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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:
x | Preliminary Proxy Statement | |||||
¨ |
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |||||
¨ | Definitive Proxy Statement | |||||
¨ | Definitive Additional Materials | |||||
¨ | Soliciting Material Pursuant to §240.14a-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 with 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 SPECIAL MEETING OF STOCKHOLDERS
To Be Held on November 12, 2014
1:30 p.m. Pacific Standard Time
We cordially invite you to attend a Special Meeting of Stockholders of Ikanos Communications, Inc. The meeting will be held on Wednesday, November 12, 2014 at 1:30 p.m., Pacific Standard Time, at the Fremont Marriott Silicon Valley, 46100 Landing Parkway, Fremont, CA 94538. We are holding the Special Meeting of Stockholders:
1. | to approve the Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 200,000,000 to 425,000,000; |
2. | to approve amendments to our 2014 Stock Incentive Plan to (a) increase the number of shares of our common stock reserved for issuance thereunder by 75,000,000 shares, and (b) to increase the individual annual grant limits with respect to equity awards; |
3. | to approve a one-time stock option exchange program for our eligible employees and directors to exchange certain outstanding stock options for stock options with a lower exercise price; and |
4. | to approve the adjournment or postponement of the Special Meeting, if necessary, for, among other reason, the solicitation of additional proxies in the event there are not sufficient votes at the time of the Special Meeting to approved the proposals set forth in this proxy statement. |
These items are fully discussed in the following pages, which are made part of this Notice of Special Meeting of Stockholders. Stockholders who owned shares of our common stock as of the close of business on October 2, 2014 may vote at the meeting. Even if you plan to attend the meeting, we request that you vote your shares as promptly as possible.
Your vote is very important. Whether or not you plan to attend the meeting, we hope that you will vote as soon as possible. You may vote your shares by telephone, via the Internet or by mail. 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.
By Order of the Board of Directors, |
/s/ ANDREW S. HUGHES |
Andrew S. Hughes Vice President, General Counsel & Corporate Secretary |
Fremont, California
October 22, 2014
Important Notice Regarding the Availability of Proxy Materials
for the Stockholder Meeting to Be Held on November 12, 2014.
Our Proxy Statement for the Special Meeting of Stockholders, along with the proxy card is available on our website at www.ikanos.com.
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PROPOSAL THREE TO APPROVE A ONE-TIME STOCK OPTION EXCHANGE PROGRAM FOR EMPLOYEES AND DIRECTORS | 20 | |||
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 27 | |||
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IKANOS COMMUNICATIONS, INC.
47669 Fremont Boulevard
Fremont, California 94538
PROXY STATEMENT
FOR THE
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 12, 2014
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The Board of Directors (Board) of Ikanos Communications, Inc. (Ikanos or the Company) is soliciting proxies for a Special Meeting of Stockholders to be held at the Fremont Marriott Silicon Valley, 46100 Landing Parkway, Fremont, CA 94538 on Wednesday, November 12, 2014, at 1:30 p.m., Pacific Standard Time (the Special Meeting). This Proxy Statement will be mailed to stockholders on or about October 22, 2014. 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 Special Meeting. Please read it carefully.
Costs of Solicitation
We will pay the costs of soliciting proxies from our stockholders. We are required to request brokers and nominees who hold shares of our common stock in their names to furnish our proxy materials to the beneficial owners of such shares of our 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 October 2, 2014 (the Record Date) are entitled to vote at the Special Meeting. On the Record Date, 138,917,806 shares of our common stock were outstanding. The closing price of our common stock on The NASDAQ Capital Market (NASDAQ) on the Record Date was $0.34 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 Special Meeting.
Q: | Why are we providing the proxy materials? |
A: | Our Board is providing these proxy materials to you in connection with the Special Meeting, which will take place on Wednesday, November 12, 2014, at 1:30 p.m., Pacific Standard Time. Stockholders are invited to attend the Special 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 Special Meeting, the voting process, and certain other required information. |
Q: | What proposals will be voted on at the Special Meeting? |
A: | There are three proposals scheduled to be voted on at the Special meeting. |
Proposal One | To approve the Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 200,000,000 to 425,000,000. | |
Proposal Two | To approve amendments to our 2014 Stock Incentive Plan to: (a) increase the number of shares of our common stock reserved for issuance thereunder by 75,000,000 shares and (b) increase the individual annual grant limits with respect to equity awards. | |
Proposal Three | To approve a one-time stock option exchange program for our eligible employees and directors to exchange certain outstanding stock options for stock options with a lower exercise price. |
In addition to the proposals set forth above, stockholders are also being asked to approve a proposal that will give us authority to postpone or adjourn the Special Meeting for, among other reasons, the purpose of soliciting additional proxies if there are not sufficient votes to approve the proposals set forth above at the time of the Special Meeting. You should note that if this proposal is approved, the Special Meeting could be successively postponed or adjourned to any date. If the Special Meeting is postponed or adjourned for the purpose of soliciting additional proxies, stockholders who have already submitted their proxies will be able to revoke them at any time prior to their use. If you return a proxy and indicate how you wish to vote on any of the proposals, but do not indicate a choice on the proposal to authorize postponements and adjournments, your shares will be voted in favor of the proposal to authorize postponements and adjournments.
Q: | What are the Board’s voting recommendations? |
A: | Our Board recommends that you vote your shares as follows: |
Proposal One | FOR approval of the Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 200,000,000 to 425,000,000. | |
Proposal Two | FOR approval of amendments to our 2014 Stock Incentive Plan to: (a) increase the number of shares of our common stock reserved for issuance thereunder by 75,000,000 shares and (b) increase the individual annual grant limits with respect to equity awards. | |
Proposal Three | FOR approval of a one-time stock option exchange program for our eligible employees and directors to exchange certain outstanding stock options for stock options with a lower exercise price. |
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Q: | Who can vote at the Special Meeting? |
A: | All stockholders who owned shares of our common stock at the close of business on the Record Date may vote at the Special Meeting. Each stockholder is entitled to one vote for each share of common stock held as of the Record Date on the matters to be voted on. As of the close of business on the Record Date, 138,917,806 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 stockholder of record, you have the right to grant your proxy directly to us or to vote in person at the Special Meeting. You may also vote by telephone, via the Internet or by mail as described below under “How can I vote my shares without attending the Special Meeting?”
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 Special Meeting. However, since you are not the stockholder of record, you may not vote these shares in person at the Special 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, via the Internet, or by mail as described below under “How can I vote my shares without attending the Special Meeting?”
Q: | How many votes does Ikanos need to hold the Special Meeting? |
A: | A majority of our outstanding shares as of the Record Date must be present in person or by proxy at the Special Meeting in order to hold the Special 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 Special Meeting if you:
• | are present and vote in person at the Special 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 “FOR,” “AGAINST,” or “ABSTAIN” with respect to each of the three proposals. If you abstain from voting on the 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” the proposal 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 Special 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.
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Consequently, there likely will be broker non-votes on the proposal described above. Broker non-votes are counted for the purpose of establishing a quorum for the Special Meeting as described above under the caption, “How many votes does Ikanos need to hold the Special Meeting?” but are not counted as shares present and entitled to be voted with respect to matters on which the broker has expressly not voted.
Q: | What is the voting requirement to approve the proposal? |
A: | The proposals submitted for stockholder approval, including the proposal to postpone or adjourn the Special Meeting, require the affirmative “FOR” vote of a majority of the shares of our outstanding common stock represented, in person or by proxy, and voting at the Special Meeting (Votes Cast). Broker non-votes are not considered to be Votes Cast with respect to a particular item. Stockholders affiliated with Tallwood Venture Capital have agreed to vote all shares of our common stock beneficially owned by them in favor of Proposal One. |
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, via the Internet, by returning a paper proxy card or voting instruction card, or by submitting a ballot in person at the Special Meeting. |
Q: | How can I vote my shares in person at the Special Meeting? |
A: | Shares held directly in your name as the stockholder of record may be voted in person at the Special Meeting. Please bring the proxy card or proof of identification to the Special Meeting. Even if you plan to attend the Special 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 Special Meeting. This will not limit your right to vote at the Special 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 Special Meeting. |
Q: | How can I vote my shares without attending the Special Meeting? |
A: | Whether you hold shares directly as a stockholder of record or are the beneficial owner of shares in street name, you may vote without attending the Special 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 in 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 Standard Time, on November 11, 2014. 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—you may submit your proxy by mail by signing your proxy card or the voter instruction card, 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 Standard Time on November 11, 2014.
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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 Special 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 Standard Time, on November 11, 2014 (only your last telephone or Internet proxy will be counted); |
• | signing and submitting a new proxy card with a later date; or |
• | attending the Special Meeting and voting in person. |
Attending the Special 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.
Q: | Where can I find the voting results of the Special Meeting? |
A: | The preliminary voting results will be announced at the Special Meeting. The final voting results will be reported on a Current Report on Form 8-K, which will be filed with the Securities and Exchange Commission (SEC) within four business days after the Special Meeting. If our final voting results are not available within four business days after the Special 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 A. Bencala, our Chief Financial Officer, and Andrew S. Hughes, our Vice President, General Counsel & Corporate Secretary, were designated by our Board as the proxy holders. 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, your proxy 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” Proposal One, “FOR” Proposal Two, and “FOR” Proposal Three. |
Unless you indicate otherwise 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, is properly presented for action at the Special 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) 438-6231. 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 Special Meeting? |
A: | Other than the proposals described in this Proxy Statement, we do not expect any additional matters to be presented for a vote at the Special 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 Special Meeting. |
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Q: | Who will bear the cost of soliciting votes for the Special 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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TO APPROVE THE RESTATEMENT OF OUR CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF SHARES OF OUR AUTHORIZED COMMON STOCK FROM
200,000,000 TO 425,000,000
Our Board has adopted, declared advisable, and is submitting for stockholder approval a Restated Certificate of Incorporation (Restated Certificate) to increase the number of authorized shares of our common stock from 200,000,000 to 425,000,000, thereby increasing our total authorized number of shares of capital stock, including our preferred stock, to 426,000,000. The Restated Certificate would not change the number of authorized shares of preferred stock or the par value per share of any stock. On October 2, 2014 there were approximately 138,917,806 shares of our common stock issued and outstanding. In addition, approximately 39,000,000 shares of our common stock were reserved for issuance in connection with our various employee benefit and compensation plans and 3,157,894 shares or our common stock were reserved for issuance upon exercise of a warrant. This leaves approximately 18,925,083 shares of common stock available for future use.
Form of the Amendment
If stockholders approve this proposal, we will amend and restate our Certificate of Incorporation to increase the number of shares of common stock that we are authorized to issue from 200,000,000 to 425,000,000, thereby increasing the authorized number of shares of capital stock, including preferred stock, to 426,000,000. The par value of $0.001 per share for both common and preferred shares of stock will remain the same. If approved by the stockholders, the first paragraph of Article IV of the Restated Certificate would read in its entirety as follows:
“The Corporation is authorized to issue two classes of stock, to be designated, respectively, “Common Stock” and “Preferred Stock.” The total number of shares which the Corporation shall have authority to issue is four hundred twenty-six million (426,000,000) shares, consisting of four hundred twenty-five million (425,000,000) shares of Common Stock, par value $0.001 per share, and one million (1,000,000) shares of Preferred Stock, par value $0.001 per share.”
The remaining text of Article IV and the remainder of our Restated Certificate will not be changed.
Purpose of the Amendment
Our Board is recommending this increase in authorized shares of common stock primarily to make available a sufficient number of shares available for issuance in our proposed rights offering and under the 2014 Plan. On September 23, 2014, our Board approved the distribution of, and we intend to offer at no charge, non-transferable subscription rights to purchase up to an aggregate of 144,925,083 shares of our common stock at $0.41 per share to our stockholders of record on September 26, 2014 (the Rights Offering). If we commence the Rights Offering, each stockholder will receive one subscription right for each whole share of common stock owned on September 26, 2014. There are only 18,925,083 shares of common stock currently available for issuance in the Rights Offering. Based on the available 18,925,083 shares, each subscription right will entitle a stockholder to purchase 0.190616 of a share of our common stock. If stockholders approve this Proposal One, we intend to allocate an additional 126 million shares of common stock for issuance in the Rights Offering and each subscription right will entitle a stockholder to purchase 1.459707 shares of our common stock.
In addition, our Board has reserved an additional 75,000,000 shares for issuance under the 2014 Plan, subject to stockholder approval of Proposal Two. We currently intend to grant equity awards in the form of restricted stock units and options to our employees and executive officers shortly after completion of the Rights Offering in order to maintain the ownership percentage of our employees and executive officers at a level generally commensurate with their ownership percentage immediately prior to the private placement we closed on September 29, 2014. We also intend to grant performance-related awards to certain executives at the same time. It is anticipated that the vesting commencement date for any such time-based awards shall be
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September 29, 2014, the closing date of the private placement. The actual number of restricted stock units and options that may be granted pursuant to the foregoing will depend on a number of factors, including the level of stockholder participation in the Rights Offering.
Furthermore, increasing the shares available under the 2014 Plan will enable us to offer an attractive salary and equity package to our current employees and to continue to attract talented personnel to our Company.
Our Board is also recommending this increase in authorized shares of common stock to increase the shares available for issuance in the Rights Offering, as well as for issuance under the intended equity awards to be granted following the Rights Offering, and to give us the appropriate flexibility to issue shares for future corporate needs. The shares may be issued by our Board in its discretion, subject to any further stockholder action required in the case of any particular issuance by applicable law, regulatory agency, or under NASDAQ rules. In addition, even if stockholders approve this Proposal One, it is still within our Board’s discretion whether to commence the Rights Offering or to grant the intended equity awards under the 2014 Plan. The newly authorized shares of common stock would be issuable for any proper corporate purpose, including future acquisitions, investment opportunities, capital raising transactions of equity, or convertible debt securities, stock splits, stock dividends, issuance under current or future equity compensation plans, including automatic increases in the number of available shares of common stock available under our employee stock purchase plans or for any other corporate purpose. By increasing the number of authorized shares of common stock, our Board believes that these additional shares will provide us with the flexibility to issue shares in the future to take advantage of market conditions or favorable opportunities without the potential expense or delay incident to obtaining stockholder approval for a particular issuance.
The Rights Offering, if commenced, shall be made only by means of a prospectus anticipated to be filed with the SEC as part of a registration statement. A registration statement relating to the Rights Offering has not yet been filed with the SEC. The securities may not be sold, nor may any offer to buy be accepted prior to the time the registration statement has been filed and becomes effective. This proxy statement and the foregoing description do not constitute an offer to sell or a solicitation of an offer to buy any securities, nor shall there be any offer or sale of securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act or pursuant to an exemption from the registration requirements thereof.
Rights of Additional Authorized Shares
The additional authorized shares of common stock, if and when issued, would be part of the existing class of common stock and would have the same rights and privileges as the shares of common stock currently outstanding. Other than stockholders affiliated with Tallwood Venture Capital (the Tallwood Group), our stockholders do not have preemptive rights with respect to our common stock. If our Board should elect to issue additional shares of common stock, our existing stockholders, other than the Tallwood Group, would not have any preferential rights to purchase the shares.
Potential Adverse Effects of the Amendment
Future issuances of our common stock will have a dilutive effect on earnings per share, book value per share, voting power, and percentage interest of holdings of current stockholders. In addition, the availability of additional shares of common stock for issuance could, under certain circumstances, discourage or make more difficult efforts to obtain control of us. Our Board is not aware of any attempt, or contemplated attempt, to acquire control of us. This proposal is not being presented with the intent that it be used to prevent or discourage any acquisition attempt, but nothing would prevent our Board from taking any appropriate actions not inconsistent with its fiduciary duties.
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As a result of increasing the number of authorized shares, we may incur additional Delaware franchise fees, which are based in part on the number of shares authorized.
Effectiveness of the Restated Certificate of Incorporation and Vote Required
If stockholders approve the proposed amendment, the Restated Certificate will become effective upon our filing it with the Secretary of State of the State of Delaware. The Restated Certificate is attached as Annex I. The adoption of this Restated Certificate requires the approval of a majority of the outstanding shares of common stock entitled to vote. The Tallwood Group has agreed to vote all shares beneficially owned by it in favor of this Proposal One.
Board Recommendation
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE PROPOSAL TO APPROVE THE RESTATED CERTIFICATE OF INCORPORATION.
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TO APPROVE AMENDMENTS TO THE 2014 STOCK INCENTIVE PLAN TO (A) INCREASE THE NUMBER OF SHARES OF OUR COMMON STOCK AVAILABLE FOR GRANT BY 75,000,000 SHARES AND (B) INCREASE THE INDIVIDUAL ANNUAL GRANT LIMITS WITH RESPECT TO EQUITY AWARDS
Description of the Proposed Amendment
We are asking stockholders to approve amendments to the 2014 Plan that will provide us with a sufficient number of shares to offer competitive equity compensation to our employees, consultants, and directors. We intend to use a portion of these shares to grant awards to current employees after we close the Rights Offering, so that our current employees may maintain their respective ownership percentages generally commensurate with their ownership percentages immediately prior to the private placement we closed on September 29, 2014.
Our Board unanimously adopted amendments to the 2014 Plan (the Amendments) on September 23, 2014 and October 10, 2014, subject to approval by our stockholders, to:
• | increase number of shares of our common stock reserved for issuance thereunder by 75,000,000 shares; and |
• | increase the individual annual limits with respect to certain awards granted under the 2014 Plan as follows: |
¡ | the maximum number of shares subject to stock options that an individual may receive in any one fiscal year is increased to no more than 7,000,000 shares (plus an additional 14,000,000 shares in the first year of service); |
¡ | the maximum number of shares subject to stock appreciation rights that an individual may receive in any one fiscal year is increased to no more than 7,000,000 shares (plus an additional 14,000,000 shares in the first year of service); |
¡ | the maximum number of shares subject to restricted stock unit awards intended to qualify as “performance-based compensation” exempt from the Section 162(m) tax deduction limitation (described below) that an individual may receive in any one fiscal year is increased to no more than 7,000,000 shares (plus an additional 14,000,000 shares in the first year of service); |
¡ | the maximum number of shares subject to restricted stock awards intended to qualify as “performance-based compensation” exempt from the Section 162(m) tax deduction limitation (described below) that an individual may receive in any one fiscal year is increased to no more than 7,000,000 shares (plus an additional 14,000,000 shares in the first year of service); |
¡ | the maximum number of shares subject to performance share awards intended to qualify as “performance-based compensation” exempt from the Section 162(m) tax deduction limitation (described below) that an individual may receive in any one fiscal year is increased to no more than 7,000,000 shares (plus an additional 14,000,000 shares in the first year of service); and |
¡ | the maximum initial dollar value of performance units intended to qualify as “performance-based compensation” exempt from the Section 162(m) tax deduction limitation (described below) that an individual may receive in any one fiscal year is increased to no more than $15,000,000 (plus an additional $15,000,000 in the first year of service).- |
If approved by our stockholders, the Amendments will be effective on the date approved by our Board .
