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 9, 2009
10:00 a.m.

 

 

To Our Stockholders:

 

The 2009 annual meeting of stockholders of PCTEL, Inc., a Delaware corporation, will be held on Tuesday, June 9, 2009 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 two Class I directors whose terms will expire at the 2012 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, 2009; 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, 2009 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 accompanying proxy as promptly as possible. 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, 2009

 

 

PCTEL, INC.

471 Brighton Drive

Bloomingdale, Illinois 60108

 

 

PROXY STATEMENT FOR THE

2009 ANNUAL MEETING OF STOCKHOLDERS

 

 

GENERAL INFORMATION

 

The Board of Directors of PCTEL, Inc. is soliciting proxies for the 2009 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, 2009 as the record date for the meeting. Stockholders of record at the close of business on April 17, 2009 are entitled to vote at and attend the meeting, with each share entitled to one vote. There were 18,841,395 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 $4.87 per share.

 

This proxy statement is made available on or about April 28, 2009 to stockholders entitled to vote at the meeting.

 

In this proxy statement:

 

 

QUESTIONS AND ANSWERS

 

 

 

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 2010 Annual Meeting of Stockholders

 

Stockholders are entitled to present proposals for action and director nominations at the 2010 annual meeting of stockholders only if they comply with the applicable requirements of the proxy rules established by the SEC 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: John W. Schoen, on or prior to the deadline for receiving such proposals and nominations.

 

Proposals for the 2010 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, 2009, 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 2010 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 2010 annual meeting of stockholders, this means that such proposals or nominations must also be received by December 29, 2009. A copy of the relevant bylaw provision is available upon written request to our Corporate Secretary at the address provided above.

 

The accompanying 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 2010 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 2009 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 two Class I directors to serve until our 2012 annual meeting of stockholders. Our Board of Directors has nominated Brian J. Jackman and John R. Sheehan to serve as our Class I 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 two 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 14.

 

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 are expiring at this 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, Steven D. Levy, Giacomo Marini, and Martin H. Singer, whose terms will expire at our 2011 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 date.

 

Nominees

 

On the recommendation of the Board of Directors, the nominees for election at the 2009 annual meeting of stockholders as Class I directors are Brian J. Jackman and John R. Sheehan. If elected, Messrs. Jackman and Sheehan will continue as directors, and their terms will expire at the annual meeting of stockholders in 2012.

 

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 two Class I 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 two 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 2009 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. From 1984-1995, Mr. Thomsen worked at Measurex Corporation (now a part of Honeywell Corporation) where he served as Senior Vice President and Chief Financial Officer. 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 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 is a member of the Executive Board 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. In March 2009, Mr. Singer was appointed a member of the Board of Directors of Westell Technologies, Inc., a leading provider of broadband products, gateways and conferencing services. 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. He received the Executive Leadership Award (2008) from the AeA for his contributions to the technology community over several years. 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 ten meetings during fiscal 2008. 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 charter 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 2010 annual meeting of stockholders, director nominations must be received by December 29, 2009.

 

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.  In 2008, our non-employee directors received an annual cash retainer of $12,500 and shares of restricted common stock equivalent to $4,000. They also received $2,500 per board meeting attended (unless the board meeting was conducted by teleconference, in which case directors received $1,000 for each such telephonic meeting in which they participated) and $1,000 per committee meeting attended. In addition, our non-employee directors received additional shares of restricted stock as set forth below:

 

 

All of the shares of restricted common stock received by our non-employee directors in 2008 vested six months after the date of grant, provided that the individual continued to serve as a director on such date.

 

Our 1997 Stock Plan (defined on page 21) 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.

 

Commencing on January 1, 2009, our non-employee directors will receive an annual cash retainer of $22,500 and shares of restricted common stock equivalent to $35,000. They will also receive $1,500 per board meeting attended (unless the board meeting is conducted by teleconference, in which case directors will 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 will annually receive the following additional shares of restricted stock:

 

 

All the grants to the non-employee directors described above will be awarded on the date of the annual meeting and will have no vesting period. The actual 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.

