SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No. )

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NII HOLDINGS, INC.

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ANNUAL MEETING OF STOCKHOLDERS

 

April 1, 2011

 

Dear Stockholder:

 

You are cordially invited to attend the 2011 Annual Meeting of Stockholders of NII Holdings, Inc., which is to be held on May 10, 2011 at 10:00 a.m. Eastern Time at the Hyatt Regency Reston, located at 1800 Presidents Street, Reston, VA 20190 (703-709-1234). At the Annual Meeting, you will be asked to elect three directors to serve three-year terms, cast advisory votes on executive compensation and on the frequency of executive compensation advisory votes, and ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal year 2011.

 

Whether or not you plan to attend, it is important that your shares be represented and voted at the Annual Meeting. You can vote by signing, dating, and returning the enclosed proxy card. Also, eligible stockholders may vote by telephone or over the Internet. Instructions for using these convenient services are set forth in the instructions for voting that are attached to the enclosed proxy card or voting instruction. Beneficial owners of shares of our common stock held in street name should follow the enclosed instructions for voting their shares. I hope you will be able to attend the Annual Meeting, but even if you cannot, please vote your shares as promptly as possible.

 

The proxy statement and the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2010 are available at www.edocumentview.com/nihd. In addition, we invite you to view our 2010 electronic business report at www.nii.com/investor_relations/2010business_report.pdf, which will be available starting on May 10, 2011.

 

Sincerely,

 

Steven M. Shindler

Chairman of the Board of Directors

 

NII Holdings, Inc.
1875 Explorer Street, 10th Floor
Reston, VA 20190
www.nii.com

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 10, 2011

 

We will hold the Annual Meeting of Stockholders of NII Holdings, Inc. (the “Company” or “NII Holdings”) on May 10, 2011, at 10:00 a.m. Eastern Time at the Hyatt Regency Reston, located at 1800 Presidents Street, Reston, VA 20190 (703-709-1234).

 

At our Annual Meeting, our stockholders will be asked to:

 

1. Elect three directors, Charles M. Herington, Rosendo G. Parra and John W. Risner, each for a three-year term ending 2014;

 

2. Provide an advisory vote on the compensation of the Company’s named executive officers;

 

3. Provide an advisory vote on the frequency of executive compensation advisory votes;

 

4. Ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for fiscal year 2011; and

 

5. Transact any other business that properly comes before the Annual Meeting and any adjournments thereof.

 

The Board of Directors recommends that you vote FOR the three nominees for director; FOR the approval, on an advisory basis, of the compensation of the Company’s named executive officers; FOR the approval, on an advisory basis, of an annual advisory vote on executive compensation; and FOR the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm.

 

Only stockholders of record as of March 18, 2011 can vote at the Annual Meeting.

 

By Order of the Board of Directors,

 

Steven M. Shindler
Chairman of the Board of Directors

 

April 1, 2011

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE STOCKHOLDERS’ MEETING TO BE HELD ON MAY 10, 2011.

 

The proxy statement and the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2010 are available at www.edocumentview.com/nihd.

 

* * *

 

TABLE OF CONTENTS

 

 

Date, Time and Place

 

These proxy materials are delivered in connection with the solicitation by our board of directors of proxies to be voted at our annual meeting, which is to be held at the Hyatt Regency Reston, located at 1800 Presidents Street, Reston, VA 20190 at 10:00 a.m. Eastern Time on Tuesday, May 10, 2011 (the “Annual Meeting”). On or about April 1, 2011, we commenced mailing this proxy statement and the enclosed form of proxy to our stockholders entitled to vote at the meeting.