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Why We Believe You Should Vote For this Proposal
Equity compensation is needed to compete for talent in the semiconductor industry.
The 2014 Plan is the sole active plan for providing equity incentive compensation to eligible employees and non-employee directors and consultants. Equity compensation is a significant component of our employee compensation program. If we are unable to grant competitive equity awards to employees, we would need to increase other forms of compensation (such as cash) in order to provide a total compensation package that is competitive with our labor market competitors.
As a semiconductor company, attracting top talent is critical to our success.
We operate in very competitive high-technology markets and have embarked on a broad strategy to expand our business. Key components to executing this strategy include building an outstanding work force and implementing compensation programs that support a culture that focuses on increasing stockholder value by directly aligning employee interests with stockholder interests. We believe our practice of granting stock options and other equity awards to employees is essential in helping us meet our mission and has been a strong contributor in securing top talent to drive our business. This is especially the case for us as a semiconductor company, where our single most significant asset is our people. Approval of the proposed amendments to the 2014 Plan will enable us to continue to retain our current employees and to attract top talent as we seek to grow our business.
Equity compensation is needed to retain and motivate our current employees.
As of the Record Date, virtually 100% of our employees’ outstanding options are “underwater” (meaning they have an exercise price that exceeds our current stock price), compromising our ability to retain and motivate employees. We believe the ability to grant new stock options at market value to our current employees will help retain our employees and motivate them and thereby create value for stockholders.
Equity compensation fosters an ownership culture in which employees think and act like stockholders.
We strongly believe that our equity compensation program fosters an ownership culture in which employees think and act like stockholders. This culture has been integral to our success in the past and will be important to our ability to achieve consistently superior performance in the years ahead. Therefore, we consider the proposal to increase the number of shares available under the 2014 Plan and increases in the grant limits to be vital to our future success.
Overview of the 2014 Stock Incentive Plan
The 2014 Plan was adopted by our Board on April 8, 2014, and approved by our stockholders at our annual meeting held on June 3, 2014, to replace our 2004 Plan which terminated, by its own terms, on June 24, 2014. The following is a summary of the principal features of the 2014 Plan and its operation. The summary is qualified in its entirety by reference to the full text of the 2014 Plan attached hereto as Annex II.
The 2014 Plan provides for the grant of the following types of incentive awards: stock options; restricted stock; restricted stock units; stock appreciation rights; and performance units and performance shares. Each of these is referred to individually as an “Award” or collectively as “Awards” and each holder of an Award is referred to as a “Participant” or collectively as “Participants.” Those eligible for Awards under the Plan include employees and consultants who provide services to us or our subsidiaries as well as members of our Board. As of September 29, 2014, the first day of our fourth fiscal quarter of 2014, all of our 236 employees and six independent directors were eligible to participate in the 2014 Plan.
Number of Shares of Common Stock Available Under the Plan. The maximum number of shares that may be optioned and sold under the Plan would be increased by 75,000,000 from no more than 35,000,000 shares to no
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more than 110,000,000 shares. If an Award expires or terminates without having been exercised in full, is surrendered pursuant to an exchange program, or, with respect to restricted stock, restricted stock units, performance shares or performance units, is repurchased by us or forfeited due to a failure to vest, the shares which were subject thereto will become available for future grant or sale under the 2014 Plan (unless the 2014 Plan has been terminated). With respect to stock appreciation rights, only shares actually issued pursuant to the stock appreciation right will cease to be available under the 2014 Plan. All remaining shares underlying the stock appreciation rights will remain available for future grant or sale under the 2014 Plan (unless the 2014 Plan has been terminated). If the Company elects to withhold shares to pay the exercise price of an Award or to satisfy tax withholdings related to an award, those shares will become available for future grant under the 2014 Plan. Shares that have actually been issued under the 2014 Plan under any Award will not be returned to the Plan and will not become available for future distribution under the 2014 Plan unless forfeited or repurchased by us due to failure to vest. To the extent an Award is paid out in cash rather than shares, such cash payment will not reduce the number of shares available for issuance under the 2014 Plan.
If we declare a dividend or other distribution, or engage in a recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of shares of our securities, or other change in our corporate structure affecting our shares, the Administrator (as defined below) will adjust the number and class of shares available for issuance under the 2014 Plan; the number, class, and price of shares subject to outstanding Awards; specified per-person limits on Awards to reflect the change; and the number of shares issuable pursuant to outside director formula grants to reflect the change.
Administration of the 2014 Plan. Our Board, or any of its committees of directors or other individuals satisfying applicable laws and appointed by our Board, referred to as the Administrator, will administer the 2014 Plan. To make grants to certain of our officers and key employees, the members of the committee must qualify as “non-employee directors” under Rule 16b-3 of the Exchange Act. To the extent the Administrator determines it desirable to qualify Awards granted under the 2014 Plan as “performance-based compensation” to preserve corporate income tax deductions that might otherwise be disallowed pursuant to Section 162(m) of the Internal Revenue Code, as amended, (the Code) the members of the committee will consist of two or more “outside” directors as defined in Section 162(m).
Subject to the terms of the 2014 Plan, the Administrator has the sole discretion to select the employees, consultants, and directors who will receive Awards, to determine fair market value and the number of shares to be covered by each award; to determine the terms and conditions of Awards, to modify or amend each Award (subject to the restrictions of the 2014 Plan), and to interpret the provisions of the 2014 Plan and outstanding Awards. The Administrator may implement an exchange program under which outstanding Awards are surrendered or cancelled in exchange for Awards of the same type, Awards of a different type and/or cash, and/or the exercise price of an outstanding Award could be reduced, subject to stockholder approval.
Automatic Director Grants. The 2014 Plan provides for an automatic grant to outside directors of an option to purchase 45,000 shares of common stock on or about the date the person first becomes an outside director (First Grant). The First Grant vests at the rate of one-third on the one year anniversary of the vesting commencement date, and 1/12th of the shares each quarter thereafter on the same day of the month as the vesting commencement date, subject to the outside director continuing to serve as an outside director on each vesting date. In addition to the initial award, at each annual meeting Board members will receive the following awards:
• | An option for 8,500 shares and a restricted stock award for 3,000 shares if such Board member has served on the Board for at least one year as of the date of grant; |
• | An option for 12,500 shares and a restricted stock award for 4,000 shares if such Board member has served on the Board for at least two years as of the date of grant; and |
• | An option for 19,500 shares and a restricted stock award for 7,000 shares if such Board member has served on the Board for at least three years as of the date of grant. |
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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.
Options. The Administrator is able to grant nonstatutory stock options and incentive stock options under the 2014 Plan. The Administrator determines the number of shares of our common stock subject to each option, although the 2014 Plan provides that a participant may not receive options for more than 1,000,000 shares in any fiscal year, except in connection with his or her initial employment with us, in which case he or she may be granted an option covering up to an additional 2,000,000 shares. If stockholders approve the Proposal Two, these limits would be increased to 7,000,000 shares and 14,000,000 shares, respectively.
The Administrator determines the exercise price of options granted under the 2014 Plan, provided the exercise price of options must be at least equal to the fair market value of our common stock on the date of grant. In addition, the exercise price of an incentive stock option granted to any participant who owns more than 10% of the combined total voting power of all classes of our outstanding stock must be at least 110% of the fair market value of our common stock on the grant date.
The term of each option will be stated in the Award agreement and may not exceed ten years, except that, with respect to any participant who owns more than 10% of the combined voting power of all classes of our outstanding capital stock, the term of an incentive stock option may not exceed five years.
After a termination of service with Ikanos, a participant will be able to exercise the vested portion of his or her option for the period of time stated in the Award agreement. If no such period of time is stated in the participant’s Award agreement, the participant will generally be able to exercise his or her option for three months following his or her termination for reasons other than death or disability, and 12 months following his or her termination due to death or disability, but in no event later than the expiration of the option’s term. Unless otherwise provided by the Administrator, shares covered by the unvested portion of the option will revert to the 2014 Plan.
Restricted Stock. At its sole discretion, the Administrator may grant awards of Restricted Stock evidenced by an award agreement that will specify the period of restriction, the number of shares granted, and such other terms and conditions. For example, the Administrator may set restrictions based on the achievement of specific performance goals. The Administrator, at its sole discretion, may impose such other restrictions on shares of restricted stock as it may deem advisable or appropriate. In general shares of restricted stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable period of restriction. On the date set forth in the Award agreement, shares of restricted stock for which restrictions have not lapsed will be forfeited to us. The Administrator will determine the number of shares granted pursuant to an Award of restricted stock. However, for Restricted Stock Awards intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code, no participant will be granted a right to receive more than 400,000 shares of restricted stock during any fiscal year, except that a participant may be granted up to an additional 600,000 shares of restricted stock in connection with his or her initial employment with the Company. If stockholders approve this Proposal Two, these limits would be increased to 7,000,000 shares and 14,000,000 shares, respectively.
Participants holding shares of restricted stock may exercise full voting rights with respect to those shares and generally will be entitled to receive all dividends and other distributions paid with respect to those shares, except that dividends or distributions paid in shares will be subject to the same restrictions on transferability and forfeiture as the shares of restricted stock with respect to which they were paid.
Restricted Stock Units. Restricted Stock Units (RSUs) give participants the right to acquire a specified number of shares of our common stock at a future date upon the satisfaction of certain conditions, including any
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vesting criteria, established by the Administrator and as set forth in the RSU award agreement. Awards of RSUs result in a payment to a participant only if the vesting criteria the Administrator establishes is satisfied. The Administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit, or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws, or any other basis determined by the Administrator, in its discretion.
The RSUs will vest at a rate determined by the Administrator; provided, however, that after the grant of RSUs, the Administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payment. Upon meeting the applicable vesting criteria, the Participant shall be entitled to receive a payout as determined by the Administrator.
Upon meeting the applicable vesting, the Participant shall be entitled to receive a payout as specified by the Administrator. The Administrator, in its sole discretion, may pay earned RSUs in cash, shares, or a combination thereof. RSUs that are fully paid in cash will not reduce the number of shares available for grant under the 2014 Plan. On the date set forth in the Award Agreement, all unearned RSUs will be forfeited to us. The Administrator determines the number of RSUs granted to any Participant. However, for RSU awards intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code, no Participant may be granted more than 400,000 RSUs during any fiscal year, except that the participant may be granted up to an additional 600,000 RSUs in connection with his or her initial employment with us. If stockholders approve this Proposal Two, these limits would be increased to 7,000,000 shares and 14,000,000 shares, respectively.
Stock Appreciation Rights. The Administrator will be able to grant stock appreciation rights (SARs) which typically provide for payments to the Participant based upon increases in the price of our common stock over the exercise price of the SAR. The Administrator, subject to the terms of the 2014 Plan, will have complete discretion to determine the number of SARs granted, including their terms and conditions under the 2014 Plan. The SARs granted under the 2014 Plan will have an exercise price that is at least one hundred percent (100%) of the fair market value of our common stock on the date of grant. No participant will be granted SARs covering more than 1,000,000 shares during any fiscal year, except that a participant may be granted SARs covering up to an additional 2,000,000 shares in connection with his or her initial employment with us. If stockholders approve this Proposal Two, these limits would be increased to 7,000,000 shares and 14,000,000 shares, respectively.
Each SAR will be evidenced by an award agreement that specifies the exercise price, the term of the SAR, the condition of exercise, and such other terms and condition that the Administrator will determine in its sole discretion. The SAR will expire upon the date determined by the Administrator and set forth in the agreement at the time of the award.
Performance Units and Performance Shares. The Administrator will be able to grant performance units and performance shares, which are Awards that will result in a payment to a participant only if the performance goals or other vesting criteria the Administrator may establish are achieved or the Awards otherwise vest. Earned performance units and performance shares will be paid, at the sole discretion of the Administrator, in the form of cash, shares of our common stock, or a combination thereof. The Administrator will establish performance or other vesting criteria at its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance units and performance shares to be paid out to participants. The performance units and performance shares will vest as a function of the extent to which the corresponding performance objectives or other vesting provisions have been achieved; provided, however, that after the grant of a performance unit or performance share, the Administrator, at its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such performance unit or performance share. For performance share or performance unit awards intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code, during any fiscal year, no participant will receive more than 400,000 performance shares and no participant will receive performance units having an initial value greater than $2,000,000 except that in connection with his or her initial service with us, a participant may be
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granted performance shares covering up to an additional 600,000 shares and performance units having an initial value up to an additional $2,000,000. If stockholders approve this Proposal Two, these limits would be increased to 7,000,000 shares and 14,000,000 shares, respectively, for performance shares, and $15,000,000 and $15,000,000, respectively, for performance unit awards. Each Performance Unit will have an initial value that is established by the Administrator on or before the date of grant. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant.
Deferred Stock Units. The Administrator will be able to grant deferred stock units, which are Awards that consist of a restricted stock, restricted stock unit, performance share or performance unit Award that the Administrator, at its sole discretion, permits to be paid out in installments or on a deferred basis, in accordance with rules and procedures established by the Administrator. Deferred stock units are subject to the individual annual limits that apply to each type of Award.
Performance Goals. Awards of restricted stock, restricted stock units, performance shares, performance units, deferred stock units, and other incentives under the 2014 Plan may be made subject to the attainment of performance goals relating to one or more business criteria within the meaning of Section 162(m) of the Code and may provide for a targeted level or levels of achievement including, among other items, cash position, earnings per share, net income, operating cash flow, operating expenses, operating income, product revenues, profit before tax, return on assets, return on equity, return on sales, revenue, revenue growth, or total stockholder return. The performance goals may differ from participant to participant and from Award to Award, may be used alone or in combination, may be used to measure our performance as a whole or the performance of one of our business units, and may be measured relative to a peer group or index.
To the extent necessary to comply with the performance-based compensation provisions of Section 162(m) of the Code, the Administrator shall establish the applicable performance goals in writing and an objective method for determining the Award earned by a Participant if the goals are attained, while the outcome is substantially uncertain and not later than the 90th day of the performance period (but in no event after 25% of the period of service with respect to which the performance goals relate has elapsed), and shall determine and certify in writing, for each Participant, the extent to which the performance goals have been met prior to payment or vesting of the Award. In determining the amounts earned by a Participant, the Administrator will have the right to reduce or eliminate (but not to increase for any Participant who is a “covered employee” within the meaning of Section 162(m) of the Code) the amount payable at a given level of performance to take into account additional factors that the Administrator may deem relevant to the assessment of individual or corporate performance for the Performance Period. A Participant who is a “covered employee” within the meaning of Section 162(m) of the Code will be eligible to receive payment pursuant to an Award for a Performance Period only if the performance goals for such period are achieved.
Transferability of Awards. Unless the Administrator determines otherwise, an award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the participant, only by the participant.
Change of Control. In the event of a merger of our company with or into another corporation or other entity or a Change in Control, each outstanding Award will be treated as the Administrator determines, including, that (i) Awards may be assumed, or substantially equivalent Awards will be substituted; (ii) upon written notice, the awards terminate; (iii) outstanding Awards may vest and become exercisable, realizable, or payable in whole or in part prior to or upon consummation of such merger or Change in Control;(iv) (A) the termination of an Award in exchange for an amount of cash and/or property, or (B) the replacement of such Award with other rights or property selected by the Administrator in its sole discretion; or (v) any combination of the foregoing. In taking any of the actions, the Administrator will not be required to treat all Awards similarly. Unless otherwise determined by the Administrator, in the event that the successor corporation does not assume or substitute for the Award, the Participant will fully vest in and have the right to exercise all of his or her outstanding options and SARs, including shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on
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Restricted Stock and Restricted Stock Units will lapse, and, with respect to Awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met.
With respect to Awards granted to an outside director that are assumed or substituted for, if on the date of or following such assumption or substitution the Participant’s status as a director or a director of the successor corporation, as applicable, is terminated other than upon a voluntary resignation by the Participant, then the Participant will fully vest in and have the right to exercise his or her options and/or stock appreciation rights as to all of the shares subject to the Award, including shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on restricted stock will lapse, and, with respect to restricted stock units, performance shares, performance units, and deferred stock units, all performance goals or other vesting criteria will be deemed achieved at target levels and all other terms and conditions met.
Amendment and Termination of the Incentive 2014 Plan. The Administrator will have the authority to amend, alter, suspend, or terminate the 2014 Plan, except that stockholder approval will be required for any amendment to the 2014 Plan to the extent required by any applicable laws. No amendment, alteration, suspension, or termination of the 2014 Plan will impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator. The agreement must be in writing and signed by the Participant and us. The 2014 Plan will terminate, by its own terms, in April 2024, unless the Administrator terminates it earlier.
Number of Awards Granted to Employees, Consultants, and Directors
The number of Awards that an employee or consultant may receive under the 2014 Plan is at the discretion of the Administrator and therefore cannot be determined in advance. As described above, stock options and restricted stock are granted to non-employee directors pursuant to a set formula. The following table sets forth the aggregate number of shares of our common stock subject to options and equity awards granted under the 2004 Plan during the last fiscal year; the average per share exercise price of such options; and the dollar value of such shares based on $1.19 per share, the fair market value on December 27, 2013, the last trading day of our fiscal year 2013.