 

Deferred Compensation Plan.  Our non-employee directors are eligible to participate in the Board of Directors Deferred Compensation Plan. The principal purpose of the Board of Directors Deferred Compensation Plan is to provide additional retirement benefits and income tax deferral opportunities for our non-employee directors. The Board of 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 Board of Directors Deferred Compensation Plan will be paid out by the company 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.

 

Deferred Stock Plan.  Our non-employee directors are eligible to participate in the Board of Directors Deferred Stock Plan. The principal purpose of the Board of Directors Deferred Stock Plan is to provide additional retirement benefits and income tax deferral opportunities for our non-employee directors. The Board of Directors Deferred Stock Plan permits the deferral of stock option gains and restricted stock awards that would otherwise be received by the non-employee directors for their service on our Board of Directors. The shares that are deferred under the Board of Directors Deferred Stock Plan will be distributed by the company upon the termination of a non-employee director’s service on the Board of Directors.

 

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, 2008

 

 

 

 

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 our Vice President and General Counsel at general.counsel@pctel.com. The general counsel monitors these communications, consults with the 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, the general counsel may obtain more immediate attention of the appropriate committee or independent director of the Board of Directors, of independent advisors or of our management. The general counsel may decide whether a response to any stockholder communication is necessary.

 

Attendance at the Annual Meeting of Stockholders

 

All directors are welcome to attend the 2009 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 2008 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 (“Financial Code of Ethics”). The Financial 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 Financial 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 Financial Code of Ethics by posting such information on our website.

 

Compensation Committee Interlocks and Insider Participation

 

During fiscal 2008, none of Richard C. Alberding, John R. Sheehan, or 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, 2009. This appointment is being presented to our stockholders for ratification at the 2009 annual meeting of stockholders.

 

Before selecting Grant Thornton LLP as our independent registered public accounting firm for fiscal year 2009, 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 2009 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.

 

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 2008 and 2007 fiscal years:

 

 

 

 

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 2008 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, 2009 by:

 

 

Beneficial ownership is determined based on the rules of the SEC. Percent of beneficial ownership is based upon 18,839,216 shares of our common stock outstanding as of March 31, 2009. In addition, shares of common stock that are exercisable as of March 31, 2009 or will become exercisable on or before May 30, 2009 (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 nine times in 2008.

 

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 executive officers and key managers is established prior to the end of the first quarter of the fiscal year. The Compensation Committee has full authority to determine the compensation of the executive officers and key managers of our company other than the CEO. The CEO’s compensation must be approved each year by the non-employee directors of our Board of Directors based on the recommendation of the Compensation Committee. In making its recommendation with respect to the CEO’s compensation, the Compensation Committee takes into consideration the results of a performance evaluation of the CEO for the preceding year. The annual evaluation of the CEO’s performance is conducted by the Nominating and Governance Committee based on input from each member of our Board of Directors, including the CEO. 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. At the time of this performance evaluation, the Compensation Committee solicits 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 Committee uses its independent judgment, based in part on the advice of The Delves Group, the Committee’s independent compensation consultant (described in “Compensation Philosophy — Survey Data, Peer Groups and Use of Industry Benchmarking Data” below), in formulating its recommendation to our Board of Directors with respect to the CEO’s compensation. 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.

 

The Compensation Committee also establishes the compensation for the executive officers (other than the CEO) and key managers. The CEO provides significant assistance to the Committee each year and attended four of the Compensation Committee’s nine meetings in 2008. The CEO assists the Committee by providing his insights as to the individual performance of each of the other executive officers and key managers whose compensation is determined by the Committee. In addition, the CEO reviews the compensation data compiled by the independent compensation consultant retained by the Committee (as described in “Compensation Philosophy — Survey Data, Peer Groups and Use of Industry Benchmarking Data” below) and, consistent with such data, the company’s compensation philosophy and the individual performance of the executive officer or key manager, the CEO makes a specific recommendation for the salary, bonus and equity components of such officer’s or key manager’s compensation. The Committee gives significant consideration to the recommendations of the CEO although it is not required to do so. After consulting with its independent compensation consultant and the CEO, the Committee, in its discretion, sets the annual compensation for the executive officers and key managers.

