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

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PCTEL, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

 

Tuesday, June 10, 2008

10:00 a.m.

 

 

To Our Stockholders:

 

The 2008 annual meeting of stockholders of PCTEL, Inc., a Delaware corporation, will be held on Tuesday, June 10, 2008 at 10:00 a.m. local time at our headquarters, located at 471 Brighton Drive, Bloomingdale, Illinois 60108 for the following purposes:

 

1. To elect three Class III directors whose terms will expire at the 2011 annual meeting of stockholders;

 

2. To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008; and

 

3. To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

 

The foregoing items of business are more fully described in the proxy statement accompanying this notice. Only stockholders of record at the close of business on April 17, 2008 are entitled to notice of and to vote at the meeting.

 

All stockholders are cordially invited to attend the meeting in person. However, to assure your representation at the meeting, you are urged to deliver your proxy by telephone or the Internet or to mark, sign, date and return the enclosed proxy as promptly as possible in the postage-prepaid envelope enclosed for that purpose. Any stockholder attending the meeting may vote in person even if he or she has previously returned a proxy.

 

Sincerely,

 

 

Martin H. Singer

Chief Executive Officer and

Chairman of the Board of Directors

 

Bloomingdale, Illinois

April 28, 2008

 

 

PCTEL, INC.

471 Brighton Drive

Bloomingdale, Illinois 60108

 

 

PROXY STATEMENT FOR THE

2008 ANNUAL MEETING OF STOCKHOLDERS

 

 

GENERAL INFORMATION

 

The board of directors of PCTEL, Inc. is soliciting proxies for the 2008 annual meeting of stockholders. This proxy statement contains important information for you to consider when deciding how to vote on the matters brought before the meeting. Please read it carefully.

 

Our board of directors has set April 17, 2008 as the record date for the meeting. Stockholders of record at the close of business on April 17, 2008 are entitled to vote at and attend the meeting, with each share entitled to one vote. There were 20,850,541 shares of our common stock outstanding on the record date. On the record date, the closing price of our common stock on the Nasdaq Global Market was $7.22 per share.

 

This proxy statement is being mailed on or about April 28, 2008 to stockholders entitled to vote at the meeting.

 

In this proxy statement:

 

 

QUESTIONS AND ANSWERS

 

 

 

 

You may also do this by:

 

 

 

The votes cast on a particular proposal include votes FOR, AGAINST and ABSTAIN, but do not include broker non-votes.

 

 

We shall provide without charge to each stockholder solicited by these proxy solicitation materials a copy of our Annual Report on Form 10-K, together with the financial statements and financial statement schedules required to be filed with the Annual Report, upon written request sent to PCTEL, Inc., 471 Brighton Drive, Bloomingdale, Illinois 60108, Attn: John W. Schoen, Chief Financial Officer.

Deadline for Receipt of Stockholder Proposals and Nominations for 2009 Annual Meeting of Stockholders

 

Stockholders are entitled to present proposals for action and director nominations at the 2009 annual meeting of stockholders only if they comply with the applicable requirements of the proxy rules established by the Securities Exchange Commission and the applicable provisions of our bylaws. Stockholders must ensure that such proposals and nominations are received by our Corporate Secretary at the following address: 471 Brighton Drive, Bloomingdale, Illinois 60108, Attn: Corporate Secretary, on or prior to the deadline for receiving such proposals and nominations.

 

Proposals for the 2009 annual meeting of stockholders that are intended to be considered for inclusion in the proxy statement and form of proxy relating to such meeting must be received no later than December 29, 2008, and must comply with the procedures of Rule 14a-8 under the Securities Exchange Act of 1934 (the “Exchange Act”) and the provisions of our bylaws.

 

If a stockholder intends to submit a proposal or director nomination for consideration at our 2009 annual meeting of stockholders outside the procedures of Rule 14a-8 under the Exchange Act, the stockholder must comply with the requirements of our bylaws and we are not required to include such proposal or nomination in the proxy statement and form of proxy relating to such meeting. Our bylaws contain an advance notice provision that requires stockholders to submit a written notice containing certain information not less than 120 days prior to the date of our proxy statement for the previous year’s annual meeting of stockholders. For purposes of the 2009 annual meeting of stockholders, this means that such proposals or nominations must also be received by December 29, 2008. A copy of the relevant bylaw provision is available upon written request to our Corporate Secretary at the address provided above.

 

The attached proxy card grants the proxy holders discretionary authority to vote on any business raised at the annual meeting. If you fail to comply with the advance notice provisions set forth above in submitting a proposal or nomination for the 2009 annual meeting of stockholders, the proxy holders will be allowed to use their discretionary voting authority if such proposal or nomination is raised at that meeting.

 

SUMMARY OF PROPOSALS

 

The board of directors has included two proposals on the agenda for our 2008 annual meeting of stockholders. The following is a brief summary of the matters to be considered and voted upon by our stockholders.

 

Election of Directors

 

We have a classified board of directors that currently consists of seven directors. Each director serves a three-year term. The first proposal on the agenda for our annual meeting is the election of three Class III directors to serve until our 2011 annual meeting of stockholders. Our board of directors has nominated Steven D. Levy, Giacomo Marini and Martin H. Singer to serve as our Class III directors. Additional information about the election of directors and a brief biography of each nominee begins on page 6.

 

Our board of directors recommends a vote “FOR” each of the three nominees.

 

Ratify Appointment of our Independent Registered Public Accounting Firm

 

The second proposal is the ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm. More information about this proposal begins on page 13.

 

Our board of directors recommends a vote “FOR” the ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm.

 

Other Matters

 

Other than the proposals listed above, our board of directors does not currently intend to present any other matters to be voted on at the meeting. Our board of directors is not currently aware of any other matters that will be presented by others for action at the meeting. However, if other matters are properly presented at the meeting and you have signed and returned your proxy card or voted on the Internet or by telephone, the proxies will have discretion to vote your shares on these matters to the extent authorized under the Exchange Act.

 

PROPOSAL #1

 

ELECTION OF DIRECTORS

 

Classification of Board of Directors

 

We have a classified board of directors currently consisting of two Class I directors, Brian J. Jackman and John R. Sheehan, whose terms will expire at our 2009 annual meeting of stockholders; two Class II directors, Richard C. Alberding and Carl A. Thomsen, whose terms will expire at our 2010 annual meeting of stockholders; and three Class III directors, Giacomo Marini, Martin H. Singer and Steven D. Levy, whose terms are expiring at this 2008 annual meeting of stockholders. At each annual meeting of stockholders, certain directors are elected for a term of three years to succeed those directors whose terms expire on the annual meeting dates.

 

Nominees

 

On the recommendation of the board of directors, the nominees for election at the 2008 annual meeting of stockholders as Class III directors are Steven D. Levy, Giacomo Marini and Martin H. Singer. If elected, Messrs. Levy, Marini and Singer will continue as directors, and their terms will expire at the annual meeting of stockholders in 2011.

 

The proxy holders may not vote the proxies for a greater number of persons than the number of nominees named. Unless otherwise instructed, the proxy holders will vote the proxies received by them for our three Class III director nominees. In the event that any of our nominees is unable or declines to serve as a director at the time of the annual meeting, the proxies will be voted for any nominee who shall be designated by the present board of directors to fill the vacancy. We are not aware that any of our nominees will be unable or will decline to serve as a director.

 

Vote Required and Board of Directors’ Recommendation

 

If a quorum is present and voting, the three nominees receiving the highest number of votes will be elected to the board of directors. Abstentions and “broker non-votes” are not counted in the election of directors.

 

Our board of directors has unanimously approved the director nominees and recommends that stockholders vote “FOR” the election of the director nominees listed above.