 

Purpose of the Annual Meeting

 

At the annual meeting, stockholders will be asked to:

 

 

Solicitation, Use and Revocation of Proxies

 

Our Board of Directors solicits the accompanying proxy for use at the Annual Meeting. Giving your proxy means that you authorize the persons indicated on the proxy card to vote your shares at the Annual Meeting in the manner you direct. If you are a stockholder of record and you sign, date and return the enclosed proxy card but do not specify how to vote, your shares will be voted (1) for the election of the nominees designated below to serve for three-year terms ending 2014; (2) for the approval of the compensation awarded to the named executive officers for the fiscal year ended December 31, 2010, as set forth in this proxy statement; (3) for the approval of an annual advisory vote on executive compensation; (4) for ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for fiscal year 2011; and (5) at the discretion of the persons indicated on the proxy card, on all other matters that may properly come before the Annual Meeting or any adjournments thereof. A stockholder has the power to revoke his or her proxy or change his or her vote at any time before the proxy is voted at the Annual Meeting. You can revoke your proxy or change your vote in one of four ways:

 

 

If you choose any of the first two methods, you must take the described action no later than the beginning of the Annual Meeting. If you choose the third or fourth methods, you may be asked to present documents for the purpose of establishing your identity as a NII Holdings stockholder. Before the Annual Meeting, any written notice of revocation should be sent to NII Holdings, Inc., 1875 Explorer Street, 10th Floor, Reston, Virginia 20190, Attention: Executive Vice President, General Counsel and Secretary. Any notice of revocation that is delivered at the Annual Meeting should be hand delivered to our Executive Vice President, General Counsel and Secretary before a vote is

taken. Once voting on a particular matter is completed at the Annual Meeting, you will not be able to revoke your proxy or change your vote as to that matter.

 

If you are a beneficial owner and hold your shares through a broker, bank or other financial institution, and you do not provide the broker or other nominee that holds your shares with voting instructions, the broker or other nominee will determine if it has the discretionary authority to vote on a particular matter. Brokers and other nominees have the discretion to vote on routine matters such as Proposal 4, but do not have the discretion to vote on non-routine matters such as Proposals 1, 2, and 3. Therefore, if you do not provide voting instructions to your broker or other nominee, your broker or other nominee may only vote your shares on Proposal 4 and any other routine matters properly presented for a vote at the Annual Meeting, and the management recommendations provided on Proposals 1, 2 and 3 would not apply. In addition, if your shares are held in street name by a broker, bank or other financial institution, you must contact that institution to change your vote.

 

Stockholders whose shares are registered in the name of a bank or brokerage firm may be eligible to vote through the Internet or by telephone. The enclosed proxy card provides instructions for eligible stockholders. Stockholders who do not own shares through a broker and stockholders who own shares through a broker, but whose proxy card does not mention information about Internet or telephone voting, should complete the enclosed paper proxy card and return it in the enclosed postage-paid envelope. Signing and returning the proxy card or submitting the proxy via the Internet or by telephone does not affect your right to revoke your proxy or to vote in person at the Annual Meeting.

 

The cost of soliciting proxies for the Annual Meeting will be borne by us. We have hired Georgeson Inc. to help us send out the proxy materials and solicit proxies on behalf of the Board of Directors. Georgeson’s fee for this service is $7,500 plus expenses. In addition, certain of our officers and regular employees, without additional compensation, may use their personal efforts, by telephone or otherwise, to obtain proxies. We may also reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses in forwarding proxy materials to the beneficial owners of shares of common stock.

 

Every stockholder’s vote is important. Accordingly, you should sign, date and return the enclosed proxy card, vote via the Internet or by telephone, or provide instructions to your broker or other nominee whether or not you plan to attend the Annual Meeting in person.

 

Record Date, Voting Rights and Outstanding Shares

 

Our Board of Directors has established the close of business on March 18, 2011 as the record date for determining stockholders entitled to receive notice of and to vote on proposals at the Annual Meeting or any adjournment or postponement of the Annual Meeting. Only holders of record of our common stock on the record date are entitled to vote at the Annual Meeting. Holders of common stock on the record date are entitled to one vote per share on each matter voted upon at the Annual Meeting. As of the record date, there were 169,719,473 shares of common stock outstanding. A complete list of stockholders entitled to vote at the Annual Meeting will be available for examination at the time and place of the Annual Meeting.