 

Compensation Philosophy

 

The Compensation Committee’s philosophy in setting compensation policies for executive officers 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 executive officers and key managers to ensure that the amount and structure of total compensation for each is consistent with our compensation philosophies and objectives. Internal pay equity among our executive officers and key managers, 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 key managerers, is also a factor in the Committee’s assessment of total compensation.

 

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 a

peer group of publicly traded companies and in accordance with 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 Compensation Committee relies significantly upon the services of an independent compensation consultant in applying its judgment as to appropriate levels and components of compensation for the executive officers and key managers in our company. In 2008, 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. 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.  An important factor in the Compensation Committee’s analysis of executive compensation, particularly as it relates to the compensation of the CEO and the other executive officers and key managers, is the use of compensation data derived from broadly available compensation surveys compiled by recognized compensation firms, as well as publicly available 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 independent compensation 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.

 

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 $95.0 million. This group consisted of the following:

 

 

The peer group of companies for 2009 will remain the same as for 2008, excluding NextWave, Inc.

 

The compensation data derived from this peer group, 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 this peer group included revenue growth, EBA (earnings before amortization) and EBA margin, EBITD (earnings before interest, taxes and depreciation), and TSR (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 company’s executive officers and key managers. The Committee uses benchmarking information to evaluate “total

compensation” of our company’s executive officers (i.e., principally salary, bonus and long term incentives combined), and looks upon this category of information as a key measure of executive compensation.

 

Although survey data, peer group and industry benchmarks continue to provide the Committee with useful information, the rapid decline in economic conditions in the United States and the relevant industries since the data was collected has resulted in the Committee also relying on other more current information provided by the independent compensation consultant.

 

Principal Elements of Compensation

 

The principal elements included in executive compensation for our company’s CEO, executive officers and key managers consist of:

 

 

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

 

Annual Bonuses under our Short Term Incentive Plan.  This plan is a performance-based bonus plan that awards annual cash or stock bonuses based on the achievement of corporate and organizational unit-level objectives tailored to specific growth and business goals established by management with the approval of the Compensation Committee and, with respect to the CEO, established by our Board of Directors. Executive officers and key managers 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. The Committee believes that risk is an important element in structuring compensation for our executive officers and key managers.

 

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 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 four years, depending on the nature of the award, their incentive value to our management is more strategic in nature.

The Compensation 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.

 

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 executive officers 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; (iii) promote increasing ownership of our company’s stock by our management, and (iv) serve to retain executive officers and key managers.

 

In addition, the use of restricted stock requires substantially fewer shares to achieve the same economic incentive as a stock option, thereby permitting the company to grant smaller awards and conserve the stock reserves under our stock plans. Because restricted stock grants do not require the payment of an exercise price by the recipient, they have inherently greater value to the recipient.

 

Stock Ownership Guidelines

 

From time to time, the Compensation Committee has considered the implementation of formal stock ownership guidelines for our company’s named executive officers and the Board of Directors. The Committee currently believes that formal stock ownership guidelines for either the named executive officers or the Board of Directors 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 executive officers and key managers 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, as amended October 2002 and December 2007, 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 executive officers and key managers through the grant of restricted stock and stock options under the 1997 Stock Plan. This Plan was approved by the stockholders at the time it was originally adopted in 1997; 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; and on August 20, 2008 non-material modifications were made to the Plan, effective January 1, 2009, to comply with regulations promulgated under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and to amend the Board of Directors’ compensation.

 

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 Compensation 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 employee’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 company stock option grants, then the stock option may lose its incentive value to the recipient. The Committee has never repriced previously granted stock options where the trading price of the stock is less than the exercise price, and our 1997 Stock Plan expressly prohibits the repricing of previously granted awards.