Directors and Nominees

 

The following table sets forth certain information regarding our current directors and nominees for directors to be elected at our 2008 annual meeting of stockholders:

 

 

Mr. Jackman has been a director since February 2002. Mr. Jackman is currently the President of The Jackman Group, Inc., a management consulting company that he formed in 2005. In September 2001, Mr. Jackman retired from Tellabs, a communications company that he had been with since 1982. Mr. Jackman served as President, Global Systems and Technology, and Executive Vice President of Tellabs since 1998, and he was President of Tellabs Operations from 1993 to 1998. Mr. Jackman held various management positions in sales and marketing for IBM from 1965 to 1982. He is currently on the boards of directors of Open Text, Inc., an enterprise content management solutions company, and Keithley Instruments, a test and measurement equipment company. In addition, Mr. Jackman serves on the board of trustees of Gannon University. Mr. Jackman holds a bachelor of arts degree in English literature from Gannon University in Erie, Pennsylvania and a master degree in business administration from Penn State University.

 

Mr. Sheehan has been a director since October 2002. Mr. Sheehan has served as a senior consultant in the London Perret Roche Group in Red Bank, New Jersey since October 2001. He began his career at Bell Laboratories in 1962. In his 33 years at Bell Laboratories, Western Electric and AT&T, he worked in senior positions in development, manufacturing, strategic planning and general management of business units. Since leaving AT&T in 1996, Mr. Sheehan has held senior management positions in three startup companies. Mr. Sheehan received a bachelor of science degree in electrical engineering from Drexel University and a master of science degree in electrical engineering from New York University.

 

Mr. Alberding has been a director since August 1999. Mr. Alberding retired from Hewlett-Packard, then a computer, peripherals and measurement products company, in June 1991, serving at that time as an Executive Vice President with responsibility for worldwide company sales, support and administration activities for measurement and computation products, as well as all corporate level marketing activities. Mr. Alberding is a director of Sybase, Inc., an enterprise software company. Mr. Alberding holds a bachelor of arts degree in business administration and marketing from Augustana College, and an associate of science degree in electrical engineering from DeVry Technical Institute in Chicago.

 

Mr. Thomsen has been a director since March 2001. Mr. Thomsen served as Senior Vice President, Chief Financial Officer and Corporate Secretary at Stratex Networks, Inc., (now a part of Harris Stratex Networks, Inc.), a provider of wireless transmission solutions, from 1995 to 2007. Mr. Thomsen is also currently a member of the

board of directors of the Cardiac Therapy Foundation of the Mid-peninsula, a non-profit organization providing a cardiovascular wellness and rehabilitation program. Mr. Thomsen holds a bachelor of science degree in business administration from Valparaiso University and a master degree in business administration from the University of Michigan. He is also a certified public accountant.

 

Mr. Levy has been a director since March 2006. Mr. Levy most recently served as a Managing Director and Global Head of Communications Technology Research at Lehman Brothers from July 1998 until September 2005. Before joining Lehman Brothers, Mr. Levy was a Director of Telecommunications Research at Salomon Brothers from March 1997 to July 1998, a Managing Director and Head of the Communications Research Team at Oppenheimer & Co. from July 1994 to March 1997, and a senior communications analyst at Hambrecht & Quist from July 1986 to July 1994. Mr. Levy is also currently a member of the board of directors of Zhone Technologies, a broadband equipment vendor, Allot Communications, a developer of networking systems for carriers, and privately held GENBAND Inc, an innovator of IP Infrastructure. Mr. Levy holds a master degree in business administration and a bachelor of science degree in materials engineering from Rensselaer Polytechnic Institute.

 

Mr. Marini has been a director since October 1996. Mr. Marini has been the founder and Managing Director of Noventi, a Silicon Valley-based early-stage technology venture capital firm, since March 2002. He also serves as Chairman of Marini Investments, a private investment company, of TES, an industrial automation company, and of Cosmo Industrie, an engineered construction products company. Prior to this, Mr. Marini was the co-founder, Executive Vice President and Chief Operating Officer of Logitech, a computer peripherals company. Previously he held technical and management positions with Olivetti and IBM. He currently serves on the boards of several private companies. Mr. Marini holds a computer science laureate degree from the University of Pisa, Italy.

 

Mr. Martin H. Singer has been our Chief Executive Officer and Chairman of the Board since October 2001. Prior to that, Mr. Singer served as our non-executive Chairman of the Board from February 2001 until October 2001, and he has been a director since August 1999. From October 2000 to May 2001, Mr. Singer was an independent consultant. From December 1997 to August 2000, Mr. Singer served as President and Chief Executive Officer of SAFCO Technologies, a wireless communications company. He left SAFCO in August 2000 after its sale to Agilent Technologies. From September 1994 to December 1997, Mr. Singer served as Vice President and General Manager of the wireless access business development division for Motorola, a communications equipment company. Prior to this period, Mr. Singer held senior management and technical positions in Motorola, Tellabs, AT&T and Bell Labs. Mr. Singer holds a Bachelor of Arts degree in psychology from the University of Michigan, and a Master of Arts degree and a Ph.D. in experimental psychology from Vanderbilt University. Mr. Singer currently serves as the Chairman of the Midwest council of the AeA (American Electronics Association). He is also on the advisory board for the Master of Management & Manufacturing program at Northwestern University (Kellogg) and served on the standing advisory group for the Public Company Accounting Oversight Board for two years. He received the Martin N. Sandler distinguished Achievement Award (2007) from the AICC for his contributions to the development of economic ties between Israel and the U.S. Mr. Singer has 7 patents in telecommunications and has written numerous articles on network evolution, immigration and labor policy, and other issues related to technology development.

 

CORPORATE GOVERNANCE

 

Board and Committee Meetings

 

Our board of directors held a total of seven meetings during fiscal 2007. The board of directors currently has an audit committee, a compensation committee and a nominating and governance committee. The members of each of the committees are listed in the table below. Each member of the audit committee, compensation committee and nominating and governance committee meets the Nasdaq independence requirements. The board of directors has determined that Mr. Thomsen qualifies as an “audit committee financial expert” as defined under the rules and regulations of the SEC, and that all members of our audit committee meet the Nasdaq financial literacy

requirements. During our last fiscal year, each of our directors attended at least 75% of the total number of meetings of the board of directors and any committee on which such director served.

 

 

A copy of each of the charters for our committees of the board of directors is available on our website located at www.pctel.com. They may be found on the website in “Corporate Governance” under “Investor Relations.”

 

Mr. Jackman is currently the lead independent director of our board of directors. As lead independent director, his principal responsibilities are (i) working with the Chairman and Chief Executive Officer and the other members of the board of directors to set the agenda for each meeting of the board of directors, (ii) serving as a liaison for communications between our board of directors and the Chief Executive Officer, (iii) acting as the chair for executive sessions held at regularly scheduled meetings of the board of directors, and (iv) consulting with our General Counsel regarding communications received from our stockholders.

 

Independence

 

Currently our board of directors has seven members. Our board of directors recently determined that the six non-employee directors are “independent directors” based on the Nasdaq and SEC standards for independence. Only independent directors may serve on our audit, compensation and nominating and governance committees.

In determining the independence of our directors, the board of directors affirmatively decides whether a non-employee director has a relationship that would interfere with that director’s exercise of independent judgment in carrying out the responsibilities of being a director. In coming to that decision, the board of directors is informed of the Nasdaq and SEC rules that disqualify a person from being considered as independent, considers the responses to an annual questionnaire from each director and reviews the applicable standards with each member of the board of directors.

 

Director Nomination Process

 

Stockholder Recommendations and Nominations.  

 

It is the policy of our nominating and governance committee to consider director candidates recommended by our stockholders holding on the date of submission of such recommendation at least 1% of the then outstanding shares of our common stock continuously for at least 12 months prior to such date.

 

Stockholders desiring to recommend a candidate for election to the board of directors should send their recommendation in writing to the attention of our Corporate Secretary, at our offices located at 471 Brighton Drive, Bloomingdale, Illinois 60108. This written recommendation must include the information and materials required by our bylaws as well as the candidate’s name, home and business contact information, detailed biographical data, relevant qualifications, a signed letter from the candidate confirming willingness to serve, information regarding any relationships between the candidate and PCTEL within the last three years and evidence of the required ownership of our common stock by the recommending stockholder. A copy of the relevant bylaw provision is available upon written request to our Corporate Secretary at the address provided above.