 

Quorum, Voting Requirements and Effect of Abstentions and Broker Non-Votes

 

A quorum is necessary for the transaction of business at the Annual Meeting. A quorum exists when holders of a majority of the total number of issued and outstanding shares of common stock that are entitled to vote at the Annual Meeting are present in person or by proxy. At the Annual Meeting, inspectors of election will determine the presence of a quorum and tabulate the results of the voting by stockholders. The inspectors will treat valid proxies marked “abstain” or proxies required to be treated as broker “non-votes” as present for purposes of determining whether there is a quorum at the Annual Meeting. A broker “non-vote” occurs when a broker or nominee holding shares for a beneficial owner votes on one proposal, but does not vote on another proposal because the broker or nominee does not have discretionary voting power and has not received instructions from the beneficial owner of the shares. A broker cannot vote on the election of directors, the advisory vote on executive compensation or the advisory vote on the frequency of votes on executive compensation without receiving instructions from the beneficial owner of the shares. While broker non-votes will be treated as present for purposes of determining whether there is a quorum, they will not be counted for purposes of determining the number of votes present and

entitled to vote with respect to a particular proposal. Accordingly, a broker non-vote will not impact our ability to obtain a quorum and will not be counted or otherwise affect the outcome of the vote on the proposals before the Annual Meeting. Abstentions with respect to any matter will have the same effect as a vote against that proposal.

 

A plurality of the votes of the holders of the common stock present at the Annual Meeting, in person or represented by proxy, and entitled to vote on the election of directors, is required for the election of directors. This means that the nominees for director who receive the greatest number of votes cast will be elected. All other matters will require the approval of a majority of the votes of the record holders present at the meeting, in person or represented by proxy, and entitled to vote on such matters. For the advisory votes relating to executive compensation, the frequency of advisory votes on executive compensation and the vote relating to the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm, a majority of votes is determined based on the number of votes in favor of a particular response divided by the total number of votes present and entitled to vote on such matter, which would include abstentions but not broker non-votes.

 

Management and the Board of Directors are not aware of any matters to be presented for action at the Annual Meeting other than the matters stated in the Notice of Annual Meeting of Stockholders. If any such matter requiring a vote of the stockholders should properly come before the Annual Meeting, unless otherwise instructed, it is the intention of the persons named in the proxy card to vote such proxy in accordance with their best judgment.

 

General

 

Our Second Amended and Restated Bylaws set our Board of Directors at nine members divided into three classes in accordance with our Certificate of Incorporation, with each class having three directors. Our Board currently consists of nine members. The three-year terms of each class are staggered so that the term of one class expires at each Annual Meeting. The Board of Directors, upon the recommendation of the Corporate Governance and Nominating Committee, has nominated Charles M. Herington, Rosendo G. Parra and John W. Risner, each of whom is an incumbent director, for reelection to the Board for three-year terms ending 2014.

 

If any nominee is unable to serve as a director, the persons named in the enclosed proxy reserve the right to vote for a lesser number of directors or for a substitute nominee designated by our Board of Directors, to the extent consistent with our Restated Certificate of Incorporation and our Second Amended and Restated Bylaws. All of the nominees listed above have consented to be nominated and to serve if elected. We do not expect that any nominee will be unable to serve.

 

In October 2010, Raymond P. Dolan, an incumbent director whose current term expires in 2012, was appointed President and Chief Executive Officer of Sonus Networks, Inc. Pursuant to the requirements of our Corporate Governance Guidelines, in light of his change in primary occupation, Mr. Dolan tendered his resignation to our Board of Directors. The Corporate Governance and Nominating Committee evaluated the circumstances surrounding the change in Mr. Dolan’s employment as required by our Corporate Governance Guidelines and determined that the change would not affect his ability to serve effectively on our Board of Directors and recommended that the Board of Directors not accept Mr. Dolan’s resignation. Based on that recommendation, the Board of Directors elected not to accept Mr. Dolan’s resignation.