Name of Individual or Group | Number of Shares Granted | Average Per Share Exercise Price | Dollar Value of Shares Granted (1) | |||||||||
Omid Tahernia—President and Chief Executive Officer | 400,000 | $ | 1.32 | $ | 476,000 | |||||||
Dennis Bencala—Chief Financial Officer and Vice President of Finance | 150,000 | $ | 1.32 | $ | 178,500 | |||||||
Stuart Krometis—Vice President of Worldwide Sales | 395,000 | $ | 1.54 | $ | 470,050 | |||||||
James Murphy—Vice President of Human Resources | 100,000 | $ | 1.32 | $ | 119,500 | |||||||
Debajyoti Pal—Senior Vice President and Chief Technology Officer | 125,000 | $ | 1.32 | $ | 148,750 | |||||||
All Executive Officers, as a group | 1,170,000 | $ | 1.39 | $ | 1,392,300 | |||||||
All Directors who are not Named Executive Officers, as a group | 132,500 | $ | 1.24 | $ | 157,675 | |||||||
All Employees who are not Executive Officers, as a group | 4,201,500 | $ | 1.44 | $ | 4,999,785 |
(1) | Value is based upon a per share price of $1.19 which is the fair market value of the stock on December 27, 2013, the last trading day of our fiscal year 2013. |
As described above, stock options are granted to non-employee directors pursuant to a formula under the 2014 Plan. Subject to their continued service, our current non-employee directors who are not executive officers will be eligible to receive the automatic award grants in the upcoming year.
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Equity Compensation Plan Information
The following table provides information as of December 29, 2013 with respect to common stock that may be issued upon the exercise of equity awards under our Amended and Restated 1999 Stock Option Plan (the 1999 Plan), the 2004 Plan, 2004 Employee Stock Purchase Plan (the 2004 ESPP), and the Doradus Technologies, Inc. 2004 Amended and Restated Stock Option Plan (the Doradus Plan).
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants, and rights | Weighted- average exercise price per share of outstanding options, warrants, and rights | Number of securities remaining available for future issuance under equity compensation plans | |||||||||
Equity compensation plans approved by security holders (1)(2)(3) | 19,991,885 | $ | 1.27 | 8,789,045 | (4) | |||||||
Equity compensation plans not approved by security holders | — | — | 149,215 | (5) | ||||||||
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Total | 19,991,885 | 1.27 | 8,938,260 | |||||||||
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(1) | Includes: (i) shares of common stock issuable upon the exercise of outstanding options grants (subject to vesting) for 17,139,339 shares (ii) shares of common stock issuable upon the vesting of restricted stock units for 1,266,239 shares. |
(2) | No further equity awards may be granted under the 1999 Plan. |
(3) | The 2004 Plan provides for an annual increase to the shares authorized under the Plan on the first day of each fiscal year beginning in 2006, equal to the least of (i) 4.4% of our outstanding shares common stock on such date, (ii) 3.0 million shares, or (iii) an amount determined by the Board of the Directors. The 2004 ESPP provides for an annual increase of the shares authorized under the Plan on the first day of each fiscal year starting in 2005 and ending in 2024, the number of authorized shares under the 2004 ESPP will be increased by the lesser of (i) 2.5 % of our outstanding shares of common stock on such date, (ii) 1.5 million shares, or (iii) an amount determined by the Board of the Directors. |
(4) | Includes 5,831,214 shares available for future issuance under the 2004 Plan and 2,957,831 shares available for future issuance under the 2004 ESPP. |
(5) | Shares available for future issuance under the Doradus Plan. |
Federal Tax Aspects
The following paragraphs are a summary of the general federal income tax consequences to U.S. taxpayers and us for Awards granted under the Plan. Tax consequences for any particular individual may be different.
Nonstatutory Stock Options. No taxable income is reportable when a nonstatutory stock option with an exercise price equal to the fair market value of the underlying stock on the date of grant is granted to a Participant. Upon exercise, the Participant generally will recognize ordinary income in an amount equal to the excess, if any, of the fair market value (on the exercise date) of the shares purchased over the exercise price of the option. Any taxable income recognized in connection with an option exercise by an employee of Ikanos or one of its affiliates is subject to tax withholding by the employer. The participant’s tax basis in such shares will be equal to the fair market value of the shares on the exercise date, and the Participant’s capital gain holding period for those shares will begin on the exercise date.
Incentive Stock Options. The 2014 Plan provides for the grant of stock options that qualify as “incentive stock options,” as defined in Section 422 of the Code. Under Section 422, a Participant generally is not subject to ordinary income tax upon the grant or exercise of an incentive stock option. If the Participant holds a share received on exercise of an incentive stock option for more than two years from the date the option was granted and more than one year from the date the option was exercised, which is referred to as the required holding
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period, the difference, if any, between the amount realized on a sale or other taxable disposition of that share and the holder’s tax basis in that share will be long-term capital gain or loss.
If, however, a Participant disposes of a share acquired on exercise of an incentive stock option before the end of the required holding period, which is referred to as a disqualifying disposition, the Participant generally will recognize ordinary income in the year of the disqualifying disposition equal to the excess, if any, of the fair market value of the share on the date the incentive stock option was exercised over the exercise price. However, if the sales proceeds are less than the fair market value of the share on the date of exercise of the option, the amount of ordinary income recognized by the Participant will not exceed the gain, if any, realized on the sale. If the amount realized on a disqualifying disposition exceeds the fair market value of the share on the date of exercise of the option, that excess will be short-term or long-term capital gain, depending on whether the holding period for the share exceeds one year.
For purposes of the alternative minimum tax, the amount by which the fair market value of a share of stock acquired on exercise of an incentive stock option exceeds the exercise price of that option generally will be an adjustment included in the Participant’s alternative minimum taxable income for the year in which the option is exercised. In computing alternative minimum taxable income, the tax basis of a share acquired on exercise of an incentive stock option is increased by the amount of the adjustment taken into account with respect to that share for alternative minimum tax purposes in the year the option is exercised.
Stock Appreciation Rights. Generally, no taxable income is reportable when an SAR with an exercise price equal to the fair market value of the underlying stock on the date of grant is granted to a Participant. Upon exercise, the Participant will recognize ordinary income in an amount equal to the amount of cash received and the fair market value of any shares received. The Participant’s tax basis in such shares will be equal to the fair market value of the shares on the exercise date, and the Participant’s capital gain holding period for those shares will begin on the exercise date.
Restricted Stock. Generally, a Participant who receives a restricted stock award will recognize ordinary income at the time the stock becomes vested, at which time the Participant will recognize ordinary income equal to the excess, if any, of the fair market value of the stock on the date it becomes vested over any amount paid by the Participant in exchange for the stock. The Participant’s capital gain holding period will also begin on the date of vesting. However, a Participant may, file an election with the Internal Revenue Service, within 30 days of his or her receipt of the stock award, to recognize ordinary income, as of the date the Participant receives the award, equal to the excess, if any, of the fair market value of the stock on the date the award is granted over any amount paid by the Participant in exchange for the stock. The Participant’s capital gain holding period would then begin on the date of grant.
The Participant’s basis for the determination of gain or loss upon the subsequent disposition of shares acquired from restricted stock awards will be the amount paid for such shares plus any ordinary income recognized either when the stock is received or when the stock becomes vested.
Restricted StockUnits, Performance Units, Performance Shares, and Deferred Stock Units. Subject to compliance with Section 409A of the Internal Revenue Code, as described below, the recipient of an RSU, performance unit, performance share, or deferred stock unit award will generally recognize ordinary income at the time the stock or, if applicable, cash is delivered. If stock is delivered, the amount of ordinary income would generally be equal to the fair market value of the stock.
The Participant’s basis for the determination of gain or loss upon the subsequent disposition of shares acquired from stock units or performance units or shares will be the amount of ordinary income recognized when the stock is delivered, and the Participant’s holding period for capital gains purposes will generally being on the receipt of the shares.
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Tax Effect for Us. Subject to the requirement of reasonableness, the provisions of Section 162(m) and the satisfaction of a tax reporting obligation, we generally will be entitled to a tax deduction in connection with an Award under the 2014 Plan in an amount equal to the ordinary income realized by a Participant and at the time the Participant recognizes such income (for example, the exercise of a nonstatutory stock option).
Special rules limit the deductibility of compensation paid to our “covered employees” within the meaning of Section 162(m). Under Section 162(m), the annual compensation paid to any of these specified executives will be deductible only to the extent that it does not exceed $1,000,000. However, we can preserve the deductibility of certain compensation in excess of $1,000,000 if the conditions of Section 162(m) are met. These conditions include stockholder approval of the 2014 Plan, setting limits on the number of Awards that any individual may receive in a calendar year and for Awards other than certain stock options and stock appreciation rights, establishing performance criteria that must be met before the Award actually will vest or be paid. The 2014 Plan has been designed to permit the Administrator to grant Awards that qualify as performance-based for purposes of satisfying the conditions of Section 162(m), thereby permitting us to be eligible to receive a federal income tax deduction in connection with such Awards.
Section 409A. Section 409A, which was added by the American Jobs Creation Act of 2004, provides certain new requirements on non-qualified deferred compensation arrangements.
Awards granted under the Plan with a deferral feature will be subject to the requirements of Section 409A. If an Award is subject to and fails to satisfy the requirements of Section 409A, the recipient of that Award will recognize ordinary income on the amounts deferred under the Award, to the extent vested, which may be prior to when the compensation is actually or constructively received. Also, if an Award that is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on compensation recognized as ordinary income, as well as possible interest charges and penalties. Certain states have enacted laws similar to Section 409A which impose additional taxes, interest, and penalties on non-qualified deferred compensation arrangements.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON PARTICIPANTS AND IKANOS WITH RESPECT TO THE GRANT AND EXERCISE OF AWARDS UNDER THE 2014 PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF A PARTICIPANT’S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE, OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.
For additional information regarding executive and director compensation and the compensation committee, please see the information contained “Director Compensation” and “Executive Compensation.”
Required Stockholder Vote and Recommendation of Our Board of Directors
Approval of these Amendments to the 2014 Plan requires the affirmative vote of the holders of a majority of the shares of our common stock that are present in person or by proxy and entitled to vote at the special meeting. 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 the holder 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.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE AMENDMENTS TO THE PLAN.
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TO APPROVE A ONE-TIME STOCK OPTION EXCHANGE PROGRAM FOR
EMPLOYEES AND DIRECTORS
We are seeking stockholder approval for a one-time stock option exchange program (the Exchange Program) for our employees (including executive officers) and directors. The Exchange Program would permit eligible employees and directors to exchange outstanding stock options (vested or unvested) granted under our 2004 Plan or our 1999 Plan, or granted outside of a plan (in the case of an inducement grant made to our Chief Executive Officer), with exercise prices equal to or greater than $0.41 per share (the Eligible Options), in exchange for a new stock option priced at fair market value on the date of grant, which would promptly follow the expiration of a tender offer to be made to such eligible employees and directors (the Replacement Awards). The stock options described in this proposal also include cash-settled stock appreciation rights granted to some of our employees outside the United States. These awards are generally the same as stock options except that the optionee receives cash rather than stock upon exercise, net of the exercise price.
Except as provided below, for each eligible employee, each Replacement Award would be granted under our 2014 Stock Incentive Plan (2014 Plan) (i) for a number of shares that is equal to the same number of shares as the underlying Eligible Option surrendered, except that if the participant is our Chief Executive Officer or an officer who reports directly to our Chief Executive Officer (each referred to as a Senior Officer) or a director, then the Replacement Award would be for 80% of the number of shares subject to the Eligible Option that is surrendered (rounded to nearest whole share), and (ii) the vesting schedule for each Replacement Award, commencing on the date of grant of the Replacement Award, would be ratable on a monthly basis for 48 months for Eligible Options that have yet to vest, 36 months for Eligible Options that are partially vested, and 24 months for Eligible Options that are fully vested on the date the tender offer expires, and 12 months for Eligible Options held by directors that were originally subject to vesting over 12 months. The Replacement Awards would also have a new seven year term commencing on the date of grant.
For the Eligible Options that had been granted to our Chief Executive Officer outside a stockholder-approved plan in 2012 as an inducement to accept employment, our Chief Executive Officer would be granted a Replacement Award (subject to stockholder approval of this proposal) (i) for a number of shares that is equal to 80% of the number of shares subject to the Eligible Option surrendered (rounded to nearest whole share) and (ii) (a) for shares that had been subject to certain performance targets under the Eligible Option, the vesting schedule would be the same as under the Eligible Option, which is quarterly over one year after the stock price performance target is achieved, and (b) for shares that had been subject to time vesting under the Eligible Option, the vesting schedule would be ratable on a monthly basis over 36 months following the date of grant. This Replacement Award would also have a new seven year term commencing on the date of grant.
The Exchange Program is intended to encourage retention and engagement among our employees and directors. If stockholders do not approve the Exchange Program proposal, we will not offer the Exchange Program, and the Eligible Options will continue in accordance with their terms.
Background
Our equity compensation programs are designed to attract and retain highly qualified talent. Almost all of our employees participate in our equity compensation programs. Stock options have been a significant part of the equity compensation granted to employees. As a result, as of September 26, 2014, we had approximately 17,139,426 shares underlying outstanding stock options granted to our employees, which were held by approximately 232 employees. Over the past year, our stock price has declined significantly.
Consequently, the Compensation Committee of the Board of Directors believes that the outstanding equity incentives are not offering sufficient retention incentives to our existing employees and directors. As of September 26, 2014, approximately 100% of our total outstanding stock options were underwater, meaning that
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they had exercise prices greater than $0.35 per share, the closing sales price of our common stock trading on NASDAQ on September 26, 2014. With respect to the number of employees, approximately 100% of our employees as of September 26, 2014 held underwater stock options. The median exercise price of underwater stock options was $1.27 per share.
In May 2014, our Compensation Committee retained Compensia, Inc., an independent compensation consulting firm, to assist the Compensation Committee in evaluating issues associated with underwater stock options and in structuring a compensation program to address the issues identified. In considering how best to continue to motivate, retain, and reward our employees and directors who have stock option awards that are underwater, we evaluated several alternatives, including increasing cash compensation and granting additional equity awards. In order to replace the intended benefits of equity incentives that have an exercise price higher than our current trading price, in addition to incurring costs associated with equity incentives already granted, we would need to substantially increase cash compensation. The payment of additional cash compensation would increase our compensation expense and reduce our cash position and cash flow from operations. In addition, if we were to make additional grants of stock options without requiring employees or directors to exchange existing Eligible Options, we would substantially increase our equity award overhang, the potential dilution to our stockholders, and our compensation expense. Following substantial consideration of the business and employee retention challenges facing Ikanos, our Compensation Committee recommended a stock option exchange program on the terms and conditions described in this proposal, and our Board authorized the Exchange Program in September 2014, subject to stockholder approval.
Benefits to Stockholders
We believe that our stockholders will benefit from the Exchange Program, as it will drive improved retention and engagement among a significant portion of our workforce. In particular, we believe the Exchange Program will:
• | Create retention value. Equity awards are an important component of our approach to retaining and motivating our employees and directors. If we do not address the underwater stock option issue in the near to medium term, we believe it will be more difficult for us to retain our valuable employees and directors. If we are unable to retain our employees, our ability to compete with other companies in our industry could be jeopardized, which would adversely affect our business, operating results, and future stock price. We believe that granting Replacement Awards in exchange for Eligible Options will aid in motivating and retaining the employees participating in the Exchange Program because each Replacement Award would have an exercise price that reflects a more current stock price. We believe that restarting the vesting on the Replacement Awards is a reasonable requirement for employees to participate in the Exchange Program. We also believe that the extension of vesting would have a much stronger impact on retention than existing options, which optionees may not value. |
• | Align compensation costs with retention and motivation value of equity awards. The underwater stock options all have exercise prices that were equal to the fair market value of our common stock at the time of grant. Under applicable accounting rules, we are required to continue to recognize compensation expense related to these grants while they remain outstanding and unvested, even if they are never exercised. We believe that it is an inefficient use of corporate resources to recognize compensation expense on awards that are not valued by employees or directors. By replacing stock options that have little or no retention or incentive value with stock options that will provide both retention and incentive value we would more efficiently use our resources. |
• | Decrease pressure for additional grants. If we are unable to conduct the Exchange Program, we may find it necessary to issue significant additional stock options or other equity awards to employees and directors above and beyond our ongoing equity grant practices in order to provide renewed incentive value. Any such additional grants would increase our overhang. In addition, our Senior Officers and directors who participate in the Exchange Program would receive Replacement Awards for only 80% of the number of shares subject to the Eligible Options that are surrendered. |
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Benefits to Employees and Directors
The Exchange Program would benefit our employees and directors by providing a renewed stake in our future success. The Replacement Awards would have a new exercise price that reflects our stock price at the time the Exchange Program is completed, and would have a new seven year term.
If our stockholders do not approve the Exchange Program, Eligible Options will remain outstanding and in effect in accordance with their existing terms. We will continue to recognize compensation expense for these Eligible Options, even though the Eligible Options may have little or no retention or incentive value.
Overview of the Option Exchange Program
If stockholders approve the Exchange Program, our Board will determine the date upon which the Exchange Program will begin. At that time, we will file written materials relating to the Exchange Program with the SEC as part of a tender offer statement on Schedule TO (Offer of Exchange). Should our stock price increase significantly before the tender offer begins, we may adjust the terms of the Exchange Program accordingly and/or reassess the advisability of implementing the Exchange Program. After we file materials with the SEC, we will send to eligible employees and directors written materials explaining the precise terms and timing of the Exchange Program. Documents filed relating to the Exchange Program will be available to the public, including eligible employees and directors, at http://www.sec.gov.
Under the terms of the Exchange Program, eligible employees and directors who elect to participate would surrender Eligible Options they currently hold, and in return would receive new Replacement Awards. We are not taking advantage of very recent declines in stock price. Therefore, we are not including any recent stock option grants in the Exchange Program. Specifically, we will not include any stock option grants made on or after January 1, 2014. In the cases of eligible Senior Officers and directors, the number of Replacement Awards received will be fewer than the number of Eligible Options surrendered.