 

In accordance with the advance notice provision in our bylaws, director nominations to be considered at the next annual meeting of stockholders must be received not less than 120 days prior to the date of our proxy statement for the previous year’s annual meeting of stockholders. For purposes of our 2009 annual meeting of stockholders, director nominations must be received by December 29, 2008.

 

Identifying and Evaluating Nominees for Director.  

 

The nominating and governance committee uses the following procedures for identifying and evaluating any individual recommended or offered for nomination to the board of directors:

 

 

 

The nominating and governance committee requires the following minimum qualifications to be satisfied by any candidate recommended or offered for nomination to the board of directors:

 

 

Compensation of Directors

 

Cash and Stock Compensation.  Our non-employee directors currently receive a yearly cash retainer of $12,500 and shares of restricted common stock equivalent to $4,000. They also receive $2,500 per board meeting attended (unless the board meeting is conducted by teleconference, in which case directors receive $1,000 for each such telephonic meeting in which they participate) and $1,000 per committee meeting attended. In addition, our non-employee directors annually receive additional shares of restricted stock as set forth below:

 

 

All of the shares of restricted common stock received by our non-employee directors vest six months after the date of grant, provided that the individual continues to serve as a director on such date. The number of shares granted is based on the total dollar value divided by the per share closing price of our stock on the date of grant.

 

Our 1997 Stock Plan provides for the non-discretionary, automatic grant of options to each of our non-employee directors. Each new non-employee director is automatically granted an option to purchase 15,000 shares on the date on which such person first becomes a director. These initial grants vest over a period of three years, with one-third of the number of shares granted vesting on each anniversary of the date of grant, provided that the optionee continues to serve as a director on these dates. Furthermore, each non-employee director is automatically granted an additional option to purchase 10,000 shares of common stock on January 1 of each year, provided that he or she has served on the board of directors for at least six months. These subsequent grants vest fully on the first anniversary of the date of grant, provided that the optionee continues to serve as a director on such date. Under the terms of our 1997 Stock Plan, the exercise price of options granted to non-employee directors must be 100% of the fair market value of our common stock on the last trading day preceding the date of grant.

 

Deferred Compensation Plan.  Our non-employee directors are eligible to participate in the Board of Directors Deferred Compensation Plan. The principal purpose of the Directors Deferred Compensation Plan is to provide additional retirement benefits and income tax deferral opportunities for our non-employee directors. The Directors Deferred Compensation Plan permits the deferral of cash compensation that would otherwise be received by the non-employee directors for their service on our board of directors. Compensation that is deferred under the Directors Deferred Compensation Plan will be paid out by us upon the termination of a non-employee director’s service on the board of directors. If such termination occurs after the non-employee director has reached the age of 55, such non-employee director may elect to receive the deferred compensation in a lump sum, annually over 15 years, or over the lifetime of the non-employee director in 20 annual payments.

 

Reimbursements.  In addition, each of our non-employee directors is reimbursed for all reasonable out of pocket expenses incurred in connection with his service on our board of directors.

 

Directors’ Compensation for the Fiscal Year Ended December 31, 2007

 

 

 

 

Stockholder Communications with the Board of Directors

 

Stockholders who wish to communicate directly with our independent directors may do so by sending an e-mail message to Varda Goldman, our Vice President and General Counsel, at general.counsel@pctel.com. Mrs. Goldman monitors these communications, consults with Mr. Jackman, our current lead independent director, and provides a summary of all received messages to the board of directors at its regularly scheduled meetings. Where the nature of the communication warrants, Mrs. Goldman may obtain more immediate attention of the appropriate committee or independent director of the board of directors, of independent advisors or of our management. Mrs. Goldman may decide in her judgment whether a response to any stockholder communication is necessary.

 

Attendance at the Annual Meeting of Stockholders

 

All directors are welcome to attend the 2008 annual meeting of stockholders and it is expected that our lead independent director will be in attendance at every annual meeting of stockholders. At the 2007 annual meeting of stockholders, Mr. Singer was in attendance.

 

Code of Ethics

 

We adopted the PCTEL, Inc. Code of Ethics for Principal Executive and Key Financial Officers (“Code of Ethics”). The Code of Ethics applies to the principal executive financial officer, the principal accounting officer or controller and persons performing similar functions and responsibilities who shall be identified by the audit committee from time to time.

 

The Code of Ethics is available on our website, located at www.pctel.com. It may be found at the website as follows:

 

1. From the main web page, click on “Investor Relations,”

 

2. Next, click on “Corporate Governance,”

 

3. Finally, click on “Financial Code of Ethics.”

 

We intend to satisfy the disclosure requirement required under Form 8-K regarding an amendment to, or waiver from, a provision of the Code of Ethics by posting such information on our website.

 

Compensation Committee Interlocks and Insider Participation

 

During fiscal 2007, neither Richard C. Alberding, John R. Sheehan, nor Brian J. Jackman were officers or employees of PCTEL while they served as members of the compensation committee. In addition, no executive officer of PCTEL served as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.

 

PROPOSAL #2

 

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

 

Our audit committee has appointed Grant Thornton LLP, independent registered public accounting firm, to audit our financial statements for the fiscal year ending December 31, 2008. This appointment is being presented to our stockholders for ratification at the 2008 annual meeting of stockholders.

 

Before selecting Grant Thornton LLP as our independent registered public accounting firm for fiscal year 2008, our audit committee carefully considered the firm’s qualifications as independent auditors. This included a review of the qualifications of the engagement team, the quality control procedures the firm has established and its reputation for integrity and competence in the fields of accounting and auditing. The audit committee’s review also included matters required to be considered under the SEC’s rules on auditor independence, including the nature and extent of non-audit services, to ensure that Grant Thornton LLP’s independence will not be impaired.

 

Grant Thornton LLP has been conducting independent audits of our financial statements since May 2006. Representatives of Grant Thornton LLP are expected to be present at the 2008 annual meeting of stockholders. They will have the opportunity to address the audience at the meeting, and will be available to answer appropriate questions from stockholders.

 

Change in Independent Registered Public Accounting Firm

 

As previously reported in our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 18, 2006, on May 12, 2006 our audit committee dismissed our independent registered public accounting firm, PricewaterhouseCoopers LLP.

 

The reports of PricewaterhouseCoopers LLP on our consolidated financial statements as of and for the years ended December 31, 2004, and December 31, 2005, did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.

 

We reported a material weakness in our internal control over financial reporting in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2004 and in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2005. These Annual Reports indicated that as of December 31, 2004 and 2005, we had a material weakness in that we did not maintain effective controls over the review, completeness and accuracy of our provision for income taxes and the related financial statement presentation and disclosure of income tax matters. This control deficiency resulted in audit adjustments to the fourth quarter 2004 consolidated financial statements with respect to the provision for income taxes, the 2005 annual consolidated financial statements with respect to income tax disclosures and the 2005 second quarter consolidated financial statements with respect to the provision for income taxes. During 2006, we remediated this material weakness. Except for the material weakness in internal control over financial reporting described in this paragraph, during the years ended December 31, 2004 and 2005, and through May 12, 2006, we did not have any reportable events within the meaning of Item 304(a)(1)(v) of Regulation S-K. We authorized PricewaterhouseCoopers LLP to respond fully to the inquiries of the successor independent registered public accounting firm concerning the subject matter of the material weakness described above.

 

During our fiscal years ended December 31, 2004 and December 31, 2005 and through May 12, 2006, there were no disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to PricewaterhouseCoopers LLP’s satisfaction, would have caused PricewaterhouseCoopers LLP to make reference thereto in its reports on our financial statements for such years. PricewaterhouseCoopers LLP’s letter to the Securities and Exchange Commission stating its agreement with the statements above is filed as an exhibit to our Current Report on Form 8-K filed on May 18, 2006.