 

Material Terms of Service-Based Restricted Stock Grants.  Restricted stock grants typically vest in equal annual increments over four years from the date of grant, 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 on the grant date of the restricted share, the share continues to hold residual value in the hands of the recipient. 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 the employee recipients 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, and continuing in 2007 and 2008 to the CEO and the other named executive officers, the Compensation Committee has used performance-based restricted stock grants 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: Service-Based Stock Options and Service-Based and Performance-Based Restricted Stock”. However, given the current economic conditions and difficulty in long-term forecasting, the Committee decided not to grant performance-based restricted stock in 2009.

 

Accounting.  Beginning January 1, 2006, FAS 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.

 

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 stock plans.

 

The Compensation Committee adheres to the following protocols in the grant of equity incentive awards to our company’s employees, including executive officers and key managers:

 

 

Administrative Protocols in Stock Option and Restricted Stock Grants.  The company 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 Nonstatutory Stock Option Plan as amended and restated November 7, 2008 (another plan that we use for non-officer employees) (“2001 Stock Plan”). This policy is administered by the Compensation Committee. The key elements of the policy are as follows:

 

 

2008 Company Financial Performance, Officer Responsibilities and 2009 Executive Compensation

 

A portion of executive compensation is tied to the company’s financial performance, which historically has been measured by annual revenue and EBTA (defined as the company’s income net of taxes, stock-based compensation, amortization of intangibles, goodwill impairment and restructuring charges). For fiscal 2008, the company’s financial performance was below planned revenue. The company generated annual revenue of $76.9 million in 2008 as compared with planned revenue of $79.0 million. The difference between planned revenue and actual annual revenue is primarily attributable to the decline in sales to certain customers of the Antenna Products Group who completed long-term projects that had produced substantial sales in prior years.

 

The company’s actual EBTA for 2008 was $10.4 million as compared with planned EBTA of $11.9 million. The company would have exceeded the planned EBTA had it not incurred a decline of approximately $2.7 million in

the company’s investments primarily related to mark-to-market losses on the company’s investment in Bank of America’s Columbia Strategic Asset Portfolio Enhanced Cash Fund.

 

The company’s 2009 financial plan, initially adopted by the Board of Directors in November 2008, was subsequently revised by management and approved by the Board of Directors in the first quarter of 2009 in light of unpredecented deteriorating market conditions.

 

For 2009, a portion of executive compensation will continue to be tied to the company’s financial performance; however, one of the metrics used to measure the company’s financial performance has changed. Non-GAAP operating profit (defined as GAAP operating profit excluding the following items: stock-based compensation, amortization or impairment of intangible assets, restructuring costs, and the gain or loss on the sale or disposal of assets and/or product lines, including the related royalties) will be used in 2009 to measure the company’s financial performance rather than EBTA. The difference between the two metrics is that non-GAAP operating profit excludes interest and the gain or loss related to the disposal of assets and/or product lines and the related royalties. The Compensation Committee made this change in order to eliminate the impact of actions and circumstances that are not within management’s control on the company’s ability to achieve the planned financial performance. For example, in 2008 the foregone interest income due to the company’s stock buyback and the special dividend paid to stockholders, as well as the general decline in interest rates, all negatively impacted the calculation of EBTA.

 

Mr. Singer recommended to the Compensation Committee several changes to the elements of compensation to be paid to the company’s executive officers and key managers in 2009. These recommendations include salary reductions for the executive officers (with one exception discussed on page 26 under “Executive Salaries — Salaries for Other Named Executive Officers”) as well as a salary reduction or a salary freeze for all other employees. In addition, he recommended that annual bonuses be reduced from 2008 levels. The objective of Mr. Singer’s recommendations was to reduce the company’s operating expenses in 2009. This is the second consecutive year in which management proposed a reduction in annual bonuses and containment of salaries for the named executive officers. The Compensation Committee considered these recommendations in the context of other information it deemed relevant to establishing executive compensation for 2009, including survey and peer group information obtained from The Delves Group, the Committee’s independent compensation consultant. See the discussion beginning on page 19 under “Compensation Philosophy-Independent Compensation Consultant”.