As of September 26, 2014 we had 25,160,005 shares underlying outstanding options and awards under all of our equity compensation plans. Of these shares underlying outstanding stock options, up to 17,441,926 shares (or approximately 96%) are Eligible Options. The actual number of Eligible Options will depend on the number of countries where we determine it to be practical and desirable to offer the Exchange Program.
Based on the assumptions described below, if all Eligible Options are exchanged, options to purchase approximately 17,441,926 shares would be surrendered and canceled, while Replacement Awards covering approximately 16,148,726 shares would be granted, resulting in a net reduction in the equity award overhang by approximately 1,293,200 shares. As of September 26, 2014 the total number of shares of our common stock outstanding was 99,283,662 and the closing price of our common stock was $0.35 per share.
The following information as of September 26, 2014 with respect to the 1999 Plan, the 2004 Plan, the Stock Option Agreement for Omid Tahernia (our Chief Executive Officer), and the 2014 Plan is presented for reference:
Prior to Exchange (1) | After Exchange (1) | |||||||
Shares available for future grant | 9,911,287 | 11,204,487 | ||||||
Shares issuable pursuant to outstanding options | 18,181,486 | 16,888,286 | ||||||
Weighted average exercise price of all outstanding options | $ | 1.33 | $ | 0.44 | ||||
Weighted Average remaining term of all outstanding options | 4.18 | 6.90 | ||||||
Shares issuable pursuant to all other outstanding equity awards (includes RSUs and RSAs) | 6,978,519 | 6,978,519 |
(1) | If our stockholders do not approve the Exchange Program, the Eligible Options will remain outstanding and in effect in accordance with their existing terms. |
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Structure of the Option Exchange Program
Timing
If the Exchange Program is approved by our stockholders, upon approval of the specific terms of the Exchange Program by our Board, we will file an Offer of Exchange with the SEC. We will then distribute the Offer of Exchange to eligible employees and directors and initiate the exchange period. Eligible employees and directors will be given at least 20 business days from the date the Exchange Program is initiated to elect to exchange any or all of their Eligible Options for Replacement Awards. We expect to implement the Option Exchange Program as soon as administratively possible after stockholder approval on November 12, 2014, but in any event it will be implemented no later than 18 months following the date stockholders approve the Exchange Program.
Eligible Employees and Directors
The Exchange Program would be voluntary and open to our employees and directors who are employed or in service at the beginning and the end of the exchange period and on the grant date of the Replacement Awards, and who hold Eligible Options, except for employees located in countries where we determine that it is neither practical nor desirable to offer the Exchange Program.
We intend to make the Exchange Program available to our employees who are located outside of the United States where permitted by local law and where we determine it would be practicable to do so. It is possible that we would need to make modifications to the terms of the Exchange Program offered to employees in countries outside the United States either to comply with local requirements or for tax or accounting reasons, and to include the exchange of stock appreciate rights. In addition, we may exclude employees in certain non-U.S. jurisdictions from the Exchange Program if local law, expense, complexity, administrative burden, or similar considerations would make their participation illegal, infeasible, or impractical. The tax consequences for participating non-U.S. employees may differ from the U.S. federal income tax consequences.
Up to approximately 230 employees would be eligible for the Exchange Program. The Exchange Program will not be made available to former employees.
Eligible Options
As noted above, the “Eligible Options” as of the date the Exchange Program commences that may be exchanged are stock options with an exercise price that is greater than or equal to $0.41. Our Board will finalize the minimum exercise price of the Eligible Options prior to the commencement of the Exchange Program and may increase (but not decrease) the minimum exercise price for Eligible Options if it deems appropriate in light of our stock price at the time the Exchange Program commences. In all cases, options that have exercise prices less than $0.41 will not be Eligible Options.
The Eligible Options will include the options that had been granted to our Chief Executive Officer outside a stockholder-approved plan in 2012 as an inducement to accept employment with us. The inducement grant was for 2,100,000 shares, of which 1,500,000 are subject to time vesting over four years from his employment commencement date, and 600,000 are subject to vesting only if and when the average closing price of our common stock over a specified period reaches $2.50 (as to 50% of the shares) or $3.50 (as to the other 50% of the shares), subject to acceleration under certain circumstances. The inducement grant has a term of seven years from the date of grant.
The Exchange Program will not be conditioned on a minimum level of participation. If an eligible employee or director elects to exchange an Eligible Option in the Exchange Program, the employee or director must elect to exchange all of the shares subject to the Eligible Option, regardless of whether such option is vested or unvested. If an eligible employee or director holds more than one Eligible Option, however, the employee may choose to exchange one or more Eligible Options without having to exchange all of his or her Eligible Options.
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As of September 26, 2014, options for approximately 18,181,486 shares of our common stock were outstanding under all of our equity compensation plans and the inducement grant awarded to our Chief Executive Officer outside a plan. Of these outstanding options, the number of shares underlying options held by eligible employees and directors with exercise prices greater than or equal to $0.41 is 17,441,926.
Exchange Ratios
The Exchange Program will provide that:
• | an eligible employee (other than an eligible Senior Officer or director) who participates and surrenders his or her Eligible Options will receive, for each Eligible Option surrendered, a Replacement Award for the same number of shares underlying the Eligible Option that was surrendered; and |
• | an eligible Senior Officer or director who participates and surrenders his or her Eligible Options will receive, for each Eligible Option surrendered, a Replacement Award for shares equal to 80% of the number of shares underlying the Eligible Option that was surrendered by such officer or director, rounded to the nearest whole share. |
If we assume that all Eligible Options held by eligible employees who are not Senior Officers on September 26, 2014 will remain outstanding and that all of those employees remain eligible to participate, the following table summarizes information regarding the Eligible Options and the Replacement Awards that could be granted in the Exchange Program (assuming full participation):
Exercise Price of Eligible Options | Outstanding Eligible Options | Weighted Average Exercise Price of Eligible Options | Weighted Average Remaining Life of Eligible Options (years) | Proposed Exchange Ratio | Maximum Number of Replacement Awards | |||||||||||||||
$0.72 – $14.38 | 10,975,926 | $ | 1.30 | 4.00 | 100 | % | 10,975,926 |
If we assume that all Eligible Options held by eligible Senior Officers and directors on September 26, 2014 will remain outstanding and that all of those Senior Officers and directors remain eligible to participate, the following table summarizes information regarding the Eligible Options, including the inducement granted awarded to our Chief Executive Officer outside a plan, and the Replacement Awards that could be granted in the Exchange Program (assuming full participation):
Exercise Price of Eligible Options | Outstanding Eligible Options | Weighted Average Exercise Price of Eligible Options | Weighted Average Remaining Life of Eligible Options (years) | Proposed Exchange Ratio | Maximum Number of Replacement Awards | |||||||||||||||
$0.75 – 13.46 | 6,466,000 | $ | 1.44 | 4.34 | 80 | % | 5,172,800 |
Following the exchange in the example above, with respect to equity incentive plans applicable to this Exchange Program, there would be 11,204,487 shares available for grant, 16,888,286 options outstanding, and 6,978,519 restricted stock units outstanding under the 1999 Plan, the 2004 Plan, the Stock Option Agreement for Omid Tahernia, and the 2014 Plan. These outstanding options would have a weighted average exercise price of $0.41 and a weighted average remaining term of seven years.
Replacement Awards
Replacement Awards would be used for eligible employees and directors located in the United States and, we anticipate, in the other countries with eligible employees covered by the Exchange Program. It is possible that certain terms of the Exchange Program may need to be modified in countries outside the United States in order to comply with local requirements, or for tax, accounting, or administrative reasons.
If a Replacement Award is granted to our Chief Executive Officer in exchange for the cancellation of the Eligible Options granted to him outside a stockholder-approved plan as an inducement to accept employment with the Company, it will not be granted under the 2014 Plan, and will therefore be subject to stockholder approval. Stockholder approval of this proposal will constitute approval of the Replacement Award, if granted.
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Vesting, Term, and Other Provisions of Replacement Awards
The Replacement Awards would each have a new term of seven years from the date of grant, and except as set forth below, would vest monthly as follows:
• | Replacement Awards granted in exchange for Eligible Options that have yet to vest will vest monthly over 48 months from the date of grant; |
• | Replacement Awards granted in exchange for Eligible Options that are partially vested will vest monthly over 36 months from the date of grant; and |
• | Replacement Awards granted in exchange for Eligible Options that are fully vested will vest monthly over 24 months from the date of grant. |
For Eligible Options held by directors that were initial grants, which originally vested over a three year period, the Replacement Awards granted in exchange for these Eligible Options will vest on a monthly basis over 24 or 36 months, if fully vested or partially vested, respectively, and for Eligible Options held by directors that were annual grants, which originally vested over a one year period, the Replacement Awards granted in exchange for these Eligible Options will vest on a monthly basis over 12 months.
For the Eligible Option awarded to our Chief Executive Officer as an inducement grant, the Replacement Award granted in exchange for this Eligible Option will vest as to (i) the shares subject to certain performance targets, the same as the Eligible Option, which is quarterly over one year after the stock price performance target is achieved, and (ii) the shares subject to time vesting, ratably on a monthly basis for 36 months.
The other terms and conditions of the Replacement Awards would be governed by the 2014 Plan, except with respect to the Replacement Award granted to Mr. Tahernia in exchange for his options that were granted outside the 2004 Plan, and would be outlined in an award agreement to be entered into as of the grant date.
Cancellation of Surrendered Eligible Options
All surrendered Eligible Options, including those for shares in excess of the number subject to the Replacement Awards, would be cancelled at the time of the proposed exchange. Except for shares subject to the inducement grant awarded to our Chief Executive Officer outside a stockholder approved plan, the shares subject to the surrendered Eligible Options will be available for the grant of Replacement Awards and other awards under the 2014 Plan. Eligible Options that are not surrendered will not be affected and will remain exercisable according to their original terms.
Accounting Treatment
The Exchange Program will be accounted for under the Financial Accounting Standard Board’s Accounting Standard Codification Topic 718. Under these rules, the exchange of options will be characterized as a modification of the exchanged options. Any difference between the fair value of the new Replacement Awards over the fair value of the exchanged options at the time of the exchange will result in additional compensation expense. If replacement options were issued for all eligible options, we would expect to recognize non-cash incremental expense of $2.0 million over the term of the options. We currently recognize and will continue to recognize compensation expense relating to the Eligible Options over their vesting period, even though they are underwater and do not fully provide the intended incentive and retention benefits to optionees.
Any incremental compensation expense related to the Replacement Awards will be recognized ratably over the vesting period of the Replacement Awards. In the event that any of the Replacement Awards are forfeited prior to their vesting due to termination of service, the incremental compensation expense for the forfeited stock options will not be recognized.
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U.S. Federal Income Tax Consequences
The exchange of Eligible Options should be treated as a non-taxable exchange and neither we nor our optionees should recognize any income for U.S. federal income tax purposes upon the grant of the Replacement Awards. However, the tax consequences for participating non-U.S. employees may differ from U.S. federal income tax consequences.
Potential Modification to Terms to Comply with Governmental Requirements
If we commence the Exchange Program, the terms of the Exchange Program will be described in the Offer of Exchange that will be filed with the SEC before or concurrent with the initiation of the exchange period. Although we do not expect the SEC to require any modifications, it is possible that we would need to alter the terms of the Exchange Program to comply with comments from the SEC. In addition, we intend to make the Exchange Program available to employees located outside the United States, where permitted by local law and where we determine it would be practical and desirable to do so. It is possible that we would need to make modifications to the terms offered to employees in countries outside the United States either to comply with local requirements, or for tax or accounting reasons. We also reserve the right not to implement the Exchange Program in any country where it would be impractical or inadvisable to do so.
Vote Required
Approval of this Proposal Three requires the affirmative vote of a majority of the voting power present or represented by proxy and voting. The approval of the Exchange Program is a proposal on which a broker or other nominee is generally not empowered to vote using discretion; and, therefore, broker non-votes may exist with respect to this proposal. Accordingly, it is important for you to provide instructions to your broker or other nominee on how you wish to vote on this proposal.
Board Recommendation
OUR BOARD RECOMMENDS A VOTE “FOR” THE ONE-TIME STOCK OPTION EXCHANGE PROGRAM.
Eligible employees and directors are expected to be offered the opportunity to participate in the Exchange Program under a tender offer expected to be filed with the SEC following the Special Meeting. This proxy statement and the foregoing description do not constitute an offer to sell or a solicitation of an offer to buy any securities in the Exchange Program, nor shall there be any offer or sale of securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act or pursuant to an exemption from the registration requirements thereof.
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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 October 2, 2014, for:
• | each person or entity known to us to beneficially own more than 5% of our common stock; |
• | each of our directors; |
• | each of our named executive officers; 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 October 2, 2014, but excludes shares of common stock underlying options held by any other person. Percentage of beneficial ownership is based on 138,917,806 shares of common stock outstanding as of October 2, 2014. Except as indicated by footnote, the address of the beneficial owners is c/o Ikanos Communications, Inc., 47669 Fremont Boulevard, Fremont, CA 94538.
Amount and Nature of Beneficial Ownership | ||||||||
Name and Address of Beneficial Owner | Shares Beneficially Owned | Percentage Beneficially Owned | ||||||
5% Stockholders: | ||||||||
Tallwood (1) | 59,055,498 | 42.5 | % | |||||
Alcatel-Lucent (2) | 13,774,068 | 9.8 | % | |||||
Entities Affiliated with Diker Management LLC (3) | 9,240,374 | 6.7 | % | |||||
Francis Capital Management, LLC (4) | 7,122,169 | 5.1 | % | |||||
Directors and Named Executive Officers: | ||||||||
Diosdado Banatao (1)(5) | 59,176,123 | 42.6 | % | |||||
Jason W. Cohenour | — | — | ||||||
Danial Faizullabhoy (6) | 256,625 | * | ||||||
Frederick M. Lax (7) | 185,625 | * | ||||||
George Pavlov (1)(8) | 59,176,123 | 42.6 | % | |||||
James Smaha (9) | 120,625 | * | ||||||
Omid Tahernia (10) | 946,250 | * | ||||||
Dennis Bencala (11) | 430,624 | * | ||||||
Stuart Krometis (12) | 128,125 | * | ||||||
Jim Murphy (13) | 343,248 | * | ||||||
Debajyoti Pal (14) | 707,031 | * | ||||||
All current directors and executive officers as a group (11 persons) (15) | 62,414,901 | 44.0 | % |
* | Amount represents less than 1% of our common stock. |
(1) | Tallwood III, L.P. (Tallwood III), Tallwood III Partners, L.P. (Tallwood III Partners), Tallwood III Associates, L.P. (Tallwood III Associates), Tallwood III Annex, L.P. (Tallwood III Annex), and Tallwood Partners L.L.C. (Tallwood Partners and together with Tallwood III Annex, Tallwood III, Tallwood III Partners and Tallwood III Associates, the Tallwood Funds) directly own 34,263,340; 4,338,789; 265,465, 18,187,904, and 2,000,000) shares of our common stock, respectively. Tallwood III Management, LLC |
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(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 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 owned by Tallwood III Annex, but disclaim such beneficial ownership except to the extent of its pecuniary interest therein. Messrs. Banatao and Pavlov are Managing Members of Tallwood Management and Tallwood Annex Management and may be deemed to beneficially own the shares 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) | Consists of 12,195,121 shares of common stock purchased by Alcatel-Lucent in a private placement on September 29, 2014 and 1,578,947 shares of common stock subject to a warrant that are exercisable within 60 days after October 2, 2014. |
(3) | Based solely on a Schedule 13G/A filed on February 12, 2014, 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) | Based solely on a Schedule 13G filed on February 9, 2014, 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 may be deemed to be the beneficial owner of 7,122,169 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. 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 7,122,169 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. |
(5) | Includes options to purchase 97,625 shares that are exercisable within 60 days after October 2, 2014. |
(6) | Includes options to purchase 233,625 shares that are exercisable within 60 days after October 2, 2014. |
(7) | Includes options to purchase 162,625 shares that are exercisable within 60 days after October 2, 2014. |
(8) | Includes options to purchase 97,625 shares that are exercisable within 60 days after October 2, 2014. |
(9) | Includes options to purchase 97,625 shares that are exercisable within 60 days after October 2, 2014. |
(10) | Includes options to purchase 906,250 shares that are exercisable within 60 days after October 2, 2014. |
(11) | Consists of options to purchase 430,624 shares that are exercisable within 60 days after October 2, 2014. |
(12) | Consists of options to purchase 128,125 shares that are exercisable within 60 days after October 2, 2014. |
(13) | Includes of options to purchase 315,628 shares that are exercisable within 60 days after October 2, 2014. |
(14) | Includes options to purchase 607,031 shares that are exercisable within 60 days after October 2, 2014. |
(15) | Includes options to purchase 3,076,783 shares that are exercisable within 60 days after October 2, 2014 held by current executive officers and directors. |
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In connection with the proposal to approve the amendments to the 2014 Plan, we are required to disclose information regarding our executive compensation, including the Compensation Discussion and Analysis. As fiscal year ended December 29, 2013 is our most recently completed fiscal year, the Executive Compensation section of this Proxy Statement, except with respect to the Compensation Committee Report and the amendment to Mr. Tahernia’s offer letter, mirrors the Executive Compensation and Compensation Discussion and Analysis sections set forth in our proxy statement filed in connection with our 2014 Annual Meeting of Stockholders.
Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides information regarding our compensation programs during 2013 for our named executive officers (NEOs), who include our Chief Executive Officer, our Chief Financial Officer, and our three other most highly compensated executive officers as of December 29, 2013.
Named Executive Officers
Omid Tahernia, President and Chief Executive Officer
Dennis Bencala, Chief Financial Officer and Vice President of Finance
Stuart Krometis, Vice President of Worldwide Sales
Jim Murphy, Vice President of Human Resources
Debajyoti Pal, Senior Vice President and Chief Technology Officer
Advisory Vote on Executive Compensation
The 2011 advisory vote on executive compensation, in accordance with the Dodd-Frank Act, 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 compensation practices. This year, we are conducting another advisory vote on executive compensation practices and the Compensation Committee will continue to review and revise compensation practices as warranted.