 

On May 12, 2006, our audit committee engaged Grant Thornton LLP as our independent registered public accounting firm. During our fiscal years ended December 31, 2004 and December 31, 2005 and through May 12, 2006, neither we nor anyone acting on our behalf consulted with Grant Thornton LLP regarding either: (i) the

application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our financial statements; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K).

 

Summary of Fees

 

The following table summarizes the approximate aggregate fees billed to us or expected to be billed to us by Grant Thornton LLP for our 2007 fiscal year and by Grant Thornton LLP and PricewaterhouseCoopers LLP (who was our independent registered public accounting firm through May 12, 2006) for our 2006 fiscal year:

 

 

 

 

Pre-Approval of Independent Auditor Services and Fees

 

Our audit committee reviewed and pre-approved all audit and non-audit fees for services provided by Grant Thornton LLP and has determined that the firm’s provision of such services to us during fiscal 2007 is compatible with and did not impair Grant Thornton LLP’s independence. It is the practice of the audit committee to consider and approve in advance all auditing and non-auditing services provided to us by our independent registered public accounting firm in accordance with the applicable requirements of the SEC.

 

Vote Required and Recommendation

 

Stockholder ratification of the selection of Grant Thornton LLP as our independent registered public accounting firm is not required by our bylaws or other applicable legal requirement. However, our board of directors is submitting the selection of Grant Thornton LLP to our stockholders for ratification as a matter of good corporate practice. Notwithstanding the selection by the audit committee of Grant Thornton LLP or stockholder ratification of that selection, the audit committee may direct the appointment of a new independent registered public accounting firm at any time during the year if the audit committee determines that such a change would be in our

best interest and in that of our stockholders. In the event of a negative vote on ratification, the audit committee will reconsider its selection.

 

The affirmative vote of the holders of a majority of the shares of our common stock present or represented by proxy and entitled to vote at the annual meeting will be required to approve this proposal.

 

Our board of directors recommends that stockholders vote “FOR” the ratification of Grant Thornton LLP as our independent registered public accounting firm.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information regarding the beneficial ownership of our common stock as of March 31, 2008 by:

 

 

Beneficial ownership is determined based on the rules of the SEC. Percent of beneficial ownership is based upon 20,950,555 shares of our common stock outstanding as of March 31, 2008. In addition, shares of common stock that are exercisable as of March 31, 2008 or will become exercisable on or before May 30, 2008 (60 days subsequent to March 31), are treated as outstanding and beneficially owned by the person holding the options for the purpose of computing the percentage ownership of such person and are listed below under the “Number of Shares Underlying Options” column, but those option shares are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, we believe the stockholders listed below

have sole voting or investment power with respect to all shares listed beside each stockholder’s name, subject to applicable community property laws.

 

 

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Introduction

 

The compensation committee of our board of directors was formed in March 2000 and currently consists of Mr. Alberding, Mr. Sheehan and Mr. Jackman, each of whom is an independent, non-employee director of our company. The CEO and other members of management are invited from time to time by the committee to observe and participate in committee meetings.

 

The original charter of the compensation committee was adopted by our board of directors in August 1999. The committee has reviewed the charter on an annual basis and has modified it from time to time, most recently in May 2007, to clarify the responsibilities of the committee in recognition of our corporate governance needs as well as current industry requirements and practices. The charter of the committee is located on our website (www.PCTEL.com) in the “Corporate Governance” section under “Investor Relations.”

 

The committee maintains minutes of its meetings, and reports to our board of directors on at least a quarterly basis to make our board of directors aware of significant matters that require its attention. The committee met a total of six times in 2007.

 

Responsibilities of the Committee

 

Acting on behalf of our board of directors, the compensation committee’s responsibilities are outlined in its charter and include the following:

 

 

Annual Compensation Process

 

The compensation of the CEO and all other officers and managers is established prior to the end of the first quarter of the fiscal year. Although the committee has full authority to determine the compensation of the executive officers of our company other than the CEO, the CEO’s compensation must be approved each year by the non-employee directors of our board, based on the recommendation of the committee. In making its recommendation, the committee takes into consideration the results of a performance evaluation of the CEO for the preceding year. This evaluation includes the business and financial performance of our company, the CEO’s success in executing our company’s near term objectives and long range strategies, and the quality of the CEO’s interaction with the board of directors, the management and our company’s stockholders. The annual evaluation of the CEO is conducted by the nominating and governance committee based on input from each member of our board of directors, including the CEO. At the time of this performance evaluation, the committee solicits directional guidance from our board of directors as to the general elements that should be addressed in the CEO’s total compensation package for the upcoming year. In addition, the Chair of the committee, as well as our Lead Director, will solicit comment from the CEO in the course of the committee’s formulation of its recommendation. The review and approval of the committee’s recommendation by our board of directors are undertaken in closed session, without the CEO or any other employee of our company present.

The CEO provides significant assistance to the committee each year with operational insights as to individual performance matters and with recommendations for compensation for the officers (other than the CEO) and managers of our company. The CEO is also involved in providing commentary and observations to the committee on general compensation objectives for our company’s senior management. With regard to determining the compensation of the CEO, the committee uses its independent judgment, based in part on the advice of the committee’s independent compensation consultant (see below), in formulating its recommendation to our board of directors. With limited exceptions, the committee’s discussions on the elements of compensation for the CEO are conducted in closed session, typically with its compensation consultant in attendance but with no company employees present. The CEO is not permitted to participate in the deliberations by our board of directors in its evaluation of the committee’s recommendation for CEO compensation.

 

Compensation Philosophy

 

The committee’s philosophy in setting compensation policies for executive and key managers is to maximize stockholder value over time. The primary goals of the executive compensation program are, therefore:

 

 

It is the committee’s practice to review at least annually all components of compensation for our officers to ensure that the amount and structure of total compensation for each officer is consistent with our compensation philosophies and objectives. Internal pay equity among our officers, i.e., the relationship that exists between the total compensation we pay to the CEO to compensation levels we pay to our other executive officers and management, is also a factor in the committee’s assessment of total compensation for our officers.

 

With these considerations in mind, the general philosophy of the committee has been to (i) establish executive compensation at a level between the median and the 75th percentile of total direct compensation in reference to peer group and other competitive market information, and (ii) establish a strong correlation between the level of compensation and the financial performance of our company compared against its peer group and other companies.

 

Independent Compensation Consultant.  The committee relies significantly upon the services of independent compensation consultants in applying its judgment as to appropriate levels and components of compensation for the executive officers and key management in our company. In 2007, we renewed the annual engagement of The Delves Group, an independent, Chicago-based compensation consulting firm, to assist the committee in establishing our compensation goals and objectives, to provide relevant peer group and survey data on the compensation practices of other companies, and to advise on industry trends in executive compensation. The committee first engaged The Delves Group in 2004 and has renewed this engagement each year since that time. Although the fees of this consultant are paid by our company, the consultant is accountable and has direct reporting responsibility to the committee. The committee’s practice is to invite a representative of this consulting firm to attend substantially all committee meetings.

Survey Data, Peer Groups and the Use of Industry Benchmarking Data.  A significant factor in the committee’s analysis of executive compensation, particularly as it relates to the compensation of the CEO and the other executive officers, is the use of compensation data derived from broadly available compensation surveys compiled by recognized compensation firms, as well as public data from a peer group of publicly traded companies that are comparable to PCTEL. The survey data used by the committee’s independent compensation consultant is derived from different databases of companies that compare to PCTEL only in general terms, including broad industry sectors and size of company.