 

Pursuant to the Company’s Corporate Governance Guidelines, in evaluating a director candidate, each of the Corporate Governance and Nominating Committee and the Board consider factors that it believes are in the best interests of the Company and its stockholders, including, but not necessarily limited to, the candidate’s: professional skills and experience; ability to represent the interests of the Company’s stockholders; reputation, integrity, commitment and independence of thought and judgment; independence from the Company under the Nasdaq listing standards and, as applicable, the standards for independence established by the Securities and Exchange Commission; ability to devote sufficient time, energy and attention to the diligent performance of his or her duties as a

director, taking into account, among other things, service on other public company boards; and ability to contribute to the range of talent, skill and expertise appropriate for the Board of Directors.

 

Each of our directors brings a strong and unique background and set of skills to the Board of Directors, giving the Board as a whole competence and experience in a wide variety of areas, including:

 

 

The Corporate Governance and Nominating Committee and the Board of Directors believe that these and the other skills and experiences brought to the Board of Directors by its members position the Board of Directors to be able to fulfill its oversight role and to evaluate and advise management with respect to a wide variety of matters faced by the Company in its business. We have included a brief description of the experience, qualifications, attributes and skills that led to the conclusion that each director should serve on our Board of Directors as part of the directors’ biographies below.

 

Directors Standing for Reelection — To Hold Office Until 2014

 

Charles M. Herington, (51), has served as a director on the Board of NII Holdings since 2003. He is currently the executive vice president, Developing Markets of Avon Products, Inc., a global beauty company, and has previously served in various executive positions at Avon Products, Inc., including executive vice president Latin America and Central and Eastern Europe from June 2009 until March 2010; executive vice president, Latin America from March 2008 until June 2009; and senior vice president, Latin America from March 2006 until March 2008. From 1999 to February 2006, he was the president and chief executive officer of AOL Latin America. From 1997 until 1999, he served as president of Revlon America Latina. From 1990 through 1997, he held a variety of executive positions with PepsiCo Restaurants International. Mr. Herington currently serves as a director of Molson Coors Brewing Company and previously served on the board of directors of Advo, Inc. from 2004 to 2007.

 

Mr. Herington has served on our Board of Directors since 2003 and, as a result, has significant knowledge relating to the history and development of our business, the results of our operations and our capital structure. As chair of the Compensation Committee, he has advised management regarding the structure of our compensation programs and their relationship to our corporate goals. He has over 25 years of experience in marketing, brand management and operations in Latin American countries, including experience as the senior executive responsible for the operations of a start up internet provider in Mexico, Brazil, Argentina and Puerto Rico that eventually became a public company. Mr. Herington has an in depth understanding of the telecommunications and technology industries, particularly with respect to operations in Latin American markets, and has operational experience with companies that have competed for customers directly with some of the largest telecommunications companies in Latin America. He is knowledgeable on the key performance measures that drive our business, including subscriber acquisition, churn, and cost per customer addition and has experience in product development, marketing, and operational issues faced by a subscriber based business in our markets. Mr. Herington has experience obtaining financing for an early stage company in Latin America and served as an executive of a distressed company as it

worked through its successful liquidation. Mr. Herington qualifies as a financial expert. He has public company board experience and compensation, audit and corporate governance committee experience.

 

Rosendo G. Parra, (51), has served as a director on the Board of NII Holdings since October 2008. Mr. Parra is a retired executive of Dell Inc., an international information technology company, and a founder of Daylight Partners, a technology-focused venture capital firm, where he has been a partner since December 2007. From 1993 until his retirement in 2007, Mr. Parra held various executive and senior management positions at Dell Inc., including senior vice president for the Home and Small Business Group from June 2006 to April 2007; and senior vice president and general manager, Dell Americas from April 2002 until June 2006. Mr. Parra currently serves on the board of directors of Brinker International, Inc. and PG&E Corporation.