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. |
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
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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 annual executive incentive 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 base salary; potential cash annual incentive payments based upon our attainment of pre-established objectives; and eligibility for long-term, equity-based incentive awards designed to align and strengthen the mutual interests of 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 annual cash incentive opportunities. Long-term compensation is comprised mainly of equity incentives.
Base Salary
Base salaries are a standard component of executive compensation that we provide. 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 as well as individual performance and responsibility. The Company decided not to adjust executive salaries in 2013.
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Cash Incentive Plans
Executive Incentive Plan
The Executive Incentive Plan for fiscal year 2013 (the 2013 EIP) 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. Each NEO’s cash bonus under the 2013 EIP was based upon a percentage of his base salary as set forth in the following table:
Executive | Title | Base Salary ($) (1) | On-Target Incentive % | On-Target Bonus ($) (2) | ||||||||||
Omid Tahernia | President and CEO | 400,000 | 100 | % | 400,000 | |||||||||
Dennis Bencala | CFO and Vice President of Finance | 260,000 | 50 | % | 130,000 | |||||||||
Stuart Krometis (3) | VP of Worldwide Sales | 160,663 | 50 | % | 80,332 | |||||||||
Jim Murphy | VP of Human Resources | 240,000 | 50 | % | 120,000 | |||||||||
Debajyoti Pal | Sr. VP and Chief Technology Officer | 270,000 | 50 | % | 135,000 |
(1) | Weighted average full year salary in 2013 |
(2) | On-target bonus prorated for period service during 2013 |
(3) | Mr. Krometis’ incentive amount also includes participation in the sales incentive plan. See below. |
The 2013 EIP focused the executive team toward achievement of certain financial, product delivery, and design-win goals. Additionally, other critical companywide goals and, in some cases personal goals, were established for the fiscal year. Although these specific goals were set, under the terms of the 2013 EIP, 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 with input from our Chief Executive Officer.
The 2013 EIP set forth performance targets based on our net income, excluding the amortization of intangible assets and stock compensation charges, (Non-GAAP Net Income) that had to be achieved in order for there to be any payment under the 2013 EIP. The Compensation Committee reviewed our operating results and determined that we did not achieve our Non-GAAP Net Income targets for 2013. Accordingly, Messrs. Tahernia, Bencala, Murphy, and Pal were not paid a bonus under the 2013 EIP.
Mr. Krometis was hired on May 6, 2013 and also participated in the 2013 EIP. However, as part of his employment, Mr. Krometis’ bonus was not based upon achieving the Non-GAAP Net Income targets. Given his overall performance, the Compensation Committee exercised its discretion and approved an incentive payment for Mr. Krometis in the amount of $54,577.
Sales Incentive Plan
The 2013 Sales Incentive Plan (“2013 SIP”) was intended to drive revenue and other goals for the worldwide sales force. Upon being hired on May 6, 2013, Mr. Krometis was guaranteed a payment of $9,423 under the 2013 SIP.
Equity-Based Incentives
The Compensation Committee believes that the granting of equity-based incentives 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
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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 a quarterly earnings release. 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 final approval from the Compensation Committee or, for non-executive employees, the Equity Award subcommittee. The value of equity awards granted to our executive officers is based on the fair value of the awards at date of grant, calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification 718, Stock Compensation (ASC 718).
The Compensation Committee reviewed data from Compensia to obtain a general understanding of the current compensation practices of similar-sized semiconductor companies 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 2013 fiscal year appears in the table below titled, “Grants of Plan-Based Awards for Fiscal Year Ended December 29, 2013.” In 2013, the Compensation Committee approved two equity grants to executive officers. First, on July 30, 2013, the Compensation Committee approved stock option grants to our executive officers. These stock option grants vest 25% of the shares one year from the grant date and 1/12th of the total grant per quarter thereafter. Second, the executive officers were granted bonus unit awards on September 5, 2013. The bonus unit awards represent a contingent right to receive the fair market value of a share of common stock in cash on the vesting dates or, at our discretion, a share of common stock to the extent authorized under a stockholder-approved equity incentive plan. These bonus unit awards vest, in two equal amounts, for each executive officer in January 2015 and April 2015. The bonus unit awards were granted to provide a stock price-based retention incentive for this period. With shareholder approval of the 2014 Plan, which allows for RSU grants to executive officers, we intend to convert the bonus unit awards to an identical number of RSUs with the same vesting dates.
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 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 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 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
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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 2013 Compensation
Mr. Tahernia’s 2013 Compensation
Mr. Tahernia has served as our President, Chief Executive Officer, and Director since June 11, 2012. Mr. Tahernia’s annual base salary as the President and Chief Executive Officer was set at $400,000 at his date of hire. He was eligible to receive up to 100% of his base salary under the 2013 EIP. In July 2013, Mr. Tahernia was granted an option to purchase 200,000 shares of our common stock that vest over four years. In September 2013, Mr. Tahernia was granted 200,000 bonus unit awards that vest equally in January 2015 and April 2015. Mr. Tahernia does not receive any additional compensation for his service as a director.
2013 ($) | 2012 ($) | Change (%) | ||||||||||
Salary (1) | 400,000 | 224,359 | 78 | % | ||||||||
Cash Incentive | — | 224,700 | (100 | )% | ||||||||
Equity Compensation—Stock Options (2) | 133,260 | 680,550 | (80 | )% | ||||||||
Equity Compensation—Bonus Unit Awards (2) | 262,000 | — | 100 | % | ||||||||
Other Compensation (Term Life Insurance Premium) | 1,186 | 643 | 84 | % |
(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 the value of bonus unit awards. The amount does not reflect the actual economic value received. |
Mr. Bencala’s 2013 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 $260,000 in August 2012. He was eligible to receive up to 50% of his base salary under the 2013 EIP. In July 2013, Mr. Bencala was granted an option to purchase 75,000 shares of our common stock that vest over four years. In September 2013, Mr. Bencala was granted 75,000 bonus unit awards that vest equally in January 2015 and April 2015.
2013 ($) | 2012 ($) | Change (%) | ||||||||||
Salary | 260,000 | 251,250 | 3 | % | ||||||||
Cash Incentive | — | 126,500 | (100 | )% | ||||||||
Equity Compensation—Stock Options (1) | 49,973 | 87,213 | (43 | )% | ||||||||
Equity Compensation—Bonus Unit Awards (1) | 98,250 | — | 100 | % | ||||||||
Other Compensation (Term Life Insurance Premium) | 2,219 | 2,219 | 0 | % |
(1) | Represents the value of options based on the fair value of the options as of the grant date and the value of bonus unit awards. The amount does not reflect the actual economic value received. |
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Mr. Krometis’ 2013 Compensation
Mr. Krometis was hired in May 2013 to serve as our Vice President of Worldwide Sales. His salary is $245,000 and was set at his hire date. Mr. Krometis was eligible to receive up to 50% of his base salary, 25% of which was based on the 2013 EIP and 25% of which was based on the 2013 SIP. Mr. Krometis received an incentive payment of $54,577 under the 2013 EIP and a payment of $9,423, which was guaranteed under the 2013 SIP at the time of his hire. In May 2013 and July 2013, respectively, Mr. Krometis was granted options to purchase 325,000 shares and 20,000 shares of our common stock, both of which vest over four years. In September 2013, Mr. Krometis was granted 50,000 bonus unit awards that vest equally in January 2015 and April 2015.
2013 ($) | 2012 ($) | Change (%) | ||||||||||
Salary (1) | 160,663 | — | 100 | % | ||||||||
Cash Incentive (2) | 64,000 | — | 100 | % | ||||||||
Equity Compensation—Stock Options (3) | 272,091 | — | 100 | % | ||||||||
Equity Compensation—Bonus Unit Awards (3) | 65,500 | — | 100 | % | ||||||||
Other Compensation (Term Life Insurance Premium) | 791 | — | 100 | % |
(1) | Amount actually paid in 2013 was pro-rated for partial year of service. |
(2) | Mr. Krometis’ cash incentive includes $54,577 under the 2013 EIP and $9,423 under the 2013 SIP. |
(3) | Represents the value of options based on the fair value of the options as of the grant date and the value of bonus unit awards. The amount does not reflect the actual economic value received. |
Mr. Murphy’s 2013 Compensation
Mr. Murphy was hired in June 2010 to serve as our Vice President of Human Resources. Mr. Murphy’s annual base salary was set at $240,000 in August 2012. He was eligible to receive up to 50% of his base salary under the 2013 EIP. In July 2013, Mr. Murphy was granted an option to purchase 50,000 shares of our common stock that vest over four years. In September 2013, Mr. Murphy was granted 50,000 bonus unit awards that vest equally in January 2015 and April 2015.
2013 ($) | 2012 ($) | Change (%) | ||||||||||
Salary | 240,000 | 237,083 | 1 | % | ||||||||
Cash Incentive | — | 119,300 | (100 | )% | ||||||||
Equity Compensation—Stock Options (1) | 33,315 | 69,770 | (52 | )% | ||||||||
Equity Compensation—Bonus Unit Awards (1) | 65,500 | — | 100 | % | ||||||||
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 the value of bonus unit awards. The amount does not reflect the actual economic value received. |
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Mr. Pal’s 2013 Compensation
Mr. Pal was hired in July 2009 as our Senior Vice President and Chief Technology Officer. His base salary was set at $270,000 in August 2012. He was eligible to receive up to 50% of his base salary under the 2013 EIP. In July 2013, Mr. Pal was granted an option to purchase 62,500 shares of our common stock that vest over a four year period. In September 2013, Mr. Pal was granted 62,500 bonus unit awards that vest equally in January 2015 and April 2015.
2013 ($) | 2012 ($) | Change (%) | ||||||||||
Salary | 270,000 | 267,083 | 1 | % | ||||||||
Cash Incentive | — | 134,400 | (100 | )% | ||||||||
Equity Compensation—Stock Options (1) | 41,644 | 41,862 | — | |||||||||
Equity Compensation—Bonus Unit Awards (1) | 81,875 | — | 100 | % | ||||||||
Other Compensation (Term Life Insurance Premium) | 2,219 | 1,187 | 87 | % |
(1) | Represents the value of options based on the fair value of the options as of the grant date and the value of bonus unit awards. The amount 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 the accomplishment of our business strategies, objectives, and initiatives. For incentive-based compensation, the Compensation Committee has considered the desirability of 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 2013 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 2004 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 ASC 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, the 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.
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Compensation Committee Interlocks and Insider Participation
George Pavlov, Danial Faizullabhoy, Frederick M. Lax, and James Smaha served as members of the Compensation Committee during the fiscal year 2013. 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.
Compensation Committee Report
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 on Schedule 14A.
Respectively submitted on October 9, 2014, by the members of the Compensation Committee of the Board:
George Pavlov, Chair
Jason W. Cohenour
Frederick M. Lax
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2013 Summary Compensation Table
Name & Principal Position | Year | Salary $ | Option Awards $ (1) | Non-Equity Incentive Plan Compensation $ | All Other Compensation $ (2) | Total $ | ||||||||||||||||||
Omid Tahernia (3) | 2013 | 400,000 | 395,260 | — | 1,186 | 796,446 | ||||||||||||||||||
President and Chief Executive Officer | 2012 | 224,359 | 680,550 | 224,700 | 643 | 1,130,252 | ||||||||||||||||||
Dennis Bencala | 2013 | 260,000 | 148,223 | — | 2,219 | 410,442 | ||||||||||||||||||
Chief Financial Officer and Vice President of Finance | 2012 | 251,250 | 87,213 | 126,500 | 2,219 | 467,182 | ||||||||||||||||||
2011 | 240,000 | 35,975 | — | 2,219 | 278,194 | |||||||||||||||||||
Stuart Krometis (4) | 2013 | 160,663 | 337,591 | 64,000 | 791 | 563,045 | ||||||||||||||||||
Vice President of Worldwide Sales | ||||||||||||||||||||||||
Jim Murphy | 2013 | 240,000 | 98,815 | — | 2,219 | 341,034 | ||||||||||||||||||
Vice President of Human Resources | 2012 | 237,083 | 69,770 | 119,300 | 2,219 | 428,372 | ||||||||||||||||||
2011 | 235,000 | — | — | 2,219 | 237,219 | |||||||||||||||||||
Debajyoti Pal | 2013 | 270,000 | 123,519 | — | 2,219 | 395,738 | ||||||||||||||||||
Senior Vice President and Chief Technology Officer | 2012 | 267,083 | 41,862 | 134,400 | 1,187 | 444,532 | ||||||||||||||||||
2011 | 262,500 | 26,164 | — | 1,187 | 289,851 |
(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 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 29, 2013, 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) | These amounts reflect term life insurance premiums. |
(3) | Mr. Tahernia was appointed as President, Chief Executive Officer and Director on June 11, 2012. |
(4) | Mr. Krometis was appointed as Vice President of Worldwide Sales effective May 6, 2013. |
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Grants of Plan-Based Awards for Fiscal Year Ended December 29, 2013
Estimated Possible Payouts | 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 ($) (1) | |||||||||||||||||||||||||
Name | Grant Date | Threshold $ | Target $ | Maximum $ | ||||||||||||||||||||||||
Omid Tahernia | — | 400,000 | 800,000 | — | — | — | ||||||||||||||||||||||
7/30/2013 | 200,000 | 1.32 | 133,260 | |||||||||||||||||||||||||
9/5/2013 | 200,000 | 1.31 | 262,000 | |||||||||||||||||||||||||
Dennis Bencala | — | 130,000 | 260,000 | — | — | — | ||||||||||||||||||||||
7/30/2013 | 75,000 | 1.32 | 49,973 | |||||||||||||||||||||||||
9/5/2013 | 75,000 | 1.31 | 98,250 | |||||||||||||||||||||||||
Stuart Krometis | — | 80,332 | 160,663 | — | — | — | ||||||||||||||||||||||
5/6/2013 | 325,000 | 1.59 | 258,765 | |||||||||||||||||||||||||
7/30/2013 | 20,000 | 1.32 | 13,326 | |||||||||||||||||||||||||
9/5/2013 | 50,000 | 1.31 | 65,500 | |||||||||||||||||||||||||
Jim Murphy | — | 120,000 | 240,000 | — | — | — | ||||||||||||||||||||||
7/30/2013 | 50,000 | 1.32 | 33,315 | |||||||||||||||||||||||||
9/5/2013 | 50,000 | 1.31 | 65,500 | |||||||||||||||||||||||||
Debajyoti Pal | — | 135,000 | 270,000 | — | — | — | ||||||||||||||||||||||
7/30/2013 | 62,500 | 1.32 | 41,644 | |||||||||||||||||||||||||
9/5/2013 | 62,500 | 1.31 | 81,875 |
(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 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 29, 2013, 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. |
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Narrative to 2013 Summary Compensation Table and Grants of Plan-Based Awards for Fiscal Year Ended December 29, 2013
See Compensation Discussion and Analysis above for a complete description of the compensation plans pursuant to which the amounts listed under the 2013 Summary Compensation Table and Grants of Plan-Based Awards for Fiscal Year Ended December 29, 2013 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 29, 2013
The following table lists all outstanding equity awards held by our NEOs as of December 29, 2013.
Name | Grant Date | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable (1) | Option Exercise Price ($) | Option Expiration Date | |||||||||||||||
Omid Tahernia (2) | 6/11/12 | 562,500 | 1,537,500 | 0.89 | 6/11/19 | |||||||||||||||
7/30/13 | — | 200,000 | 1.32 | 7/30/20 | ||||||||||||||||
9/5/13 | — | 200,000 | 1.31 | — | ||||||||||||||||
Dennis Bencala | 6/14/10 | 262,500 | 37,500 | 1.82 | 6/14/17 | |||||||||||||||
8/3/11 | 30,937 | 24,063 | 1.27 | 8/3/18 | ||||||||||||||||
10/31/12 | 31,250 | 93,750 | 1.39 | 10/31/19 | ||||||||||||||||
7/30/13 | — | 75,000 | 1.32 | 7/30/20 | ||||||||||||||||
9/5/13 | — | 75,000 | 1.31 | — | ||||||||||||||||
Stuart Krometis | 5/6/13 | — | 325,000 | 1.59 | 5/6/20 | |||||||||||||||
7/30/13 | — | 20,000 | 1.32 | 7/30/20 | ||||||||||||||||
9/5/13 | — | 50,000 | 1.31 | — | ||||||||||||||||
Jim Murphy | 6/2/10 | 218,750 | 31,250 | 2.11 | 6/2/17 | |||||||||||||||
10/31/12 | 25,000 | 75,000 | 1.39 | 10/31/19 | ||||||||||||||||
7/30/13 | — | 50,000 | 1.32 | 7/20/20 | ||||||||||||||||
9/5/13 | — | 50,000 | 1.31 | — | ||||||||||||||||
Debajyoti Pal | 9/13/09 | 425,000 | — | 1.77 | 9/13/16 | |||||||||||||||
11/9/10 | 75,000 | 25,000 | 1.18 | 11/9/17 | ||||||||||||||||
8/3/11 | 22,500 | 17,500 | 1.27 | 8/3/18 | ||||||||||||||||
10/31/12 | 15,000 | 45,000 | 1.39 | 10/31/19 | ||||||||||||||||
7/30/13 | — | 62,500 | 1.32 | 7/30/20 | ||||||||||||||||
9/5/13 | — | 62,500 | 1.31 | — |
(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, except for shares granted on September 5, 2013. The shares granted on September 5, 2013 will vest on defined dates for each optionee with 50% during January 2015 and 50% during April 2015. |
(2) | Mr. Tahernia received three option awards at employment date. The first tranche of 1,500,000 options 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. |
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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 our named executive officers upon termination of employment or in the event of a change-in-control under various applicable scenarios pursuant to each named executive officer’s offer letter, equity grant agreements and/or employment agreement with us. The amounts provided in the examples below 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 severance benefits upon termination of his employment with us under 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. The premium payment obligation will terminate upon his acceptance of subsequent employment with a company that offers comparable health insurance benefits.