 

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

 

 

CEO Total Direct Compensation

 

Mr. Singer’s total direct target compensation for 2009, consisting of salary, target bonus and long term incentives equates to $890,975, representing a decline from total direct target compensation of $1,005,300 and total direct actual compensation of $915,975 in 2008. The 2009 target level is below the median of total direct compensation of comparable companies based on survey and peer group executive compensation information provided by the Compensation Committee’s independent compensation consultant. In comparison to its peer group, PCTEL’s financial performance for 2008 was, in general, at or above the median based upon data collected by the independent compensation consultant for the trailing 12-month and 36-month periods. The Committee believed that Mr. Singer’s total direct target compensation for 2009 was appropriate in light of management’s objective to reduce 2009 operating expenses.

Executive Salaries

 

CEO Salary.  In 2007, Mr. Singer’s salary was $450,000. In 2008, Mr. Singer’s salary was maintained at its 2007 level in recognition of the need to manage corporate operating expenses and to continue emphasis on stock appreciation and plan attainment as key elements of Mr. Singer’s overall compensation. For 2009, Mr. Singer’s salary will be reduced by 6% from $450,000 to $425,000. The reduction is part of the overall cost reductions that the company has undertaken in response to the impact of the worldwide economic decline.

 

Salaries for Other Named Executive Officers.

 

 

 

 

In 2009, the Compensation Committee accepted Mr. Singer’s recommendation and reduced the salaries for the current named executive officers by 2% to 8%, with the exception of Mr. Rugeles, whose salary will remain at the 2008 level in recognition of the performance of RF Solutions Group for which Mr. Rugeles has responsibility. These reductions are part of the cost reductions the company has undertaken as a result of the impact of the worldwide economic decline.

 

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 2008 and 2009 represented a continuation of the bonus structure that was originally conceived and implemented by the Committee in 2004. These annual bonuses are designed to:

 

 

As more fully discussed on page 29 under “Summary of the 2009 Short Term Incentive Plan”, the Compensation Committee approved compensation metrics for 2009 based on the financial performance of the Antenna Products Group, the RF Solutions Group and Global Sales, each as a separate organizational unit.

 

Key Terms of Short Term Incentive Plan.  The amount of the bonus awarded each year is based upon the achievement by each organizational unit, and the company as a whole, of approved goals. 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.

 

For executive officers whose responsibilities were not confined to a particular organizational unit, the goals were weighted 100% in favor of corporate goals. For executive officers with responsibility for a specific organizational unit, the weighting of the goals was allocated between corporate goals and goals of the particular organizational unit. Corporate goals are defined in terms of planned revenue and planned non-GAAP operating

profit (defined as GAAP operating profit excluding the following items: stock-based compensation, amortization or impairment of intangible assets, restructuring costs, and the gain or loss on the sale or disposal of assets and/or product lines, including related royalties). The goals established under the Short Term Incentive Plan are consistent with the annual financial plan for that year as approved by our Board of Directors. Organizational unit goals are generally defined in terms of planned operational goals under the control of the participating executive officers based on anticipated organizational unit performance. These organizational unit goals include planned revenue, gross margin, non-GAAP contribution and other operating measures for each particular organizational unit for the fiscal year.

 

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

 

 

In general, once the corporate and organizational unit goals of the company have been established for a fiscal year, the Committee has awarded payment to the executive officers and key managers 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 executive officers or key managers for exemplary performance or significant commitment of personal time.

 

Bonus Payments in Stock.  Bonuses awarded under the 2008 Short Term Incentive Plan were paid in immediately vested shares of our common stock in lieu of cash. The Committee and Board of Directors have similarly determined that bonuses will continue to be paid in shares of the company’s immediately vested common stock under the 2009 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 the company, which the Committee believes serves to more closely align the interests of management with those of the company’s stockholders. The number of shares paid to an employee is determined by dividing the amount of the bonus by the closing price of the company’s common stock on Nasdaq on the effective date of the award.

Summary of the 2008 Short Term Incentive Plan

 

In 2008, achievement in full of the financial plan for that year (or a particular organizational unit target goal based on the financial plan) resulted in a target bonus of 40% of the maximum potential bonus for any particular individual.