 

The peer group information is designed to be more specific. The consultant, with assistance from our company’s management and guidance from the committee, is responsible for selecting the companies that are included within this peer group and for compiling relevant executive compensation and corporate performance data. Although it is not possible to construct a group of companies with characteristics entirely similar to PCTEL, The Delves Group compiles data from companies that are similar in terms of industry sector, revenue level, market capitalization, operating and financial characteristics and other relevant factors. The peer group used to assist the committee in 2007 for determining CEO compensation consisted of 10 companies in similar or related technology businesses with annual revenues ranging from $100-800 million and a median annual revenue level of approximately $200 million. In 2007, the peer group of companies was as follows:

 

 

In 2008, the peer group of companies expanded to 16 companies, with 2007 revenues ranging from approximately $25-$260 million and median 2007 revenues of approximately $90 million. This group consisted of the following:

 

 

The compensation data derived from these selected peer groups, which was ranked by amount, consisted of annual and long term compensation amounts representing yearly averages over a three-year period. The financial performance data derived from these peer groups, also ranked by amount, included revenue growth, EBA (earnings before amortization) and EBA margin, EBITD (earnings before interest, taxes and depreciation), and total shareholder return. The Delves Group provided a comprehensive pay-for-performance analysis in connection with the committee’s evaluation of executive compensation, comparing levels of compensation, expressed in dollars and percentages, against both compensation and performance data contained in the survey and peer group information.

 

Industry benchmarking information from the survey data and the identified peer group has been equally relevant to the committee in respect of establishing cash compensation and equity ownership levels among the PCTEL managers and executives other than the CEO. The committee uses benchmarking information to evaluate “total compensation” of our company’s executives, i.e., principally salary, bonus and long term incentives combined, and looks upon this category of information as a key measure of executive compensation.

Principal Elements of Compensation

 

The principal elements included in executive compensation for our company’s CEO and executive management consist of:

 

 

Annual Salary.  The committee uses salary as the principal element of cash compensation for our executives. In addition to consideration of the performance levels, experience and responsibilities of our senior managers in reviewing compensation, the committee seeks to establish for our executives and managers an annual salary that is competitive with those paid to executives at comparably situated companies. This element of compensation is key to our company’s ability to hire and retain executives and key managers.

 

Annual Bonuses under our Short Term Incentive Plan.  This plan is a performance-based bonus plan that awards annual cash and/or stock bonuses based on the achievement of corporate- and business unit-level objectives tailored to specific growth and business goals established by management with the concurrence of our board of directors and the committee. Executives are permitted to earn maximum potential bonuses expressed as a percentage of their annual salary. The bonus each year is structured to be payable at lesser or greater amounts based on under- or over-achievement of the identified performance objectives.

 

The committee looks upon the bonus component of executive compensation as its principal tool in structuring incentives designed to realize our company’s yearly growth objectives. The performance objectives that are the basis of awards under the Short Term Incentive Plan are in general tied to, or derived from, our company’s annual financial plan for the upcoming year as approved by our board of directors. As a result, awards under this plan tend to focus more on near term operational and financial objectives of our company. See the discussion below on page 26 under “Short Term Incentive Plan.”

 

Long Term Incentives.  Our company provides long term incentives on an annual basis through the grant of restricted stock and stock options under its stock plans. The nature and terms of the equity award are determined by the committee, based on the kinds of motivations that the committee is seeking to establish.

 

Because of the long range vesting arrangements that are implemented with grants of restricted stock (both service-based and performance-based shares) and stock options, as well as the potential for appreciation in the value of our stock in our public trading markets as our company grows, the committee regards this element of compensation as having long term incentive and retention value in the hands of management. In addition, since these incentives that are service-based are structured to vest over a term that ranges from two to five years, depending on the nature of the award, their incentive value to our management is more strategic in nature.

 

The committee recognizes the risk-based nature of stock options and performance-based restricted stock, i.e., their economic value to the recipient is dependent on an increase in the stock price in the case of stock options and achievement of performance objectives in the case of performance-based restricted shares. The committee believes risk is an important element in structuring compensation for our executives and senior managers.

 

Beginning in 2005, the committee determined to use restricted stock grants instead of stock options as the principal form of long term incentive award for our company’s executives and key managers. The committee believes that restricted stock grants (i) can be more readily adapted to performance-oriented goals and objectives than stock options; (ii) provide greater motivational benefit in the hands of our company’s management and encourage focus on longer term results; and (iii) promote increasing ownership of our company’s stock by our management.

In addition, the use of restricted stock serves to reduce the dilution to our company’s stockholders through reduced grant levels of equity incentives to employees. Because restricted stock grants do not require the payment of an exercise price by the recipient, they have inherently greater value. As a general premise, based on valuation factors specific to our company, one share of restricted stock is the economic equivalent of three option shares. Therefore, substantially fewer shares are required for a stock grant to achieve the same economic incentive as a stock option, which permits us to grant smaller awards and conserve the stock reserves under our stock plans.

 

Stock Ownership Guidelines

 

From time to time, the committee has considered the implementation of formal stock ownership guidelines for our company’s officers and for members of our board of directors. The committee currently believes that formal stock ownership guidelines for either the officers or directors of our company are unnecessary, due to our company’s historical emphasis on the use of stock instead of cash as the form of payment of bonuses to executives under the Short Term Incentive Plan, the existing annual stock elements of director compensation, and the actual ownership levels of stock by both officers and the directors in our company. However, the committee continues to evaluate the need for stock ownership guidelines on a periodic basis.

 

Under the insider trading policy adopted by our company at the time of our initial public offering, our insiders are prohibited from trading in our common stock while in possession of material non-public information. To obviate the possibility of hedging the economic risk of ownership, this prohibition extends to trading in derivative securities of our company, including any put or call options.

 

PCTEL Equity Incentive Plans and Terms of Grant

 

Our company has traditionally provided long term incentives to our executives and senior managers through the grant of restricted stock and stock options under our 1997 Stock Plan. This plan was approved by the stockholders at the time it was originally adopted in 1997, and in 2006, material amendments to the plan (including an increase in the reserve of shares for issuance under the plan) were also approved by our stockholders.

 

Material Terms of Stock Option Grants.  Stock options granted to employees have a term of 10 years and are exercisable over time, typically over a period of 48 months from the date of grant, subject to the continued employment of the recipient. Under this 48-month exercisability schedule, there is a one year “cliff” period at the conclusion of which 25% of the shares subject to the option grant become exercisable; thereafter, the remaining option shares become exercisable in equal monthly increments over the balance of the four-year vesting period. All stock option grants made to our company’s employees, including officers, have an exercise price equal to the fair market value of the common stock on the date of grant, based on the trading price of the common stock as reported by Nasdaq. The committee and our board of directors have determined, as a matter of policy, that all stock option grants under the 1997 Stock Plan will be non-statutory options for federal tax purposes. A non-statutory option is taxable to the recipient upon exercise of the option to the extent that the fair market value of the stock on the exercise date exceeds the exercise price.

 

Because the economic value of a stock option to the employee is dependent upon an increase in the trading price of the common stock above the exercise price of the option, this portion of an executive’s compensation is directly aligned with an increase in stockholder value. If the trading price of the stock falls below the exercise price of the stock option, as has happened from time to time in respect of PCTEL stock option grants, then the stock option may lose its incentive value to the executive. The committee has never repriced previously granted stock options to employees where the trading price of the stock is less than the exercise price, and our 1997 Stock Plan, as amended in 2006, expressly prohibits the repricing of previously granted awards.

 

Material Terms of Time-Based Restricted Stock Grants.  Restricted stock grants typically vest in equal yearly increments over four years from the date of grant, also subject to the continued employment of the recipient. In some cases, restricted stock grants have been made with shorter vesting periods (two or three years), depending on the purpose for which they have been awarded, and in some cases will vest only at the end of a defined period (“cliff vesting”). As restricted stock grants vest, there is no exercise price to be paid to enable the recipient of the grant to realize the value of the stock at the vesting date. As a result, even though the stock price of our company may drop below the price of the stock that existed on the grant date of the restricted share, the share continues to hold residual

value in the hands of the employee. The fair market value of the restricted stock as it vests (based on the trading price of the stock), represents taxable gain to the employee at that time. Our company has the right to require our officers and managers to meet their statutory tax withholding obligations on each vesting date through the delivery of their vested shares net of the number of shares used to satisfy the withholding obligation.