(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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(v) except as the Board of Directors or Compensation Committee may otherwise provide in an award agreement specifically referencing this provision, accelerated vesting of the unvested portion of any stock option, restricted stock, restricted stock unit, or other equity grant held by you, other than the Time-Based Options Shares or Performance-Based Option Shares, that would have vested during the period through and including the last day of the calendar quarter that falls on (if your termination date is the last day of a calendar quarter), or the first such date that falls after (if your termination date is not the last day of a calendar quarter), the one-year anniversary of your termination date.
(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 his termination date; the premium payment obligation will terminate upon his acceptance of subsequent employment with a company that offers comparable health insurance benefits,
(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.
(v) except as the Board of Directors or Compensation Committee may otherwise provide in an award agreement specifically referencing this provision, one hundred percent (100%) of the unvested portion of any stock option, restricted stock, restricted stock unit, or other equity grant held by you, other than the Time-Based Options Shares or Performance-Based Option Shares, shall automatically be accelerated in full so as to become completely vested upon such termination or, if later, 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.
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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) | $ | 112,500 | $ | 281,250 | ||||
Acceleration of Vesting of Performance-Based Option Shares (4)(5) | — | — | ||||||
Bonus Unit Awards | — | $ | 238,000 | |||||
Health Care Benefits (6) | $ | 27,546 | $ | 27,546 |
(1) | All amounts are estimated based on an assumed trigger date of December 29, 2013 and a per share price of $1.19, the closing sales price of our common stock on the NASDAQ Capital Market on December 27, 2013, which was the last trading day of our fiscal year which ended on December 29, 2013. |
(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 based on his of base salary of $400,000, in effect as of December 29, 2013. |
(3) | Bonus at termination and/or change of control based on percentage of his base salary for the year in which the termination occurred. |
(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 29, 2013 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 29, 2013 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
Except as set forth below, 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 of nolo 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
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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, 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.
In September 2014, the Compensation Committee amended Mr. Tahernia’s offer letter to amend the definition of “Change of Control” to mean the occurrence of any of the following events: (i) The consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; (ii) 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 (iii) 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.
Dennis Bencala—Stuart Krometis—Jim Murphy
Overview of Potential Post-Employment/Change-in-Control Benefits
Messrs. Bencala, Krometis, and Murphy are entitled to certain severance benefits upon termination of their respective employment with us under certain scenarios pursuant to their Offer Letters (collectively, the Bencala, Krometis, and Murphy Offer Letters). The estimated potential severance benefits payable to Messrs. Bencala, Krometis, and Murphy in the various termination scenarios are described below. The relevant definitions follow the tabular description.
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If, within twelve months following a Change of Control, Messrs. Bencala, Krometis, or Murphy were to terminate his employment with us for Good Reason or if we were to 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, Krometis, and Murphy for health insurance benefits under COBRA for six months starting from the termination date or until Messrs. Bencala, Krometis 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 | Stuart Krometis | Jim Murphy | |||||||||
Base Salary (2) | $ | 130,000 | $ | 122,500 | $ | 120,000 | ||||||
Bonus (3) | $ | 65,000 | $ | 61,250 | $ | 60,000 | ||||||
Acceleration of Vesting of Stock Options (4) | — | — | — | |||||||||
Health Care Benefits (5) | $ | 13,773 | $ | 13,773 | $ | 8,972 |
(1) | All amounts are estimated based on an assumed trigger date of December 29, 2013 and a per share price of $1.19, the closing sales price of our common stock on the NASDAQ Capital Market on December 27, 2013, the last trading day of our fiscal year which ended on December 29, 2013. |
(2) | Represents severance pay equal to six months of Mr. Bencala’s base salary of $260,000, Mr. Krometis’ base salary of $245,000, and Mr. Murphy’s base salary of $240,000, in effect as of December 29, 2013. |
(3) | Represents 50% of the annual target bonus which would be 25% of the base salaries for Messrs. Bencala, Krometis 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 29, 2013 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. |
Definitions
The following are the definitions that are applicable to the Bencala, Krometis, 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.
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“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 twelve months following a Change of Control or if 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.
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) | $ | 250 | ||
Health Care Benefits (5) | $ | 27,546 |
(1) | All amounts are estimated based on an assumed trigger date of December 29, 2013 and a per share price of $1.19, the closing sales price of our common stock on the NASDAQ Capital Market on December 27, 2013, which was the last trading day of our fiscal year which ended on December 29, 2013. |
(2) | Represents severance pay equal to twelve months of base salary of $270,000, in effect as of December 29, 2013. |
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(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 29, 2013 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 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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In connection with the proposal to approve amendments to the 2014 Plan, we are required to disclose information regarding our director compensation. As fiscal year ended December 29, 2013 is our most recently completed fiscal year, the information set forth in this Director Compensation section mirrors the Director Compensation section set forth in our proxy statement filed in connection with our 2014 Annual Meeting of Stockholders.
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 2013, Mr. Tahernia received compensation as President and Chief Executive Officer, but did not receive compensation as a director.
Cash Compensation
Our Board reviews its compensation policy on a regular basis or when market or business conditions warrant a review. Effective as of January 1, 2013, and based in part on data that the Board requested from compensation consultant Compensia, Inc. (Compensia) regarding the benchmarking of director compensation, the Nominating and Corporate Governance Committee recommended, and our Board approved, cash compensation for Board of Director and Committee services. Except as otherwise noted, we paid these amounts to our non-employee directors for their service in 2013.
During 2013, our non-employee directors received an annual retainer of $35,000, which retainer included attendance at 10 qualifying meetings of the Board of Directors. For the Board and all Committees, an in-person meeting counts as one qualifying meeting and a telephonic meeting counts as one-half of a qualifying meeting. In 2013, our Board held 10.5 qualifying meetings. Because more than 10 qualifying meeting were held, our non-employee directors who attended all such meetings, were also eligible to receive, for each qualifying meeting in excess of 10, $1,500. In addition to the $35,000 annual retainer, our non-employee Chairman of the Board was also entitled to receive an additional annual retainer of $12,000.
Each member of the Audit Committee received an additional annual retainer of $10,000, which included up to eight qualifying meetings. The Audit Committee held a total of seven qualifying meetings in 2013. The members of the Compensation Committee each received an additional annual retainer of $5,000, which included up to six qualifying meetings. The Compensation Committee held a total of five qualifying meetings in 2013. Each member of the Nominating and Corporate Governance Committee received an additional annual retainer of $3,350, which included up to four qualifying meetings. The Nominating and Corporate Governance Committee held a total of 11.5 qualifying meetings in 2013. In addition, to the retainers paid to Committee members, the Chairman of each Committee received an additional annual retainer as follows: $20,500 to the Audit Committee chair, $11,000 to the Compensation Committee chair, and $9,500 to the Nominating and Corporate Governance Committee chair. For each qualifying Committee meeting in excess of the included number of qualifying meetings, such Committee member received an additional $1,000.
Equity Award Program
Our 2004 Plan provides for the automatic grant of options to our non-employee directors. Each new non-employee director appointed or elected to our Board receives 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 vests 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’s continuing to serve as a director on each vesting date. 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.
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In addition to the initial award, immediately following each annual meeting of stockholders the non-employee members of the Board receive the following awards:
• | An option for 8,500 shares and a restricted stock award for 3,000 shares if such Board member has served on the Board for at least one year as of the date of grant; |
• | An option for 12,500 shares and a restricted stock award for 4,000 shares if such Board member has served on the Board for at least two years as of the date of grant; and |
• | An option for 19,500 shares and a restricted stock award for 7,000 shares if such Board member has served on the Board for at least three 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. 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. |
The table below summarizes the compensation paid by us to our non-employee directors for 2013. Mr. Cohenour joined our Board on February 24, 2014 and, therefore, received no compensation for 2013.
Director Compensation for 2013
Name | Fees Earned or Paid in Cash (1) | Stock Awards (2) | Options Awards (2)(3) | Total | ||||||||||||
Diosdado Banatao | $ | 47,000 | $ | 8,680 | $ | 11,064 | $ | 66,744 | ||||||||
Danial Faizullabhoy | $ | 67,350 | $ | 8,680 | $ | 11,064 | $ | 87,094 | ||||||||
Frederick M. Lax | $ | 78,350 | $ | 8,680 | $ | 11,064 | $ | 98,094 | ||||||||
George Pavlov | $ | 51,750 | $ | 8,680 | $ | 11,064 | $ | 71,494 | ||||||||
James Smaha | $ | 50,750 | $ | 8,680 | $ | 11,064 | $ | 70,494 |
(1) | Messrs. Banatao and Pavlov waived their fourth quarter compensation of $11,750 and $13,500, respectively. |
(2) | 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 |
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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 29, 2013, 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. |
(3) | The following table lists all outstanding options and restricted stock held by our non-employee directors as of December 29, 2013: |
Director | Options | Restricted Stock | Total | |||||||||
Diosdado Banatao | 89,500 | 16,000 | 105,500 | |||||||||
Danial Faizullabhoy | 225,500 | 16,000 | 241,500 | |||||||||
Frederick M. Lax | 154,500 | 16,000 | 170,500 | |||||||||
George Pavlov | 89,500 | 16,000 | 105,500 | |||||||||
James Smaha | 89,500 | 16,000 | 105,500 |
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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. 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 2015 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 24, 2014, 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 2015 proxy statement.
Alternatively, under our Bylaws, a proposal or a nomination of candidates for election to our Board that the stockholder does not seek to include in our 2015 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 23, 2015 for the 2015 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, a 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 2015 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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Our Board does not know of any other business that will be presented at the Special Meeting. If any other business is properly brought before the Special Meeting, your proxy holders will vote on it as they think best unless you direct them otherwise in your proxy instructions.
Whether or not you intend to be present at the Special Meeting, we urge you to submit your signed proxy promptly.
By Order of the Board of Directors, |
/s/ ANDREW S. HUGHES |
Andrew S. Hughes |
Vice President, General Counsel & Corporate Secretary |
Fremont, California
October 22, 2014
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IKANOS COMMUNICATIONS, INC.
ARTICLES OF INCORPORATION
AMENDED November 12, 2014
ARTICLE I
The name of this corporation is Ikanos Communications, Inc. (the “Corporation”).
ARTICLE II
The purpose of this Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended.
ARTICLE III
The address of the Corporation’s registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company.
ARTICLE IV
A. | The Corporation is authorized to issue two classes of stock, to be designated, respectively, “Common Stock” and “Preferred Stock.” The total number of shares which the Corporation shall have authority to issue is four hundred twenty-six million (426,000,000) shares, consisting of four hundred twenty-five million (425,000,000) shares of Common Stock, par value $0.001 per share, and one million (1,000,000) shares of Preferred Stock, par value $0.001 per share. |
B. | The Board of Directors of the Corporation (the “Board”) is authorized, subject to any limitations prescribed by law, to provide for the issuance of shares of Preferred Stock in series, and to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences, and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. |
C. | Each outstanding share of Common Stock shall entitle the holder thereof to one vote on each matter properly submitted to the stockholders of the Corporation for their vote; provided, however, that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (this “Certificate”) (including any certificate of designation of Preferred Stock relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon by law or pursuant to this Certificate (including any certificate of designation of Preferred Stock relating to any series of Preferred Stock). |
D. | Upon the dissolution, liquidation or winding up of the Corporation, subject to the rights, if any, of the holders of any outstanding series of Preferred Stock or any class or series of stock having a preference over or the right to participate with the Common Stock with respect to the distribution of assets of the |
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Corporation upon such dissolution, liquidation or winding up of the Corporation, the holders of the Common Stock, as such, shall be entitled to receive the assets of the Corporation available for distribution to its stockholders ratably in proportion to the number of shares held by them. |
ARTICLE V
A. | The business and affairs of the Corporation shall be managed by or under the direction of the Board. In addition to the powers and authority expressly conferred upon them by statute or by this Certificate or the Bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. |
B. | Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. |
C. | Special meetings of stockholders of the Corporation may be called only by the Chairman of the Board, the Chief Executive Officer, the President or the Board acting pursuant to a resolution adopted by a majority of the Board, and any power of stockholders to call a special meeting of stockholders is specifically denied. Only such business shall be considered at a special meeting of stockholders as shall have been stated in the notice for such meeting. |
D. | Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation. |
E. | No stockholder will be permitted to cumulate votes at any election of directors. |
ARTICLE VI
A. | To the fullest extent permitted by the General Corporation Law as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director. If the General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated to the fullest extent permitted by the General Corporation Law as so amended. |
B. | The Corporation may indemnify to the fullest extent permitted by the law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, she, his or her testator or intestate is or was a director, officer, employee or agent of the Corporation or any predecessor of the Corporation or serves or served at any other enterprise as a director, officer, employee or agent at the request of the Corporation or any predecessor to the Corporation. |
C. | Neither any amendment nor repeal of this Article VI, nor the adoption of any provision of this Corporation’s Certificate of Incorporation inconsistent with this Article VI, shall eliminate or reduce the effect of this Article VI, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VI, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. |
ARTICLE VII
The Corporation is to have perpetual existence.
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ARTICLE VIII
Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
ARTICLE IX
A. | The provisions of this paragraph shall be subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances. The number of directors which constitute the Board of Directors of the Corporation shall be as designated or provided for in the Bylaws of the Corporation. The Board shall be divided into three classes, the members of each class to serve for a term of three years; provided that the directors shall be elected as follows: at the first annual meeting of the stockholders held following the closing of a firm commitment underwritten public offering of Common Stock of the Corporation, the directors in the first class shall be elected for a term of three years, at the second annual meeting following such date, the directors in the second class shall be elected for a term of three years, and at the third annual meeting following such date, the directors in the third class shall be elected for a term of three years. The Board by resolution shall nominate the directors to be elected for each class. At subsequent annual meetings of stockholders, a number of directors shall be elected equal to the number of directors with terms expiring at that annual meeting. Directors elected at each such subsequent annual meeting shall be elected for a term expiring with the annual meeting of stockholders three years thereafter. |
B. | Subject to the rights of the holders of any series of Preferred Stock then outstanding and unless the Board otherwise determines, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board resulting from death, resignation, retirement, disqualification, removal from office or other cause shall, unless otherwise provided by law or by resolution of the Board, be filled only by a majority vote of the directors then in office, whether or not less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been chosen expires. No reduction in the authorized number of directors shall have the effect of removing any director before such director’s term of office expires. |
C. | Subject to the rights of the holders of any series of Preferred Stock then outstanding, unless otherwise restricted by statue, by this Certificate or the Bylaws of the Corporation, any director, or all of the directors, may be removed from the Board, but only for cause and only by the affirmative vote of the holders of at least a majority of the voting power of all of the then outstanding shares of capital stock of the Corporation then entitled to vote at the election of directors, voting together as a single class. |
D. | The Board is expressly empowered to adopt, amend or repeal any of the Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board shall require the approval of a majority of the Board. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Certificate, the affirmative vote of the holders of at least 66 2/3% of the voting power of the then outstanding shares of voting stock entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal all or any portion of Article II, Section 3.2, Section 3.3, Section 3.4, Section 3.14, Article VI or Article IX of the Bylaws of the Corporation. |
ARTICLE XI
Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.
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ARTICLE XII
The Corporation reserves the right to amend or repeal any provision contained in this Certificate in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation; provided, however, that, notwithstanding any other provision of this Certificate, or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of this Corporation required by law or by this Certificate, the affirmative vote of the holders of at least 66 2/3% of the voting power of the then outstanding shares of voting stock entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal this Article XII, Article V, Article VI, Article VIII, Article IX or Article X.
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IKANOS COMMUNICATIONS, INC.
2014 STOCK INCENTIVE PLAN
1.Purposes of the Plan. The purposes of this Plan are:
• | to attract and retain the best available personnel for positions of substantial responsibility, |
• | to provide additional incentive to Employees, Directors and Consultants, and |
• | to promote the success of the Company’s business. |
The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units and Performance Shares.
2.Definitions. As used herein, the following definitions will apply:
(a) “Administrator” means the Board or any of its Committees as will be administering the Plan, in accordance with Section 4 of the Plan.
(b) “Applicable Laws” means the requirements relating to the administration of equity-based awards and the related issuance of Shares under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.
(c) “Award” means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares.
(d) “Award Agreement” means the written or electronic agreement setting forth the terms and provisions applicable to each Award granted under the Plan. The Award Agreement is subject to the terms and conditions of the Plan.
(e) “Board” means the Board of Directors of the Company.
(f) “Change in 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.
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For the avoidance of doubt, a transaction will not constitute a Change in Control if: (i) its sole purpose is to change the state of the Company’s incorporation, or (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
(g) “Code” means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code herein will be a reference to any successor or amended section of the Code.
(h) “Committee” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board, or a duly authorized committee of the Board, in accordance with Section 4 of the Plan.
(i) “Common Stock” means the common stock of the Company.
(j) “Company” means Ikanos Communications, Inc., a Delaware corporation, or any successor thereto.
(k) “Consultant” means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.
(l) “Director” means a member of the Board.
(m) “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided that in the case of Awards other than Incentive Stock Options, the Administrator in its discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Administrator from time to time.
(n) “Employee” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company.
(o) “Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.
(p) “Exchange Program” means a program under which (i) outstanding Awards are surrendered or cancelled in exchange for awards of the same type (which may have higher or lower exercise prices and different terms), awards of a different type, and/or cash, (ii) Participants would have the opportunity to transfer any outstanding Awards to a financial institution or other person or entity selected by the Administrator, and/or (iii) the exercise price of an outstanding Award is increased or reduced. The Administrator will determine in its sole discretion the terms and conditions of any Exchange Program, subject to the stockholder approval requirements described in Section 4(b)(vi).
(q) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the New York Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital Market of The NASDAQ Stock Market, its Fair Market Value will be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share will be the mean between the high bid and low asked prices for the Common Stock on the day of determination (or, if no bids and asks were reported on that date, as applicable, on the last trading date such bids and asks were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or
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(iii) In the absence of an established market for the Common Stock, the Fair Market Value will be determined in good faith by the Administrator.
Notwithstanding the foregoing, if the determination date for the Fair Market Value occurs on a weekend or holiday, the Fair Market Value will be the price as determined in accordance with subsections (i) through (iv) above (as applicable) on the immediately succeeding business day, unless otherwise determined by the Administrator.