 

The award of bonuses under the 2008 plan, approved by the Committee in February 2009, reflects the below-plan revenue and EBTA performance of the company. The participation in this plan by the CEO and our other named executive officers is summarized below.

 

 

 

 

Summary of the 2009 Short Term Incentive Plan

 

In March 2009, the Compensation Committee and the Board of Directors adopted a 2009 Short Term Incentive Plan with substantially the same structure as the 2008 plan, except that the EBTA metric has been replaced with non-GAAP operating profit as discussed in “2008 Company Financial Performance, Officer Responsibilities and 2009 Executive Compensation” beginning on page 24. The performance measures used in the 2009 Short Term Incentive Plan are derived from the 2009 financial plan.

 

In light of deteriorating market conditions, the Compensation Committee approved management’s recommendation to reduce the target bonus percentage from 40% to 30% of the maximum potential bonus. The reduction in the target bonus percentage is expected to reduce the aggregate amount paid by the company as bonuses under the 2009 Short Term Incentive Plan as compared with the target bonuses under the 2008 Short Term Incentive Plan. For example, if the company achieves the 2009 financial plan, the CEO will receive a bonus of $133,875 as compared with the $170,000 bonus he would have received if the target bonus percentage had not been reduced from 40% to 30%. If the company exceeds its annual revenue and non-GAAP operating profit targets in 2009, it will result in higher bonuses up to the 2009 maximum potential bonus, as reflected in the table below. Failure to achieve the 2009 financial plan will result in a corresponding reduction or elimination of bonuses.

 

The participation in the 2009 Short Term Incentive Plan by the CEO and our other named executive officers is summarized below.

 

 

 

 

Our Board of Directors adopted and our stockholders approved an Executive Compensation Plan for the CEO and our other named executive officers in 2007. This plan governs the 2009 Short Term Incentive Plan for purposes of Section 162(m) of the Code.

 

Achievement of 2009 Financial Plan.

 

The company’s 2009 financial plan contemplates overall financial performance that is significantly reduced from planned and actual results for 2008. The turmoil in the current economic environment creates substantial uncertainty regarding the company’s ability to achieve planned financial and operational goals, and accordingly the management of the company has determined not to release guidance to the financial community relating to the company’s projected 2009 financial performance. Such turmoil has also created uncertainty regarding the ability of the company’s executive officers and key managers to achieve the goals under the 2009 Short Term Incentive Plan because the goals are based upon organizational metrics that correspond to the company’s anticipated performance under the 2009 financial plan. Although the 2009 Short Term Incentive Plan is intended to establish goals that are reasonably achievable and which lead to rational levels of compensation when compared to prior years, the Compensation Committee and management believe that the ability to achieve the 2009 financial plan at the corporate and organizational unit levels will be challenging. It is management’s current expectation, based on economic indicators in general and on the uncertainty in the company’s customer markets, that the payment in aggregate dollars to the participants in the 2009 Short Term Incentive Plan will be less than the aggregate amounts paid out under the 2008 Short Term Incentive Plan.

 

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

 

In considering long term equity incentive awards for our executive officers and key managers, the Compensation Committee believes that these awards should:

 

 

2008 Long Term Incentives for the CEO.  In March 2008, upon the recommendation of the Compensation Committee, the Board of Directors approved a grant of 55,600 shares of restricted stock to Mr. Singer, consisting of 45,600 shares of service-based restricted shares and 10,000 shares of performance-based restricted shares, with a total economic value of approximately $375,000.

 

This reduction in restricted shares from the 80,000 share grant in 2007 reflected Mr. Singer’s recommendation to the Compensation Committee to reduce equity incentives to executive officers and key managers in order to reduce operating expense. The 2008 grant was below median levels for long term incentives based on survey and peer group information provided by the Committee’s independent compensation consultant.

 

Mr. Singer’s service-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 over four years under the same performance measures as were adopted by the Board of Directors in 2007.

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

 

 

The service-based restricted stock granted to each named executive officer other than Mr. Miller vests in equal annual increments over four years, subject to his continued service. Stock granted to Mr. Miller will cliff vest in 2012, subject to his continued service.