 

Material Terms of Performance-Based Restricted Stock Grants.   Beginning with the grant of long term incentives in 2006 to the CEO, the committee has determined that the use of performance-based restricted stock grants should be included as an element of executive compensation. The committee believes that the performance measures used in constructing long term incentives must be meaningful to management, must emphasize the long term strategic goals of our company, and must remain relevant over a period of several years. The principal terms of these performance-based incentive grants are summarized below on page 30 under “Long Term Equity Incentives: Time-Based Stock Options and Time- and Performance-Based Restricted Stock”.

 

Accounting.  Beginning January 1, 2006, Financial Accounting Standard 123R became effective. This accounting standard in general requires that our company record a compensation charge equal to the value of each equity incentive award on the date of grant. Based on the approximate 1:3 ratio that we have used in determining economic equivalence of restricted stock to stock options, there is no material difference in accounting cost to our company in the form of either incentive award to management.

 

Administrative Protocols for the Grant of Equity Incentives

 

Board and Committee Authority for Stock Option and Restricted Stock Grants.  Consistent with the provisions of our company’s stock plans, the responsibility for the administration of the stock plans, including the grant of equity incentives under the plans, is conferred upon our board of directors, or a committee of our board of directors. Our board of directors has delegated to the compensation committee the authority to serve as administrator of our company’s plans.

 

The committee adheres to the following protocols in the grant of equity incentive awards to our company’s employees, including officers and senior managers:

 

 

Administrative Protocols in Stock Option and Restricted Stock Grants.  We adopted a Statement of Administrative Policy in November 2006, codifying approved procedures in respect of award grants under our company’s 1997 Stock Plan and our 2001 Stock Plan (another plan that we use for non-officer employees). This policy is administered by the committee. The key elements of the policy are as follows:

 

 

 

2007 Company Financial Performance, Officer Responsibilities and 2008 Executive Compensation

 

For fiscal 2007, the company’s financial performance was below plan. The company generated annual revenue and EBTA (in general, referring to income net of taxes, stock-based compensation, acquisition intangibles amortization, goodwill impairment and restructuring charges) of $80.2 million and $8.2 million against planned revenue and EBTA targets of $94 million and $12.8 million, respectively. Much of the shortfall pertained to our company’s discontinued UMTS operation in Ireland. However, the discontinuance of this operation enabled the company to achieve greater focus on its operational and strategic objectives. As another step in the furtherance of these objectives, our company completed the sale of one its business units, the Mobility Solutions Group, in January 2008, thus facilitating the transition to a business model with greater emphasis on spectrum management operations, including in particular our company’s antenna and RF solutions products.

 

Compared to its peer group, in 2007 the company performed above the median in respect of financial measures that consisted of annualized revenue growth over the period 2005 through 2007, 2007 total shareholder return, and annualized shareholder return over the period 2005 through 2007, and performed at or below the median in respect of 2007 revenue growth. The company’s overall compensation expense (before tax) was below the median established by the peer group.

 

In late 2007, Mr. Singer recommended to the committee several changes to the elements of compensation to be paid to the company’s executives and managers in 2008. These recommendations included freezing executive salaries at 2007 levels (with an exception for one executive) as well as reducing annual bonuses and equity incentive grants to executives and key managers from historical norms. The objective of Mr. Singer’s recommendations was to improve the company’s operating margins in 2008, with particular focus on reducing general and administrative operating expenses. The committee considered these recommendations in the context of other information relevant to establishing executive compensation for 2008, including survey and peer group information from the committee’s compensation consultant.

The company’s 2008 financial plan, adopted in late 2007, called for 2008 planned revenue of $79 million and planned EBTA of $11.9 million from continuing operations (excluding revenue and EBTA from the Mobility Solutions Group). These planned financial goals for 2008 were less than the goals adopted for 2007 due to the sale of the Mobility Solutions Group in early January 2008. Revenue and financial earnings targets originally set forth in our annual financial plan are the basis of performance metrics used in the company’s annual Short Term Incentive Plan and in performance-based restricted stock granted to the executives (see below), even though these targets are updated and adjusted periodically for acquisitions and divestitures and for normal forecast revisions.

 

In connection with organizational and management changes made from time to time within the company, the corporate and unit responsibilities of the members of senior management are relevant to the committee’s evaluation of executive compensation:

 

 

CEO Total Direct Compensation

 

Mr. Singer’s total direct target compensation for 2008, consisting of salary, target bonus and long term incentives, equates to $1,130,160, representing a decline from total direct target compensation and total direct actual compensation of $1,621,100 and $1,340,930, respectively, in 2007. The 2008 target level is at the median of total direct compensation, based on survey and peer group executive compensation information provided by the committee’s compensation consultant. In reference to its peer group, PCTEL’s financial performance was in general at or above the median. The committee believed that Mr. Singer’s total direct target compensation for 2008 was appropriate in light of management’s objective to reduce operating expenses in 2008.

 

Executive Salaries

 

CEO Salary.  In March 2007, Mr. Singer’s salary was established at $450,000, an increase of 13% from his annual salary of $400,000 in 2006, consistent with the committee’s philosophy of maintaining total compensation for the CEO within competitive norms.

For 2008, Mr. Singer’s salary has been maintained at its 2007 level of $450,000, in recognition of the need to manage corporate operating expense levels and to continue emphasis on stock appreciation and plan attainment as key elements of Mr. Singer’s overall compensation.

 

Salaries for Other Named Executive Officers.  

 

 

 

 

In 2007, the committee approved an increase in salaries for Messrs. Schoen, Miller and Nair from 2006 levels. The increase in 2007 salaries in the aggregate for the named executive officers (other than the CEO) for that year represented an increase of 9% over the prior year. The increase for Mr. Miller reflected his promotion from Vice President, Global Sales to Vice President and General Manager, Broadband Technology Group and his increased revenue responsibility related to that business unit.

 

In June 2007, our company hired Robert Suastegui as an executive officer with responsibility as Vice President and General Manager of Global Sales. Because of his mid-year arrival, Mr. Suastegui is included in the data for 2008 but not 2007.

 

In 2008, the committee accepted Mr. Singer’s recommendation to freeze salaries for the current named executive officers at 2007 levels, with an exception for Mr. Rugeles in recognition of his direct reporting relationship with the CEO established in 2007 as well as the growing financial contribution provided by the RF Solutions Group for which Mr. Rugeles has responsibility. Salary levels for the current named executive officers were generally aligned with the 75^th percentile of survey and peer group information provided by the committee’s compensation consultant.

 

Short Term Incentive Plan

 

Our company pays annual bonuses to its executive officers and key managers under its Short Term Incentive Plan. Our Short Term Incentive Plan for each of 2007 and 2008 represented a continuation of the bonus structure that was originally conceived and implemented by the committee in 2004. These annual bonuses are designed to:

 

 

In 2007, our company’s business units consisted of the Broadband Technology Group and the Mobility Solutions Group. With the sale of our Mobility Solutions Group in January 2008, the committee approved

compensation metrics for 2008 based on the financial performance of each of Global Sales, the Antenna Products Group and the RF Solutions Group as a separate organizational unit. The Antenna Products Group and the RF Solutions Group comprise the Broadband Technology Group.

 

Key Terms of Short Term Incentive Plan.  The amount of the bonus each year is based upon the achievement of identified goals specific to the executive and our company. Our company’s annual financial plan as reviewed and approved by our board of directors for a particular year is used as the basis for the goals set forth in the Short Term Incentive Plan. These goals are approved by the committee (or, in the case of the CEO, by our board of directors, upon the recommendation of the committee) during the first quarter of the performance year. In 2007 and 2008, these goals consisted of both corporate goals and/or goals corresponding to the business or organizational unit as well as the responsibility of the participating officer.