(r) “Fiscal Year” means the fiscal year of the Company.
(s) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.
(t) “Inside Director” means a Director who is an Employee.
(u) “Nonstatutory Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.
(v) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(w) “Option” means a stock option granted pursuant to the Plan.
(x) “Outside Director” means a Director who is not an Employee.
(y) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.
(z) “Participant” means the holder of an outstanding Award.
(aa) “Performance Period” means any Fiscal Year or such other period as determined by the Administrator in its sole discretion.
(bb) “Performance Share” means an Award denominated in Shares which may be earned in whole or in part upon attainment of performance goals or other vesting criteria as the Administrator may determine pursuant to Section 10.
(cc) “Performance Unit” means an Award which may be earned in whole or in part upon attainment of performance goals or other vesting criteria as the Administrator may determine and which may be settled for cash, Shares or other securities or a combination of the foregoing pursuant to Section 10.
(dd) “Period of Restriction” means the period during which the transfer of Shares of Restricted Stock are subject to restrictions and therefore the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by the Administrator.
(ee) “Plan” means this 2014 Stock Incentive Plan.
(ff) “Qualifying Performance Criteria” has the meaning set forth in Section 12 of the Plan.
(gg) “Restricted Stock” means Shares issued pursuant to a Restricted Stock award under Section 7 of the Plan or issued pursuant to the early exercise of an Option.
(hh) “Restricted Stock Unit” means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, granted pursuant to Section 8. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.
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(ii) “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.
(jj) “Section 16(b)” means Section 16(b) of the Exchange Act.
(kk) “Service Provider” means an Employee, Director, or Consultant.
(ll) “Share” means a share of the Common Stock, as adjusted in accordance with Section 15 of the Plan.
(mm) “Stock Appreciation Right” means an Award, granted alone or in connection with an Option, that pursuant to Section 9 is designated as a Stock Appreciation Right.
(nn) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.
3.Stock Subject to the Plan.
(a)Stock Subject to the Plan. Subject to the provisions of Section 15 of the Plan, the maximum aggregate number of Shares that may be optioned and sold under the Plan is 80,000,000 Shares, plus (i) the number of Shares which have been reserved but not issued under the Company’s 2004 Equity Incentive Plan, as amended (“2004 Plan”), as of the effective date of this Plan, (ii) any Shares subject to stock options, restricted stock units or other outstanding awards granted under the 2004 Plan or the Company’s 1999 Stock Plan (“1999 Plan”) that, after the effective date of this Plan, expire or otherwise terminate without having been exercised in full, and (iii) any Shares issued pursuant to awards granted under the 2004 Plan or the 1999 Plan that, after the effective date of this Plan, are forfeited to or repurchased by the Company due to failure to vest, with the maximum number of Shares to be added to the Plan in respect of the 2004 Plan or the 1999 Plan equal to 30,000,000 Shares. The Shares may be authorized, but unissued or reacquired Common Stock.
(b)Lapsed Awards. If an Award expires or terminates without having been exercised in full, is surrendered pursuant to an Exchange Program, or, with respect to Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares, is forfeited to or repurchased by the Company due to failure to vest, the Shares which were subject thereto will become available for future grant or sale under the Plan (unless the Plan has terminated). With respect to Stock Appreciation Rights, only Shares actually issued (i.e., the net Shares issued) pursuant to a Stock Appreciation Right will cease to be available under the Plan; all remaining Shares underlying Stock Appreciation Rights will remain available for future grant or sale under the Plan (unless the Plan has terminated). Shares used to pay the exercise price of an Award or to satisfy the tax withholding obligations related to an Award will become available for future grant or sale under the Plan. However, Shares that have actually been issued under the Plan under any Award will not be returned to the Plan and will not become available for future distribution under the Plan unless forfeited to or repurchased by the Company due to failure to vest. To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment will not result in reducing the number of Shares available for issuance under the Plan. Notwithstanding the foregoing and, subject to adjustment as provided in Section 15, the maximum number of Shares that may be issued upon the exercise of Incentive Stock Options will equal the aggregate Share number stated in Section 3(a), plus, to the extent allowable under Section 422 of the Code and the Treasury Regulations promulgated thereunder, any Shares that become available for issuance under the Plan pursuant to this Section 3(b).
(c)Share Reserve. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of the Plan.
4.Administration of the Plan.
(a)Procedure.
(i)Multiple Administrative Bodies. Different Committees with respect to different groups of Service Providers may administer the Plan.
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(ii)Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Awards granted hereunder as “performance-based compensation” within the meaning of Section 162(m) of the Code, the Plan will be administered by a Committee of two (2) or more “outside directors” within the meaning of Section 162(m) of the Code.
(iii)Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder will be structured to satisfy the requirements for exemption under Rule 16b-3.
(iv)Other Administration. Other than as provided above, the Plan will be administered by (A) the Board or (B) a Committee, which committee will be constituted to satisfy Applicable Laws.
(v)Delegation of Authority for Day-to-Day Administration. Except to the extent prohibited by Applicable Law, the Administrator may delegate to one or more individuals the day-to-day administration of the Plan and any of the functions assigned to it under the Plan. Such delegation may be revoked at any time. The Administrator may not delegate authority with respect to Awards intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code to the extent inconsistent with the requirements thereof.
(b)Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator will have the authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Awards may be granted hereunder;
(iii) to determine the number of Shares to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreements for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may be exercised (which may be based on performance criteria) or settled, any vesting acceleration or waiver of forfeiture or repurchase restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, will determine;
(vi) to institute and determine the terms and conditions of an Exchange Program; provided, however, that notwithstanding any contrary provision of the Plan, the Administrator shall not have the authority to: (i) amend the terms of outstanding Options or Stock Appreciation Rights to reduce the exercise price thereof, or (ii) cancel outstanding Options or Stock Appreciation Rights with an exercise price above the current Fair Market Value per Share in exchange for another Option, Stock Appreciation Right or other Award or for cash, unless the stockholders of the Company have previously approved such an action or such action relates to an adjustment pursuant to Section 15;
(vii) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;
(viii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws (including qualifying for preferred tax treatment under applicable foreign tax laws);
(ix) to modify or amend each Award (subject to Section 20(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Awards;
(x) to allow Participants to satisfy withholding tax obligations in such manner as prescribed in Section 16;
(xi) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;
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(xii) to allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant under an Award;
(xiii) to determine whether Awards will be settled in Shares, cash, or in any combination thereof;
(xiv) to approve the grant of Awards under this Plan in settlement of or substitution for awards granted under other plans or programs of the Company; and
(xv) to make all other determinations deemed necessary or advisable for administering the Plan.
(c)Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations will be final and binding on all Participants and any other holders of Awards.
5.Eligibility. Nonstatutory Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units, and Performance Shares may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.
6.Stock Options.
(a)Limitations.
(i)Designation as Incentive Stock Option; $100,000 Limitation. Each Option will be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options will be treated as Nonstatutory Stock Options. For purposes of this Section 6(a)(i), Incentive Stock Options will be taken into account in the order in which they were granted. The Fair Market Value of the Shares will be determined as of the time the Option with respect to such Shares is granted.
(ii)Number of Shares. The Administrator will have complete discretion to determine the number of Shares that may be granted pursuant to Options granted to any Service Provider; provided, however, no Service Provider will be granted, in any Fiscal Year, Options covering more than 7,000,000 Shares. Notwithstanding the limitation in the previous sentence, in connection with his or her initial service a Service Provider may be granted Options covering up to an additional 14,000,000 Shares. The foregoing limitations will be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 15. In addition, if an Option is cancelled in the same Fiscal Year in which it was granted (other than in connection with a transaction described in Section 15), the cancelled Option will be counted against the numerical share limits set forth above. For this purpose, the reduction of the exercise price of an Option will be treated as cancellation of the Option and the grant of a new Option.
(b)Term of Option. The term of each Option will be stated in the Award Agreement. The term of an Option will be ten (10) years from the date of grant or such shorter term as may be provided in the Award Agreement. Moreover, in the case of an Incentive Stock Option granted to a Participant who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option will be five (5) years from the date of grant or such shorter term as may be provided in the Award Agreement.
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(c)Option Exercise Price and Consideration.
(i)Exercise Price. The per Share exercise price for the Shares to be issued pursuant to exercise of an Option will be determined by the Administrator, subject to the following:
(1) In the case of an Incentive Stock Option
a) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price will be no less than 110% of the Fair Market Value per Share on the date of grant.
b) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price will be no less than 100% of the Fair Market Value per Share on the date of grant.
(2) In the case of a Nonstatutory Stock Option, the per Share exercise price will be no less than 100% of the Fair Market Value per Share on the date of grant.
(3) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a transaction described in, and in a manner consistent with, Section 424(a) of the Code.
(ii)Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator will fix the period within which the Option may be exercised and will determine any conditions that must be satisfied before the Option may be exercised.
(iii)Form of Consideration. The Administrator will determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator will determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (1) cash; (2) check; (3) promissory note, to the extent permitted by Applicable Laws, (4) other Shares, provided that such Shares have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option will be exercised and provided that accepting such Shares will not result in any adverse accounting consequences to the Company, as the Administrator determines in its sole discretion; (5) consideration received by the Company under a broker-assisted (or other) cashless exercise program (whether through a broker or otherwise) implemented by the Company in connection with the Plan; (6) by net exercise; (7) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws; or (8) any combination of the foregoing methods of payment.
(d)Exercise of Option.
(i)Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder will be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share.
An Option will be deemed exercised when the Company receives: (1) notice of exercise (in such form as the Administrator may specify from time to time) from the person entitled to exercise the Option, and (2) full payment for the Shares with respect to which the Option is exercised (together with any applicable withholding taxes). Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares subject to an Option, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 15 of the Plan or the applicable Award Agreement.
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Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option by the number of Shares as to which the Option is exercised.
(ii)Termination of Relationship as a Service Provider. If a Participant ceases to be a Service Provider, other than upon the Participant’s death or Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for three (3) months following the Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If after termination the Participant does not exercise his or her Option within the time specified by the Administrator, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
(iii)Disability of Participant. If a Participant ceases to be a Service Provider as a result of the Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following the Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If after termination the Participant does not exercise his or her Option within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
(iv)Death of Participant. If a Participant dies while a Service Provider, the Option may be exercised following the Participant’s death within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of death (but in no event may the option be exercised later than the expiration of the term of such Option as set forth in the Award Agreement), by the Participant’s designated beneficiary, provided the right to designate a beneficiary is set forth in the Award Agreement and such beneficiary has been designated prior to the Participant’s death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Participant, then such Option may be exercised by the personal representative of the Participant’s estate or by the person(s) to whom the Option is transferred pursuant to the Participant’s will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following the Participant’s death. Unless otherwise provided by the Administrator, if at the time of death the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
7.Restricted Stock.
(a)Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Administrator, at any time and from time to time, may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator, in its sole discretion, will determine.
(b)Restricted Stock Agreement. Each Award of Restricted Stock will be evidenced by an Award Agreement that will specify the Period of Restriction, the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion, will determine. Notwithstanding the foregoing sentence, for Restricted Stock intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, during any Fiscal Year no Participant will receive more than an aggregate of 7,000,000 Shares of Restricted Stock. Notwithstanding the foregoing limitation, in connection with his or her initial service as an Employee, for Restricted Stock intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, an Employee may be granted an aggregate of up to an additional 14,000,000 Shares
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of Restricted Stock. The foregoing limitations will be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 15. Unless the Administrator determines otherwise, Shares of Restricted Stock will be held by the Company as escrow agent until the restrictions on such Shares have lapsed.
(c)Transferability. Except as provided in this Section 7 or the Award Agreement, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction.
(d)Other Restrictions. The Administrator, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate.
(e)Removal of Restrictions. Except as otherwise provided in this Section 7, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan will be released from escrow as soon as practicable after the last day of the Period of Restriction or at such other time as the Administrator may determine. The Administrator, in its discretion, may accelerate the time at which any restrictions will lapse or be removed.
(f)Voting Rights. During the Period of Restriction, Service Providers holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise.
(g)Dividends and Other Distributions. During the Period of Restriction, Service Providers holding Shares of Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares unless the Administrator provides otherwise. If any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid.
(h)Return of Restricted Stock to Company. On the date set forth in the Award Agreement, the Restricted Stock for which restrictions have not lapsed will revert to the Company and again will become available for grant under the Plan.
8.Restricted Stock Units.
(a)Grant. Restricted Stock Units may be granted at any time and from time to time as determined by the Administrator. After the Administrator determines that it will grant Restricted Stock Units under the Plan, it shall advise the Participant in an Award Agreement of the terms, conditions, and restrictions related to the grant, including the number of Restricted Stock Units. Notwithstanding anything to the contrary in this subsection (a), for Restricted Stock Units intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, during any Fiscal Year of the Company, no Participant will receive more than an aggregate of 7,000,000 Restricted Stock Units. Notwithstanding the limitation in the previous sentence, for Restricted Stock Units intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, in connection with his or her initial service as an Employee, an Employee may be granted an aggregate of up to an additional 14,000,000 Restricted Stock Units. The foregoing limitations will be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 15.
(b)Vesting Criteria and Other Terms. The Administrator shall set vesting criteria in its discretion, which, depending on the extent to which the criteria are met, will determine the number of Restricted Stock Units that will be paid out to the Participant. The Administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit, or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws or any other basis determined by the Administrator in its discretion.
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(c)Earning Restricted Stock Units. Upon meeting the applicable vesting criteria, the Participant shall be entitled to receive a payout as determined by the Administrator. Notwithstanding the foregoing, at any time after the grant of Restricted Stock Units, the Administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout.
(d)Form and Timing of Payment. Payment of earned Restricted Stock Units shall be made as soon as practicable after the date(s) set forth in the Award Agreement. The Administrator, in its sole discretion, may settle earned Restricted Stock Units in cash, Shares, or a combination thereof.
(e)Cancellation. On the date set forth in the Award Agreement, all unearned Restricted Stock Units shall be forfeited to the Company.
9.Stock Appreciation Rights.
(a)Grant of Stock Appreciation Rights. Subject to the terms and conditions of the Plan, a Stock Appreciation Right may be granted to Service Providers at any time and from time to time as will be determined by the Administrator, in its sole discretion.
(b)Number of Shares. The Administrator will have complete discretion to determine the number of Stock Appreciation Rights granted to any Service Provider; provided, however, no Service Provider will be granted, in any Fiscal Year, Stock Appreciation Rights covering more than 7,000,000 Shares. Notwithstanding the limitation in the previous sentence, in connection with his or her initial service a Service Provider may be granted Stock Appreciation Rights covering up to an additional 14,000,000 Shares. The foregoing limitations will be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 15. In addition, if a Stock Appreciation Right is cancelled in the same Fiscal Year in which it was granted (other than in connection with a transaction described in Section 15), the cancelled Stock Appreciation Right will be counted against the numerical share limits set forth above. For this purpose, the reduction of the exercise price of a Stock Appreciation Right will be treated as cancellation of the Stock Appreciation Right and the grant of a new Stock Appreciation Right.
(c)Exercise Price and Other Terms. The per share exercise price for the Shares to be issued pursuant to exercise of a Stock Appreciation Right will be determined by the Administrator and will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. Otherwise, the Administrator, subject to the provisions of the Plan, will have complete discretion to determine the terms and conditions of Stock Appreciation Rights granted under the Plan.
(d)Exercise of Stock Appreciation Rights. Stock Appreciation Rights will be exercisable on such terms and conditions as the Administrator, in its sole discretion, will determine.
(e)Stock Appreciation Right Agreement. Each Stock Appreciation Right grant will be evidenced by an Award Agreement that will specify the exercise price, the term of the Stock Appreciation Right, the conditions of exercise, and such other terms and conditions as the Administrator, in its sole discretion, will determine.
(f)Expiration of Stock Appreciation Rights. A Stock Appreciation Right granted under the Plan will expire upon the date determined by the Administrator, in its sole discretion, and set forth in the Award Agreement. Notwithstanding the foregoing, the rules of Section 6(b), relating to the maximum term, and Section 6(d), relating to exercise, will also apply to Stock Appreciation Rights.
(g)Payment of Stock Appreciation Right Amount. Upon exercise of a Stock Appreciation Right, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying:
(i) The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times
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(ii) The number of Shares with respect to which the Stock Appreciation Right is exercised.
At the discretion of the Administrator, the payment upon Stock Appreciation Right exercise may be in cash, in Shares of equivalent value, or in some combination thereof.
10.Performance Units and Performance Shares.
(a)Grant of Performance Units/Shares. Performance Units and Performance Shares may be granted to Service Providers at any time and from time to time, as will be determined by the Administrator, in its sole discretion. The Administrator will have complete discretion in determining the number of Performance Units and Performance Shares granted to each Participant provided that during any Fiscal Year, for Performance Units or Performance Shares intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, (i) no Participant will receive Performance Units having an initial value greater than $15,000,000, and (ii) no Participant will receive more than 7,000,000 Performance Shares. Notwithstanding the foregoing limitation, for Performance Shares intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, in connection with his or her initial service, a Service Provider may be granted up to an additional 14,000,000 Performance Shares and Performance Units having an initial value up to an additional $15,000,000. The foregoing Share limitations will be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 15.
(b)Value of Performance Units/Shares. Each Performance Unit will have an initial value that is established by the Administrator on or before the date of grant. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant.
(c)Performance Objectives and Other Terms. The Administrator will set performance objectives or other vesting provisions (including, without limitation, continued status as a Service Provider) in its discretion which, depending on the extent to which they are met, will determine the number or value of Performance Units/Shares that will be paid out to the Service Providers. Each Award of Performance Units/Shares will be evidenced by an Award Agreement that will specify the Performance Period, and such other terms and conditions as the Administrator, in its sole discretion, will determine. The Administrator may set performance objectives based upon the achievement of Company-wide, divisional, business unit or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws, or any other basis determined by the Administrator in its discretion.