 

Mr. Parra has served in senior leadership roles at Dell Inc., a large, international public company, where he obtained significant sales, manufacturing, marketing, operations, risk management and strategy experience in Latin America, China, India, Canada and the United States. He has senior management experience with companies in the high tech industry with international operations, and has managed government relations functions, including groups specializing in the formulation of strategies and responses to regulation of business activities in foreign countries. He has experience in managing customer service and call center operations and has senior leadership experience with a company with significant business to business operations and a growing consumer sector focus in Latin America. In addition, Mr. Parra’s experience includes strategy, product marketing and life cycles, as well as customer development, acquisition and retention in Latin American markets. He has experience in the technology and wireless industries and has experience with technology convergence, including the convergence of smart phones and personal computers. Through his current work with Daylight Partners, Mr. Parra has obtained high tech start up and early stage company experience. Mr. Parra has public and nonprofit board experience and has experience serving on compensation, corporate governance and finance committees.

 

John W. Risner, (51), has served as a director on the Board of NII Holdings since 2002. He is currently the president of The Children’s Tumor Foundation, which he joined in 2002. From 1997 to 2002, he served as senior vice president — portfolio manager at AIG/SunAmerica Asset Management, a money management firm. Prior to that, Mr. Risner was vice president-senior portfolio manager at Value Line Asset Management, a money management firm, where he worked from 1992 to 1997. Mr. Risner currently serves on the board of directors of Accuride Corporation, a manufacturer of commercial vehicle components and previously served on the board of directors of Airgate PCS, a wireless telecommunications provider, from 2004 to 2005 and UGC Europe Inc., a cable and telecommunications provider, from 2003 to 2004.

 

Mr. Risner has served on our Board of Directors since 2002 and as a result, has significant knowledge relating to the history and development of our business, the results of our operations and our capital structure. As chair of our Finance Committee, he has consulted with management regarding the company’s capital structure and funding needs and the terms of various public and private financing alternatives available to the Company. He is a chartered financial analyst with experience in investments in high yield bond assets, convertible bonds, mortgage backed securities and distressed assets. He understands the key financial and operating measures used by investors in evaluating investments in the debt and equity securities of, and the performance of, wireless operators, and has significant experience in the development and structuring of public and private financing transactions. He has experience with financial statement preparation and analysis, tax matters, issues relating to restatements of financial statements and overall GAAP reporting. Mr. Risner also has merger, takeover, restructuring and bankruptcy experience. Mr. Risner has lobbying and government relations experience through work as an executive of a nonprofit organization, and he currently serves on a committee that advises a congressional committee responsible for making allocations of medical research funding. Mr. Risner qualifies as an audit committee financial expert. He has public and nonprofit board experience and has experience serving on audit, compensation, finance and special committees.

 

Our Board of Directors recommends that the holders of common stock vote “FOR” incumbent directors Charles M. Herington, Rosendo G. Parra and John W. Risner.

Directors Not Standing for Reelection — To Hold Office Until 2012

 

Kevin L. Beebe, (52), has served as a director on the Board of NII Holdings since June 2010. Since November 2007, Mr. Beebe has been President and Chief Executive Officer of 2BPartners, LLC, a partnership that provides strategic, financial and operational advice to private equity clients, investors and management. Previously, he was Group President of Operations at ALLTEL Corporation, a telecommunications services company, from 1998 to 2007. From 1996 to 1998, Mr. Beebe served as Executive Vice President of Operations for 360° Communications Co., a wireless communication company. Prior to that time, he has held a variety of executive and senior management positions at several divisions and affiliates of Sprint Corporation. Mr. Beebe began his career at AT&T/Southwestern Bell as a Manager. Mr. Beebe also serves as a director for Skyworks Solutions, Inc, a semiconductor and wireless handset chip supplier, and SBA Communications Corporation, an owner and operator of wireless communications towers.