 

For officers whose responsibilities were not confined to a particular unit, the goals were weighted 100% in favor of corporate goals. For employees with unit responsibility, the weighting of the goals was allocated between corporate goals and goals of the particular unit. Corporate goals are defined in terms of planned revenue and planned EBTA (in general, referring to income before taxes, stock-based compensation, acquisition intangibles amortization, goodwill impairment, restructuring charges and gain on the sale of the Mobility Solutions Group) of PCTEL on a consolidated basis. The goals established under the Short Term Incentive Plan are consistent with the financial and operating targets included within the annual financial plan for that year as approved by our board of directors. Unit goals are generally defined in terms of targeted operational goals under the control of the participating employee based on anticipated unit operating performance. These goals include targeted revenue, gross margin, EBTA contribution and other operating measures for each particular unit for the fiscal year.

 

In establishing performance targets under the plan (including over-achievement and under-achievement levels), the committee takes into consideration the following factors:

 

 

The committee believes that achievement of the annual financial plan, and the resulting bonus payment established as a percentage of financial plan performance, presents a realistic opportunity for the executive officers and other managers participating in the Short Term Incentive Plan to realize a competitive level of compensation. The plan is designed to create a meaningful challenge in realizing the performance measures while at the same time providing incentive to accomplish the financial and operating goals of our company.

 

In general, once the corporate and unit goals of our company have been established for a fiscal year, the committee has awarded payment to a named executive officer or other manager under the plan in a manner that has been consistent with such goals. On occasion, the committee has awarded special bonuses not contemplated by the Short Term Incentive Plan to managers for exemplary performance or significant commitment of personal time.

 

Bonus Payments in Stock.  Bonuses awarded under our 2007 Short Term Incentive Plan were paid in shares of immediately vested shares of our common stock in lieu of cash. The committee and our board of directors have similarly determined that bonuses will continue to be paid in shares of our immediately vested common stock under the 2008 Short Term Incentive Plan. The committee approves the use of common stock as the currency for payment of bonuses under the plan in part to increase the equity ownership of management in our company, which the committee believes serves to more closely align the interests of management with those of our company’s stockholder base. The number of shares paid to an employee is determined by dividing the amount of the bonus by the closing price of our company’s common stock on Nasdaq on the effective date of the award.

 

Summary of the 2007 Short Term Incentive Plan

 

In 2007, achievement in full of the financial plan for that year (or a particular target unit goal based on the financial plan) resulted in a target bonus of 75% of the maximum potential bonus for any particular individual.

 

The award of bonuses under the 2007 plan, approved by the committee in February 2008, reflects the below-plan revenue growth and EBTA performance of our company. The participation in this plan by the CEO and our other named executive officers is summarized below.

 

 

 

 

Summary of the 2008 Short Term Incentive Plan

 

In March 2008, the compensation committee and our board of directors adopted a 2008 Short Term Incentive Plan with substantially the same structure as the 2007 plan. In 2008, among other factors considered by the committee in structuring performance measures under the plan was the need to continue emphasis on revenue growth and EBTA performance. The performance measures used in the 2008 Short Term Incentive Plan are derived from the 2008 financial plan adopted in late 2007.

 

In part to reduce overall operating expenses for the year, the committee approved management’s recommendation to reduce the target bonus percentage from 75% to 40%, i.e., achievement in full of the 2008 financial plan will result in a bonus of 40% of the maximum potential bonus. Global Sales was an exception to this target bonus reduction and remained at 75% for revenue, but 40% for all other measures. The reduction in target bonus percentages is expected to significantly reduce the level of bonuses to be paid under the 2008 Short Term Incentive Plan, unless our company over-achieves its annual revenue growth target in 2008 of 13% and its annual EBTA growth target of 69%, in which event bonus levels will increase in degrees up to the maximum potential bonus. In the event of under-achievement of the financial plan, bonuses are reduced or eliminated, depending on the degree of under-achievement.

 

The participation in the 2008 Short Term Incentive Plan by the CEO and our other named executive officers is summarized below.

 

 

 

 

Our board adopted and our stockholders approved an Executive Compensation Plan for the CEO and our other named executive officers in 2007. This plan governs the 2008 Short Term Incentive Plan for purposes of Section 162(m) of the Code.

Long Term Equity Incentives: Time-Based Stock Options and Time-and Performance-Based Restricted Stock

 

In considering long term equity incentive awards for our senior management, the committee believes that these awards should:

 

 

Beginning in mid-2006, the committee implemented the use of performance-based restricted stock as an element of compensation for the CEO. Performance-based restricted stock grants, in contrast with time-based restricted stock grants, vest on the achievement of established performance goals. The committee believes that performance-based stock, as with bonus payments under our company’s Short Term Incentive Plan, directly motivate management to achieve company-specific goals and objectives. However, because of the long term incentive nature of equity as an element of compensation, the committee also believes that performance-based shares are optimal as an incentive tool when they are structured around performance objectives that are targeted for accomplishment in periods typically longer than a single year. Based on the usage ratios used by our company in grants of restricted stock compared to grants of stock options, our company strives to ensure that there is no material difference in accounting cost to our company between the two incentive structures. As with time-based restricted stock, our company has the right to require that the statutory tax withholding obligations of the recipient arising on each vesting date to be met through the delivery of vested shares.

 

2007 Long Term Incentives for the CEO.  In March 2007, upon the recommendation of the committee, our board of directors approved a grant of 80,000 shares of restricted stock to the CEO, consisting of a time-based grant of 40,000 shares and a performance-based grant of 40,000 shares, with a total economic value of approximately $800,000 (based on an informal approximation by the committee’s compensation consultant). Among the factors considered by the committee in connection with its recommendation to our board of directors concerning CEO compensation for 2007 were the following:

 

 

The 40,000-share time-based restricted stock grant awarded to Mr. Singer will vest in equal annual increments over a period of four years, subject to his continued service.

 

The 40,000-share performance-based restricted stock grant awarded to Mr. Singer may be earned in annual increments, subject to his continued service and based on the achievement of corporate performance measures. These measures consist of (i) annual revenue growth and (ii) annual “pro forma” net income growth (i.e., net income as adjusted for the exclusion of licensing fees, restructuring charges, intangible charges for goodwill, and stock-based compensation charges), both targeted at 15% annually, with minimum and maximum growth rates of 5% and 25%, respectively. Performance against these targets and ranges is assessed each fiscal year over a period of four years. One-fourth of the total share grant can be earned each year based on the Company’s performance against

these two performance measures. The percentage of the performance-based shares that may be earned by Mr. Singer based on achievement of the measures ranges from 150% at the 25% level of annual revenue growth and annual pro forma net income growth or higher (i.e., a potential maximum of 60,000 shares if the company achieves 25% or higher growth in both measures in each of the four years of the performance period), and no shares at less than the 5% level of these annual measures. The two measures are weighted equally and averaged for purposes of determining the number of shares to be earned. In addition, using the same methodology, Mr. Singer is permitted a final opportunity at the end of the four-year period to earn any remaining shares based on cumulative corporate performance over the four years. At the end of 2007, Mr. Singer had vested in 2,450 shares of a potential total of 10,000 shares for the year.

 

2008 Long Term Incentives for the CEO.  In March 2008, upon the recommendation of the committee, our board of directors approved a grant of 55,600 shares of restricted stock to Mr. Singer, consisting of 45,600 shares of time-based restricted shares and 10,000 shares of performance-based restricted shares, with a total economic value of approximately $375,000 (based on an informal approximation by the committee’s compensation consultant).

 

This reduction in restricted shares from the 80,000 share grant in 2007 reflects Mr. Singer’s recommendation to the committee to reduce equity incentives to executives and key managers for the purpose of reducing operating expense. This 2008 grant is significantly below median levels for long term incentives based on survey and peer group information provided by the committee’s compensation consultant.

 

Mr. Singer’s time-based restricted stock grant of 45,600 shares will cliff vest in 2012, subject to his continued service. His performance-based restricted stock grant of 10,000 shares will vest under the same performance arrangements as were adopted by our board in 2007.

 

2007 Long Term Incentives for Other Named Executive Officers.  In March 2007, and for Mr. Suastegui upon his employment by our company in June 2007, the committee approved the grant of restricted stock to the named executive officers identified below as follows:

 

 

The time-based stock grant awarded to each officer vests in equal annual increments over a period of four years, subject to his continued service.