 

For 2008, the Committee decided to give greater weight to service-based restricted stock for incentive and retention purposes, and less emphasis on performance-based restricted stock. The performance-based restricted stock awarded to each officer vests on the same basis as described above for Mr. Singer in respect of his 2007 and 2008 performance-based restricted 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.

 

2009 Long Term Incentives for the CEO.  In March 2009, upon the recommendation of the Compensation Committee, the Board of Directors approved a grant of 81,000 shares of service-based restricted stock to Mr. Singer that will vest in equal annual increments over four years, subject to his continued service. This increase in restricted stock from the 55,600 grant in 2008 is intended to create comparable economic value to the 2008 grant. The 2009 grant is below the median range for long term incentives based on survey and peer group information provided by the Committee’s independent compensation consultant. See “Compensation Philosophy — Survey Data, Peer Groups and the Use of Industry Benchmarking Data” on page 20 for a discussion of how the range is established.

 

2009 Long Term Incentives for Other Named Executive Officers.  In March 2009, the Compensation Committee approved the grant of restricted stock to the named executive officers identified below as follows:

 

 

The service-based restricted stock granted to each named executive officer vests in equal annual increments over four years, subject to his continued service.

 

This increase in restricted shares to the named executive officers is intended to create comparable economic value to the 2008 grant. The 2009 grant is below the median range for long term incentives based on survey data provided by the Committee’s independent compensation consultant. See “Compensation Philosophy — Survey Data, the Peer Groups and the Use of Industry Benchmarking Data” on page 20 for a discussion of how the range is established.

 

In 2009, the Compensation Committee determined that it would be difficult to establish performance measures for the CEO and the other named executive officers because there is too much instability in the current economic

environment for the Committee to structure performance incentives over several years with confidence as to their value in achieving identified corporate or operational unit goals. Therefore, the Committee did not award any performance-based restricted stock.

 

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 under the caption “Potential Payments Upon Termination as of December 31, 2008” on page 40.

 

 

 

 

A Change in Control is 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 the 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 executive officer’s or certain key manager’s employment is involuntarily terminated. The Committee and the CEO believe that all executive officers and certain key 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 executive officers and key managers have the necessary motivation to support the 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 key managers are also entitled to severance and related benefits in connection with the involuntary termination of their employment under their employment and/or severance agreements with our company. 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, with respect to the CEO, death or disability), severance benefits include vesting of any service-based restricted shares which are scheduled to vest within the following 12 months, 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 include 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 year in which death or disability occurred, pro-rated for such 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 12 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 2008, 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, the final Treasury Regulations and the administrative guidance promulgated thereunder (collectively, “Section 409A”) regulate the tax treatment of non-qualified deferred compensation arrangements. These include new requirements and/or regulations effective January 1, 2009 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 evaluated the various benefit plans and compensation arrangements that the company has in place for our executive officers and certain key managers, and approved modifications of these plans and arrangements as necessary to comply with final Section 409A regulations prior to their effective date.

 

Adjustment of Awards

 

The company’s financial statements and the related financial performance goals and measures used by the Committee as the basis for executive compensation have not been subject to subsequent revision or restatement. As a result, the Committee has never been required to consider an adjustment of an award. 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 officer or key manager.

 

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 2008 Annual Report on Form 10-K.

 

The Compensation Committee

 

Richard C. Alberding
Brian J. Jackman
John R. Sheehan

 

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, 2008, 2007 and 2006. 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 2008 to each of our named executive officers.

 

Grants of Plan-Based Awards for the Fiscal Year Ended December 31, 2008

 

 

 

 

The following table shows the number of exercisable and unexercisable equity awards held by our named executive officers on December 31, 2008.

 

Outstanding Equity Awards at Fiscal Year End December 31, 2008

 

 

 

 

The table below shows the number of shares of our common stock acquired during fiscal 2008 by our named executive officers upon the exercise of stock options or the vesting of stock awards.

 

Option Exercises and Stock Vested at Fiscal Year End December 31, 2008