(d)Earning of Performance Units/Shares. After the applicable Performance Period has ended, the holder of Performance Units/Shares will be entitled to receive a payout of the number of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance objectives or other vesting provisions have been achieved. After the grant of a Performance Unit/Share, the Administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such Performance Unit/Share.
(e)Form and Timing of Payment of Performance Units/Shares. Payment of earned Performance Units/Shares will be made after the expiration of the applicable Performance Period at the time determined by the Administrator. The Administrator, in its sole discretion, may pay earned Performance Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period) or in a combination thereof.
(f)Cancellation of Performance Units/Shares. On the date set forth in the Award Agreement, all unearned or unvested Performance Units/Shares will be forfeited to the Company, and again will be available for grant under the Plan.
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11.Formula Grants to Outside Directors. All grants of Awards to Outside Directors pursuant to this Section 11 will be automatic and nondiscretionary, except as otherwise provided herein, and will be made in accordance with the following provisions:
(a)Initial Award. Each person who becomes an Outside Director during the term of the Plan will be automatically granted an Option to purchase 45,000 Shares (the “First Option”) on or about the date on which such person first becomes an Outside Director, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside Director, but who remains a Director, will not receive a First Option.
(b)Annual Awards. On each date of the annual meeting of the stockholders of the Company, each Outside Director will be automatically granted an Option (each, a “Subsequent Option”) and a Restricted Stock Award as follows:
(i) An Option for 8,500 Shares and a Restricted Stock Award for 3,000 Shares if such Outside Director has served on the Board for at least one year as of the date of grant;
(ii) An Option for 12,500 Shares and a Restricted Stock Award for 4,000 Shares if such Outside Director has served on the Board for at least two years as of the date of grant; and
(iii) An Option for 19,500 Shares and a Restricted Stock Award for 7,000 Shares if such Outside Director has served on the Board for at least three years as of the date of grant.
For purposes of this Section 11(b), if a person becomes an Outside Director on the date of an annual meeting of stockholders, service as an Outside Director through the next annual meeting date shall be considered one year of service.
(c)Terms of Awards. All Restricted Stock Awards granted pursuant to this Section 11 will be fully vested on the date of grant. All Options granted pursuant to this Section 11 will be subject to the following terms:
(i) Each Option will be a Nonstatutory Stock Option.
(ii) The term of the Option will be seven (7) years.
(iii) The exercise price per Share will be 100% of the Fair Market Value per Share on the date of grant of the Option.
(iv) Subject to Section 15, the First Option will vest and become exercisable as to one-third of the Shares on the first anniversary of the date of grant and 1/12th of the Shares each quarter thereafter on the same day of the month as the date of grant, provided that the Participant continues to serve as a Director through each such date.
(v) Subject to Section 15, the Subsequent Option will vest and become exercisable as to 1/12th of the shares each month following the date of grant, provided that the Participant continues to serve as a Director through such date.
(vi) Each Option will become fully vested and exercisable upon a Change in Control, provided that the Participant continues to serve as a Director through such date.
(vii) The rules of Section 6(d) will also apply to Options granted pursuant to this Section 11. To the extent that the Participant was not entitled to exercise an Option on the date of termination, or if he or she does not exercise an Option (to the extent otherwise so entitled) granted pursuant to this Section 11 within the time specified in the Plan or the applicable Award Agreement, the Option shall terminate.
Except as otherwise provided in this Section 11, all Awards granted pursuant to this Section 11 will be subject to the otherwise applicable terms and conditions of the Plan.
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(d)Adjustments. The Administrator in its discretion may change and otherwise revise the terms of Awards granted under this Section 11, including, without limitation, the number of Shares subject thereto, or change the type of Award to be granted under this Section 11, for Awards granted on or after the date the Administrator determines to make any such change or revision.
12.Performance-Based Compensation Under Code Section 162(m).
(a)General. If the Administrator, in its discretion, decides to grant an Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the provisions of this Section 12 will control with respect to that Award over any contrary provision in the Plan; provided, however, that the Administrator may in its discretion grant Awards that are not intended to qualify as “performance-based compensation” under Section 162(m) of the Code to such Participants that may be based on Qualifying Performance Criteria or other specific criteria but that do not satisfy the requirements of this Section 12. The provisions of this Section 12 apply only to Awards intended to qualify as “performance-based compensation” under Section 162(m) of the Code.
(b)Performance Goals. The granting and/or vesting of Awards of Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units and other incentives under the Plan intended to qualify as “performance-based compensation” under Section 162(m) of the Code shall be subject to the attainment of pre-established, objective performance goals relating to a specified Performance Period based on one or more of the following performance criteria: (i) cash position, (ii) earnings per Share, (iii) earnings before interest, taxes, and depreciation, (iv) earnings before interest, taxes, depreciation, and amortization, (v) net income (before or after taxes), (vi) operating cash flow, (vii) cash flow per share, (viii) operating margin, (ix) gross margin, (x) operating expenses, (xi) operating income, (xii) net operating income after tax, (xiii) return on assets, investment, or capital employed, (xiv) product revenues, (xv) sales or revenue targets, (xvi) profit after-tax, (xvii) profit before-tax, (xviii) return on assets, (xix) expense and cost reduction goals, (xx) improvement in or attainment of working capital levels, (xxi) economic valued added (or an equivalent metric), (xxii) market share, (xxiii) return on equity, (xxiv) return on sales, (xxv) revenue, (xxvi) revenue growth, (xxvii) share price performance, (xxviii) debt reduction, (xxix) implementation or completion of projects or processes, (xxx) customer satisfaction, (xxxi) stockholders’ equity, and (xxxii) total stockholder return (“Qualifying Performance Criteria”), any of which may be measured either individually, alternatively or in any combination, applied to either the individual, the Company as a whole or to a business unit or subsidiary of the Company, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, or on the basis of any other specified period, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group or index, and subject to specified adjustments, in each case as specified by the Administrator in the Award. The performance goals may differ from Participant to Participant and from Award to Award.
(c)Adjustments. Unless specified otherwise by the Administrator at the time the performance goals are established or otherwise within the time prescribed by Section 162(m) of the Code, the Administrator shall appropriately adjust the method of evaluating performance under a Qualifying Performance Criteria for a Performance Period as follows: (i) to exclude asset write-downs, (ii) to exclude litigation or claim judgments or settlements, (iii) to exclude the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results, (iv) to exclude accruals for reorganization and restructuring programs, (v) to exclude any extraordinary nonrecurring items as determined under generally accepted accounting principles and/or described in managements’ discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to stockholders for the applicable year, (vi) to exclude the dilutive and/or accretive effects of acquisitions or joint ventures, (vii) to assume that any business divested by the Company achieved performance objectives at targeted levels during the balance of a performance period following such divestiture, (viii) to exclude the effect of any change in the outstanding shares of common stock of the Company by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common
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stockholders other than regular cash dividends, (ix) to exclude the effects of stock based compensation; and (x) to exclude costs incurred in connection with potential acquisitions or divestitures that are required to be expensed under generally accepted accounting principles, in each case in compliance with Section 162(m).
(d)Procedures. To the extent necessary to comply with the performance-based compensation provisions of Section 162(m) of the Code, the Administrator shall establish the applicable performance goals in writing and an objective method for determining the Award earned by a Participant if the goals are attained, while the outcome is substantially uncertain and not later than the 90th day of the performance period (but in no event after 25% of the period of service with respect to which the performance goals relate has elapsed), and shall determine and certify in writing, for each Participant, the extent to which the performance goals have been met prior to payment or vesting of the Award. In determining the amounts earned by a Participant, the Administrator will have the right to reduce or eliminate (but not to increase for any Participant who is a “covered employee” within the meaning of Section 162(m) of the Code) the amount payable at a given level of performance to take into account additional factors that the Administrator may deem relevant to the assessment of individual or corporate performance for the Performance Period. A Participant who is a “covered employee” within the meaning of Section 162(m) of the Code will be eligible to receive payment pursuant to an Award for a Performance Period only if the performance goals for such period are achieved.
(e)Additional Limitations. Notwithstanding any other provision of the Plan, any Award which is granted to a Participant and is intended to constitute qualified performance based compensation under Code Section 162(m) will be subject to any additional limitations set forth in the Code (including any amendment to Section 162(m)) or any regulations and ruling issued thereunder that are requirements for qualification as qualified performance-based compensation as described in Section 162(m) of the Code, and the Plan will be deemed amended to the extent necessary to conform to such requirements.
13.Leaves of Absence/Transfers. Unless the Administrator provides otherwise, vesting of Awards granted hereunder will be suspended during any unpaid leave of absence. A Participant will not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, or any Subsidiary. For purposes of Incentive Stock Options, no such leave may exceed three (3) months, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then six (6) months and one (1) day following the commencement of such leave any Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option.
14.Transferability of Awards. Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, such Award will contain such additional terms and conditions as the Administrator deems appropriate.
15.Adjustments; Dissolution or Liquidation; Merger or Change in Control.
(a)Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan, will adjust the number and class of Shares that may be delivered under the Plan, the number, class, and price of Shares covered by each outstanding Award, and the numerical Share limits in Sections 3, 6, 7, 8, 9, and 10, and the number of Shares issuable pursuant to the formula option grants to Outside Directors under Section 11.
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(b)Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator will notify each Participant as soon as practicable prior to the effective date of such proposed transaction. To the extent an Award has not been previously exercised or settled, the Award will terminate immediately prior to the consummation of such proposed action.
(c)Change in Control. In the event of a merger of the Company with or into another corporation or other entity or a Change in Control, each outstanding Award will be treated as the Administrator determines, including, without limitation, that (i) Awards may be assumed, or substantially equivalent Awards will be substituted, by the acquiring or succeeding corporation (or an affiliate thereof) with appropriate adjustments as to the number and kind of shares and prices; (ii) upon written notice to a Participant, that the Participant’s Awards will terminate upon or immediately prior to the consummation of such merger or Change in Control; (iii) outstanding Awards will vest and become exercisable, realizable, or payable, or restrictions applicable to an Award will lapse, in whole or in part prior to or upon consummation of such merger or Change in Control, and, to the extent the Administrator determines, terminate upon or immediately prior to the effectiveness of such merger or Change in Control; (iv) (A) the termination of an Award in exchange for an amount of cash and/or property, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the Participant’s rights as of the date of the occurrence of the transaction (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction the Administrator determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participant’s rights, then such Award may be terminated by the Company without payment), or (B) the replacement of such Award with other rights or property selected by the Administrator in its sole discretion; or (v) any combination of the foregoing. In taking any of the actions permitted under this subsection (c), the Administrator will not be required to treat all Awards similarly in the transaction. Unless otherwise determined by the Administrator, in the event that the successor corporation does not assume or substitute for the Award, the Participant will fully vest in and have the right to exercise all of his or her outstanding Options and Stock Appreciation Rights, including Shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock and Restricted Stock Units will lapse, and, with respect to Awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met. In addition, if an Option or Stock Appreciation Right is not assumed or substituted in the event of a Change in Control, the Administrator will notify the Participant in writing or electronically that the Option or Stock Appreciation Right will be exercisable for a period of time determined by the Administrator in its sole discretion, and the Option or Stock Appreciation Right will terminate upon the expiration of such period.
For the purposes of this subsection (c), an Award shall be considered assumed if, following the merger or Change in Control, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of an Option or Stock Appreciation Right or upon the payout of a Restricted Stock Unit, Performance Unit or Performance Share, for each Share subject to such Award, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or Change in Control. Notwithstanding anything in this Section 15(c) to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more performance goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the Participant’s consent; provided, however, a modification to such performance goals only to reflect the successor corporation’s post-merger or post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.
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Any acceleration of payment of an amount that is subject to Section 409A of the Code will be delayed, if necessary, until the earliest time that such payment would be permissible under Section 409A without triggering any additional taxes applicable under Section 409A.
(d)Outside Director Awards. Notwithstanding any provision of Section 15(c) to the contrary, with respect to Awards granted to an Outside Director that are assumed or substituted for, if on or following the date of such assumption or substitution the Participant’s status as a Director or a director of the successor corporation, as applicable, is terminated other than upon a voluntary resignation by the Participant (unless such resignation is at the request of the acquiror), then the Participant will fully vest in and have the right to exercise Options and/or Stock Appreciation Rights as to all of the Shares subject to such Award, including Shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock and Restricted Stock Units, will lapse, and, with respect to Awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met.
16.Taxes.
(a)Withholding Requirements. Prior to the delivery of any Shares or cash pursuant to an Award (or exercise thereof) or such earlier time as any tax withholding obligations are due, the Company will have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, local, foreign or other taxes (including the Participant’s FICA obligation) required to be withheld with respect to such Award (or exercise thereof).
(b)Withholding Arrangements. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit a Participant to satisfy such tax withholding obligation, in whole or in part by (without limitation) (a) paying cash, (b) electing to have the Company withhold otherwise deliverable cash (including cash from the sale of Shares issued to Participant) or Shares having a Fair Market Value equal to the minimum statutory amount required to be withheld, or (c) delivering to the Company already-owned Shares having a Fair Market Value equal to the minimum statutory amount required to be withheld. The Fair Market Value of the Shares to be withheld or delivered will be determined as of the date that the taxes are required to be withheld.
(c)Compliance With Code Section 409A. Awards will be designed and operated in such a manner that they are either exempt from the application of, or comply with, the requirements of Code Section 409A such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Code Section 409A, except as otherwise determined in the sole discretion of the Administrator. The Plan and each Award Agreement under the Plan is intended to meet the requirements of Code Section 409A and will be construed and interpreted in accordance with such intent, except as otherwise determined in the sole discretion of the Administrator. To the extent that an Award or payment, or the settlement or deferral thereof, is subject to Code Section 409A the Award will be granted, paid, settled or deferred in a manner that will meet the requirements of Code Section 409A, such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Code Section 409A.
17.No Effect on Employment or Service. Neither the Plan nor any Award will confer upon a Participant any right with respect to continuing the Participant’s relationship as a Service Provider with the Company or any Parent or Subsidiary of the Company, nor will they interfere in any way with the Participant’s right or the right of the Company or its Parent or Subsidiary to terminate such relationship at any time, with or without cause, to the extent permitted by Applicable Laws.
18.Date of Grant. The date of grant of an Award will be, for all purposes, the date on which the Administrator makes the determination granting such Award, or such other later date as is determined by the Administrator. Notice of the determination will be provided to each Participant within a reasonable time after the date of such grant.
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19.Term of Plan. The Plan was adopted by the Board on April 8, 2014, effective upon approval by the stockholders at the annual meeting on June 3, 2014. It will continue in effect for a term of ten (10) years from the date adopted by the Board, unless terminated earlier under Section 20 of the Plan.
20.Amendment and Termination of the Plan.
(a)Amendment and Termination. The Administrator may at any time amend, alter, suspend or terminate the Plan.
(b)Stockholder Approval. The Company will obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.
(c)Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan will impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of the Plan will not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.
21.Conditions Upon Issuance of Shares.
(a)Legal Compliance. Shares will not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares will comply with Applicable Laws and will be further subject to the approval of counsel for the Company with respect to such compliance.
(b)Investment Representations. As a condition to the exercise, receipt, or settlement of an Award, the Company may require the person exercising or receiving such Award or settlement to represent and warrant at the time of any such exercise or receipt that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.
22.Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction or to complete or comply with the requirements of any registration or other qualification of the Shares under any state, federal or foreign law or under the rules and regulations of the Securities and Exchange Commission, the stock exchange on which Shares of the same class are then listed, or any other governmental or regulatory body, which authority, registration, qualification or rule compliance is deemed by the Company’s counsel to be necessary or advisable for the issuance and sale of any Shares hereunder, will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority, registration, qualification or rule compliance will not have been obtained.
23.Stockholder Approval. The Plan will be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted by the Board. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.
24.Recoupment. Notwithstanding any other provision of the Plan or any Award granted under the Plan, any recoupment or “clawback” policies adopted by the Administrator pursuant to Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law shall apply to Awards granted under the Plan and any Shares that may be issued pursuant to such Awards to the extent the Administrator provides at the time the policy is adopted.
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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:
M78572-TBD
KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
IKANOS COMMUNICATIONS, INC.
For
Against
Abstain
The Board of Directors recommends you vote FOR proposals 1, 2, 3 and 4.
Approval of the Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 200,000,000 to 425,000,000.
Approval of Amendments to the 2014 Stock Incentive Plan to increase the number of shares of common stock available for grant by 75,000,000 shares and to increase the individual annual grant limits with respect to equity awards.
Approval of a one-time stock option exchange program for employees and directors.
Approve the postponement or adjournment of the Special Meeting if necessary, to solicit additional proxies in the event there are insufficient votes at the time of the Special Meeting to approve the proposals to be voted upon at the Special Meeting.
For address changes/comments, mark here. (see reverse for instructions)
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 1. 2. 3. 4.
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Important Notice Regarding the Availability of Proxy Materials for the Special Meeting:
The Notice and Proxy Statement is available at www.proxyvote.com.
M78573-TBD
IKANOS COMMUNICATIONS, INC. 2014 Special 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 Special Meeting of Stockholders and Proxy Statement, each dated October 22, 2014, and hereby appoints Dennis Bencala and Andrew S. Hughes as proxies and attorneys-in-fact with full power to substitution, on behalf and in the name of the undersigned, to represent the undersigned at the 2014 special meeting of stockholders of Ikanos Communications, Inc. to be held on Wednesday, November 12, 2014, at 1:30 p.m., Pacific Daylight Time, at the Fremont Maniott Silicon Valley 46100 Landing Parkway, 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 their 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” APPROVAL OF THE RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF OUR COMMON STOCK FROM 200,000,000 TO 425,000,000, “FOR” APPROVAL OF AMENDMENTS TO THE 2014 STOCK INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES OF OUR COMMON STOCK AVAILABLE FOR GRANT BY 75,000,000 SHARES AND TO INCREASE THE INDIVIDUAL ANNUAL GRANT LIMITS WITH RESPECT TO EQUITY AWARDS, “FOR” APPROVAL OF A ONE - TIME STOCK EXCHANGE PROGRAM FOR EMPLOYEES AND DIRECTORS, AND “FOR” APPROVAL OF POSTPONEMENT OR ADJOURNMENT.
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