 

Mr. Beebe has significant experience in the telecommunications and wireless telecommunications industries, including executive management and senior leadership positions in charge of operations of a wireless communications services provider. As a result, Mr. Beebe has an in depth understanding of the customer service and other issues that drive a subscriber oriented business and understands the key financial and operating measures used by wireless operators to evaluate the performance of their business. Through his experience in the telecommunications industry and his work with 2BPartners, Mr. Beebe also has a unique understanding of the measures investors utilize in evaluating investments in, and the performance of, wireless operators and experience in the development and structuring of public and private financing for telecommunications companies. He holds a masters degree in economics and completed Columbia University’s executive program in business administration. Mr. Beebe also has public and private company board experience and has served on audit, compensation and corporate governance committees.

 

Raymond P. Dolan, (53), has served as a director on the Board of NII Holdings since July 2008. He has served as President and Chief Executive Officer of Sonus Networks, Inc., a provider of IP voice networks, since October 2010. Prior to that, he was the chief executive officer of QUALCOMM Flarion Technologies and senior vice president at QUALCOMM until January 2008. Mr. Dolan had been chairman and chief executive officer of Flarion Technologies, Inc., a provider of mobile broadband communications systems, since its inception in 2000 until its acquisition by QUALCOMM in January 2006. From 1996 until May 2000, Mr. Dolan was chief operating officer of NextWave Telecom. Prior to joining NextWave, he was executive vice president of marketing for Bell Atlantic/NYNEX Mobile. Mr. Dolan currently is a director of Sonus Networks, Inc. and American Tower Corporation, a provider of wireless and broadcast communications infrastructure.

 

Mr. Dolan has significant experience in the wireless communications and wireless technology industries, including executive management and senior leadership positions in charge of operations, growth and strategy. He has served as the chief executive officer of a company that developed next generation broadband wireless communications technologies, has served as the chief operating officer of an early stage telecommunications company, has managed the marketing functions of a large public wireless telecommunications company and has served as an executive of a distressed company. As a result of his experience, Mr. Dolan has an in depth understanding of the customer service and other issues that drive a subscriber oriented business and the key performance measures relevant to the successful operation of a wireless service provider. His experience as the chief executive of a wireless technology company also provides him with a unique perspective as the Board of Directors advises management in connection with its evaluation of available technology solutions as part of its planned deployment of next generation broadband technologies in its networks. Mr. Dolan has an engineering background, as well as a bachelor’s degree in engineering, holds a master of business administration and, prior to entering into the wireless industry, had a distinguished career in the military. Mr. Dolan also has public and private company board experience and has served on compensation and corporate governance committees.

 

Carolyn F. Katz, (49), has served as a director on the Board of NII Holdings since 2002 and is our lead independent director. Ms. Katz was a principal at Providence Equity Partners, a private equity firm specializing in media and telecommunications, from 2000 to 2001. From 1984 to 2000, Ms. Katz worked for Goldman Sachs, an investment bank, most recently as managing director. Ms. Katz currently is a director of American Tower

Corporation. Ms. Katz served on the board of directors of IWO Holdings, Inc., a wireless telecommunications provider, from 2004 to 2005.

 

Ms. Katz has served on our Board of Directors since 2002 and as our lead independent director since 2008, and, as a result, has significant knowledge relating to the history and development of our business, the results of our operations and our capital structure. In her role as lead independent director, chair of the Audit Committee and member of the Finance Committee, she has consulted with and advised management regarding corporate governance matters and regarding strategic and financing transactions. She has significant investment banking, financial, and merger and acquisition experience, including in the telecommunications industry, as a result of her position as a principal in a private equity firm. She also has experience with international telecommunications businesses and emerging market companies in Latin America, Europe and Asia. She understands the key financial and operating measures used by wireless operators to evaluate the performance of their business, as well as the measures investors utilize in evaluating investments in, and the performance of, wireless operators, and has significant experience in the development and structuring of public and private financing for telecommunications companies. She qualifies as an audit committee financial expert and has public company board experience, including serving on audit, finance and corporate governance committees.