 

The performance-based stock grant awarded to each officer vests on the same basis as described above for Mr. Singer in respect of his 2007 performance-based stock grants.

 

The committee determined that in 2007, 50% of the long term incentives granted to the executive officers of our company that year should be performance-based, consistent with the committee’s philosophy that compensation at the executive level should be tied to corporate performance. The committee considered a number of factors in approving both the time-based and the performance-based incentives, including our company’s below-plan financial performance in 2006, the individual performance contributions of each officer, equity incentive levels in previous years, the value of these awards relative to their total compensation for 2007, their cumulative equity ownership in our company, and budgeting factors in determining to reduce the usage rate of equity incentives under our 1997 Stock Plan. Mr. Miller’s incentive grant reflected his promotion and substantially increased revenue responsibility for our Broadband Technology Group in 2007.

2008 Long Term Incentives for Other Named Executive Officers.  In March 2008, the committee approved the grant of restricted stock to the named executive officers identified below as follows:

 

 

The time-based stock grant awarded to each officer other than Mr. Miller vests in equal annual increments over a period of four years, subject to his continued service. Stock grants to Mr. Miller will cliff vest in 2012, subject to his continued service.

 

For 2008, the committee determined to give greater weight to time-based restricted shares for incentive purposes, and less emphasis on performance-based restricted shares. The performance-based stock grant awarded to each officer vests on the same basis as described above for Mr. Singer in respect of his 2007 and 2008 performance-based stock grants.

 

The level of restricted stock grants to the named executive officers was reduced from the grant levels of 2007, consistent with the objective recommended by Mr. Singer and endorsed by the committee to reduce equity incentives as a means of reducing the company’s operating expenses in 2008. In the case of Mr. Rugeles, his 2008 level of restricted stock grants was comparable to his grants in 2007 in recognition of the financial performance of the RF Solutions Group for which Mr. Rugeles has responsibility. The 2008 grant levels awarded by the committee were determined by the committee’s compensation consultant to be competitive with industry norms, ranging between the median and 75th percentile of peer group and survey data.

 

Other Benefits

 

 

Change in Control and Severance Arrangements

 

The table below and the summary of retention arrangements related to benefits associated with a change in control of our company should be read in conjunction with the tables on page 41 of this proxy statement.

 

 

 

 

In 2006, the committee, working with the CEO, reviewed the severance and change of control benefits of all managers of our company under existing employment and management retention agreements and arrangements. This review was undertaken to promote uniformity of benefits and to eliminate historical anomalies associated with managers who had joined our company at different times or under unique circumstances. The retention and employment agreements of our named executive officers and our vice-presidents were amended as necessary to ensure that the benefit levels were consistent based on seniority of the manager, and in accord with industry norms as determined by the committee, its independent compensation consultant and the CEO.

 

A change in control is defined to include any merger, reorganization or acquisition of our company, including by way of sale of all or substantially all of our assets, in which a majority of the voting control of our company is transferred. The retention benefits summarized in the table above in connection with a change in control are based on a “double trigger” structure, i.e., no benefit will be provided unless there is both (i) a completed change in control event, and (ii), within 12 months following such event, the manager’s employment is involuntarily terminated. The committee and the CEO believe that all managers of our company should contribute to the success of our company following any possible merger or acquisition, to the extent permitted by the successor or acquirer. The “double trigger” structure ensures that our managers have the necessary motivation to support our company during a post-acquisition transition. The principal retention benefits that result from this structure include lump sum payment of a specified percentage of annual salary, acceleration of 100% of any then unvested equity incentives, and company-paid healthcare benefits for a specified period of time. The committee believes that the level of these benefits would not in the aggregate represent a financial deterrent to a buyer or successor entity in considering a combination transaction with our company.

 

Our named executive officers and other managers are also entitled to severance and related benefits in connection with the involuntary termination of their employment under their employment agreements with our company. The level of these benefits was similarly reviewed by the committee and the CEO in 2006, also for the purpose of uniformity and to reassess them against industry norms and corporate objectives. The principal severance benefits include salary continuation and company-paid healthcare benefits for a specified period of time.

In addition, upon the occurrence of an involuntary termination or death or disability, severance benefits include 12 months accelerated vesting of any then unvested time-based restricted shares, and immediate vesting of performance-based restricted shares in the amount targeted for vesting in the performance year in which termination, death or disability occurs.

 

In the case of the CEO, severance benefits resulting from involuntary termination also includes payment of the maximum potential bonus under our Short Term Incentive Plan; in the event of death or disability, the amount of the bonus that would be paid under our Short Term Incentive Plan would be based on the actual amount of the bonus determined for the performance year in which death or disability occurred, pro rated for the year based on the date of death or disability. The current employment agreement with Mr. Singer also imposes a non-competition and non-solicitation covenant with a term of 12 months from his termination date in connection with his severance arrangements; these covenants have a term of 24 months from his termination date in connection with a change in control that is followed by the involuntary termination of his employment.

 

Section 162(m) of the Internal Revenue Code

 

Under Section 162(m) of the Code, our company is able for federal tax purposes to deduct compensation paid to the CEO and our four other named executive officers only if the compensation for such officer is less than $1 million during the fiscal year, or is “performance-based,” as defined under Section 162(m).

 

The committee has considered the corporate tax deductibility limits under Section 162(m). Although it is the objective of the committee to seek to qualify all executive compensation as deductible, the committee has not adopted a policy with this objective, in order to provide flexibility and to ensure that our executive compensation programs remain competitive.

 

In 2007, all compensation paid to the officers of our company was below the $1 million threshold under Section 162(m) for purposes of corporate tax deductibility.

 

Section 409A of the Internal Revenue Code

 

Section 409A of the Code, which was added by the American Jobs Creation Act of 2004, provides certain new requirements on non-qualified deferred compensation arrangements. These include new requirements with respect to an individual’s election to defer compensation and the individual’s selection of the timing and form of distribution of the deferred compensation. Section 409A also generally provides that distributions must be made on or following the occurrence of certain events (e.g., the individual’s separation from service, a predetermined date, or the individual’s death). Section 409A imposes restrictions on an individual’s ability to change his or her distribution timing or form after the compensation has been deferred. For certain individuals who are officers, Section 409A requires that such individual’s distribution commence no earlier than six months after such officer’s separation from service.

 

The committee evaluates the various benefit plans and compensation arrangements that we have in place for our officers and management, and requires modifications of these plans and arrangements as necessary to comply with the requirements of Section 409A.

 

Adjustment of Awards

 

Our company’s financial statements and the related financial performance goals and measures used by the committee as the basis for executive compensation have not to date been subject to revision or restatement. As a result, the committee has never been required to consider an adjustment of an award made on the basis of a relevant financial measure that has been revised or restated. However, if such a circumstance were to occur, the committee and our board of directors would consider all appropriate remedial measures, which may include the recovery of amounts that were inappropriately awarded to an individual executive.

 

COMPENSATION COMMITTEE REPORT

 

The compensation committee of the board of directors has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K of the Securities Exchange Act of 1934, as amended, and, based on such review and discussions, the compensation committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into our company’s 2007 Annual Report on Form 10-K.

 

The Compensation Committee

 

Richard C. Alberding

John R. Sheehan

Brian J. Jackman

 

EXECUTIVE COMPENSATION AND OTHER MATTERS

 

The following table presents the compensation of our Chief Executive Officer, Chief Financial Officer, and three other most highly compensated executive officers for the fiscal years ended December 31, 2006 and 2007. We refer to these individuals elsewhere in this proxy as “named executive officers.”

 

Summary Compensation Table

 

 

 

 

The following table provides information on plan-based awards granted in fiscal 2007 to each of our named executive officers.

 

Grants of Plan-Based Awards for the Fiscal Year Ended December 31, 2007

 

 

 

 

The following table shows the number of exercisable and unexercisable equity awards held by our named executive officers on December 31, 2007.

 

Outstanding Equity Awards at Fiscal Year End December 31, 2007