Investors have agreed to certain standstill restrictions, including, without limitation, restrictions on the acquisition of additional Ikanos securities and effecting a change of control of Ikanos or a change in our Board; |
• | the Tallwood Investors have agreed to certain restrictions on the transfer of the common stock and Series A Preferred Stock issuable under the SPA; |
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• | we have agreed to give the Tallwood Investors certain preemptive rights to purchase securities that we issue, subject to customary exceptions; and |
• | we have registered the common stock held by the Tallwood Investors and the common stock issuable upon exercise of the Warrants on a shelf registration statement and have granted the Tallwood Investors certain customary “piggy-back” registration rights related to future registration statements. |
Review, Approval or Ratification of Transactions with Related Persons
The Nominating and Corporate Governance Committee is responsible for the review, approval and ratification of transactions with related persons. Specifically, the Nominating and Corporate Governance Committee has the authority to:
• | Review and monitor our Code of Business Conduct and Ethics and our Code of Ethics for Principal Executive and Senior Financial Officers; |
• | Consider questions of possible conflicts of interest of members of our Board and corporate officers; and |
• | Review actual and potential conflicts of interest of members of our Board and corporate officers, and clear any involvement of such persons in matters that may involve a conflict of interest. In performing its responsibilities, the Nominating and Corporate Governance Committee shall have the authority to hire and obtain advice, reports or opinions from internal or external counsel and expert advisors. |
We have entered into an indemnification agreement with each of our directors and executive officers and have purchased directors’ and officers’ liability insurance. The indemnification agreements and our certificate of incorporation and bylaws require us to indemnify our directors and officers to the fullest extent permitted by Delaware law.
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REPORT OF THE AUDIT COMMITTEE OF OUR BOARD OF DIRECTORS
The following report of the Audit Committee does not constitute soliciting material and shall not be deemed filed or incorporated by reference into any other filing by Ikanos under the Securities Act of 1933 or the Exchange Act.
The Audit Committee of the Board serves as the representative of the Board for general oversight of Ikanos’ financial accounting and reporting process, our system of internal financial control, audit process and process for monitoring compliance with laws and regulations. Management has primary responsibility for preparing its financial statements and for its financial reporting process. The independent registered public accounting firm (independent auditors), PricewaterhouseCoopers LLP, is responsible for auditing Ikanos’ consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (PCAOB). In this context, the Audit Committee hereby reports as follows:
1. The Audit Committee has reviewed and discussed the audited financial statements and the audit of the effectiveness of our internal control over financial reporting with its management and independent auditors, including a discussion of the quality and acceptability of the financial reporting, the reasonableness of significant accounting judgments and estimates and the clarity of disclosures in the financial statements.
2. The Audit Committee has discussed with PricewaterhouseCoopers LLP the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (Codification of Statements on Auditing Standards, AU §380), as adopted by the PCAOB in Rule 3200T.
3. The Audit Committee has received the written disclosures and the letter from the independent auditors required by applicable requirements of the PCAOB regarding the independent auditors’ communications with the Audit Committee concerning independence, and has discussed with them their independence.
4. Based on the review and discussions referred to in paragraphs (1) through (3) above, the Audit Committee recommended to the Board that the audited financial statements be included in Ikanos’ Annual Report on Form 10-K for the fiscal year ended December 30, 2012, for filing with the SEC.
The Board has adopted a written charter for the Audit Committee, a copy of which can be viewed at the investor relations section of our website at www.ikanos.com. The information contained on our website does not form any part of this proxy statement. Each of the members of the Audit Committee is independent as defined under the listing standards of the NASDAQ Stock Market and the federal securities laws.
Respectfully submitted on April 11, 2013 by the members of the Audit Committee of our Board:
Frederick Lax, Chair
Danial Faizullabhoy
James Smaha
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As of the date hereof, our Board is not aware of any other matters to be submitted at the Annual Meeting. No proposals were received from stockholders prior to the deadline set forth in our Bylaws. If any other matters properly come before the Annual Meeting, it is the intention of the persons named in the enclosed proxy card to vote the shares they represent as our Board recommends or as they otherwise deem advisable.
THE BOARD OF DIRECTORS
Fremont, California
April 24, 2013
Our Annual Report on Form 10-K for the year ended December 30, 2012 has been mailed with this Proxy Statement. We will provide copies of exhibits to our Annual Report on Form 10-K, but will charge a reasonable fee per page to any requesting stockholder. Stockholders may make such requests in writing to Corporate Secretary, Ikanos Communications, Inc., 47669 Fremont Boulevard, Fremont, California 94538. The request must include a representation by the stockholder that, as of April 15, 2013, the stockholder was entitled to vote at the Annual Meeting. Our Annual Report on Form 10-K and exhibits are also available atwww.ikanos.com.
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IKANOS COMMUNICATIONS, INC.
ATTN: DANA HABERLAND
47669 FREMONT BLVD.
FREMONT, CA 94538
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
M58878-P38779
KEEP THIS PORTION FOR YOUR RECORDS
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
DETACH AND RETURN THIS PORTION ONLY
IKANOS COMMUNICATIONS, INC.
The Board of Directors recommends that you vote FOR the following:
1. Election of Director
Nominee:
01) Danial Faizullabhoy
For All Withhold All For All Except
To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.
The Board of Directors recommends you vote FOR the following proposal:
2. Ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm (independent auditors) for the fiscal year ending December 29, 2013.
NOTE: In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting or any adjournment thereof.
For Against Abstain
For address changes and/or comments, please check this box and write them on the back where indicated.
Please indicate if you plan to attend this meeting.
Yes No
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
Signature [PLEASE SIGN WITHIN BOX] Date
Signature (Joint Owners) Date
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Form 10-K are available at www.proxyvote.com.
M58879-P38779
IKANOS COMMUNICATIONS, INC.
2013 Annual Meeting of Stockholders
This proxy is solicited by the Board of Directors of Ikanos Communications, Inc.
The undersigned stockholder of Ikanos Communications Inc., a Delaware corporation, hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement, each dated April 24, 2013, and hereby appoints Dennis Bencala proxy and attorney-in-fact with full power to substitution, on behalf and in the name of the undersigned, to represent the undersigned at the 2013 annual meeting of stockholders of Ikanos Communications, Inc. to be held on Tuesday, June 4, 2013, at 2:00 p.m., Pacific Time, at 47669 Fremont Boulevard, Fremont, California 94538, and at any postponement or adjournment thereof, and to vote all shares of common stock which the undersigned would be entitled to vote if then and there personally present, on the matters set forth on the reverse side, and, in his discretion, upon such other matter or matters which may properly come before the meeting and any adjournment(s) thereof.
THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED “FOR” THE ELECTION OF THE SPECIFIED NOMINEE AS DIRECTOR AND “FOR” THE RATIFICATION OF OUR INDEPENDENT AUDITORS.
Address Changes/Comments:
(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
Continued and to be signed on reverse side