 

Directors Not Standing for Reelection — To Hold Office Until 2013

 

Steven P. Dussek, (54), has been a director on the Board of NII Holdings since 1999 and our chief executive officer since February 2008. Mr. Dussek served as president and chief executive officer of Dobson Communications Corporation, a publicly traded wireless telecommunications company, from April 2005 until AT&T acquired Dobson Communications in November 2007. While NII Holdings was a subsidiary of Nextel Communications, Inc., Mr. Dussek served as its chief executive officer from 1999 until 2000 and as president and chief operating officer from March 1999 until September 1999. From 1996 until 2001, Mr. Dussek also served in various senior management positions with Nextel Communications, including as executive vice president and chief operating officer. From 1995 to 1996, Mr. Dussek served as vice president and general manager of the northeast region for the PCS division of AT&T Wireless Services. From 1993 to 1995, Mr. Dussek served as a senior vice president and chief operating officer of Paging Networks, Inc., a paging company. Mr. Dussek served on the board of directors of Dobson Communications from 2006 to 2007.

 

Mr. Dussek is our chief executive officer and has served in executive level leadership roles in the telecommunications industry for nearly 20 years with experience in executive positions with operators of wireless telecommunications businesses in the U.S. and internationally. His past executive roles have included serving as chief executive officer and chief operating officer of two substantial wireless operators, both of which were public companies, and service in executive leadership and director roles for two companies in turnaround situations, both of which emerged from these situations as viable entities. Mr. Dussek has international experience in Latin American markets and an in depth understanding of the customer service and other issues that drive a subscriber oriented business, as well as the key performance measures relevant to the successful operation of a wireless service provider like the Company. He also has significant experience in addressing operational matters, such as the management of employee relations and of relationships with equipment and other vendors. Mr. Dussek has also served as a director of a public company and has experience serving on audit and compensation committees.

 

Donald Guthrie, (55), has been a director on the Board of NII Holdings since May 2008. Since February 2006, Mr. Guthrie has served as a managing director of Trilogy Equity Partners, a private investment firm. From 1995 to 2005, he served as vice chairman of the Western Wireless Corporation, a wireless communications company, where he also served as chief financial officer from February 1997 to May 1999. From 1995 to 2002, Mr. Guthrie served as vice chairman of VoiceStream Wireless, a wireless communications company, now T-Mobile USA, subsequent to its acquisition by Deutsche Telekom AG. From 1986 to 1995, Mr. Guthrie served as senior vice president and treasurer of McCaw Cellular and, from 1990 to 1995, as senior vice president, finance for LIN Broadcasting. Mr. Guthrie served on the board of directors of Lumera Corporation from 2004 through 2008.

 

Mr. Guthrie has been working in the telecommunications industry for over 20 years serving in a number of executive leadership roles, including as chief financial officer and in other positions responsible for capital and strategic planning. His executive roles have included responsibility for raising funds in private and public financing

transactions in order to support the development and construction of wireless communications networks. He understands the key financial and operating measures used by wireless operators to evaluate the performance of their business, as well as the measures used by investors in evaluating investments in, and the performance of, wireless operators, and has significant experience in the development and structuring of complex financing arrangements. His experience ranges from investing in, and assisting in the development of early stage companies to managing the financial and strategic functions of complex established telecommunications companies, including the management of technology vendor and other relationships that are important to the Company’s success. Mr. Guthrie qualifies as an audit committee financial expert. He has prior public company board experience, including audit committee experience.

 

Steven M. Shindler, (48), has been a director on the Board of NII Holdings since 1997, chairman of the Board since 2002 and executive chairman since February 2008. Mr. Shindler served as our chief executive officer from 2000 until February 2008. Mr. Shindler also served as executive vice president and chief financial officer of Nextel Communications from 1996 until 2000. From 1987 to 1996, Mr. Shindler was an officer with Toronto Dominion Bank, a bank where he was a managing director in its communications finance group.

 

Mr. Shindler, who previously held the position as our chief executive officer, has served in leadership roles in the telecommunications and banking industries, including senior level financial roles for public and private companies. He has served as our chief executive officer with substantial experience in operations, marketing, strategy and growth of organizations and has also served as the chief financial officer and in other positions responsible for capital planning and raising funds in private and public financing transactions in order to support the development and construction of wireless communications networks. He understands the key financial and operating measures used by wireless operators to evaluate the performance of their business, as well as the measures investors utilize in evaluating investments in, and the performance of, wireless operators. He has significant experience in the development and structuring of complex financing arrangements. Mr. Shindler also has experience in funding telecommunications companies through his senior role in a bank’s telecommunications finance group. He studied economics and holds a master of business administration specializing in finance. Mr. Shindler’s financial and leadership experience is enhanced by his active participation on the board of directors of a nonprofit organization that supports education in Latin American countries. In addition to experience in fundraising and fund management activities, his role at the nonprofit provides Mr. Shindler with invaluable insight into our markets and target customers.

 

Our business and affairs are managed under the direction of the Board of Directors in accordance with the Delaware General Corporation Law, our Restated Certificate of Incorporation, our Second Amended and Restated Bylaws and our Corporate Governance Guidelines. Members of the Board of Directors are kept informed of our business through discussions with management, by reviewing materials provided to them, and by participating in meetings of the Board of Directors and its committees. The corporate governance practices that we follow are summarized below.

 

Corporate Governance Guidelines

 

On May 11, 2010, our Board of Directors approved our Corporate Governance Guidelines to facilitate the execution of its responsibilities and to provide insight into the Company’s system of governance. A copy of our Corporate Governance Guidelines may be viewed on the Investor Relations link of our website at the following address: www.nii.com.

 

Independence

 

Our Corporate Governance Guidelines require that at least a majority of our Board of Directors be independent, that the Board of Directors will determine affirmatively whether a director is independent on an annual basis, and that the Company will disclose that determination in our annual proxy statement. On February 8, 2011, the Board of Directors determined that seven of its nine current members are independent as defined by The Nasdaq Stock Market (“Nasdaq”) listing standards, including the following: Kevin L. Beebe, Raymond P. Dolan, Donald

Guthrie, Charles M. Herington, Carolyn Katz, Rosendo G. Parra and John W. Risner. In making that determination, the Board of Directors did not consider any relationships other than those described below in “Certain Relationships and Related Transactions.” The Audit Committee, Compensation Committee, and Corporate Governance and Nominating Committee are composed entirely of independent directors.

 

Board Leadership Structure

 

The positions of Chairman of the Board, which is currently a non-independent executive position, and principal executive officer of the Company are currently held by two individuals. We believe that this allocation of roles strengthens our governance structure. Our current Chairman of the Board, Steven Shindler, is a past principal executive officer of NII Holdings. In addition, our Board of Directors has adopted a policy that establishes the role of lead director, and this policy has been incorporated into our Corporate Governance Guidelines. The lead director is required to be independent as defined by Nasdaq listing standards. The policy provides that the lead independent director will be selected annually by all of the non-management directors. Currently, the lead independent director selected by the non-management members of the Board is Carolyn Katz. The responsibilities of the lead independent director are to promote strong, independent oversight of our management and affairs. As part of these responsibilities, the duties of the lead independent director include:

 

 

Separate positions for Chairman of the Board and principal executive officer, coupled with a lead director that is independent, provide an efficient and effective leadership model, fostering clear accountability, differing perspectives and effective decision-making. In addition, the structure ensures a strong role for the independent directors in the oversight of the Company and in establishing priorities and procedures for the work of the Board.

 

Risk Oversight

 

Our Board of Directors has an active role, as a whole and also at the committee level, in overseeing the management of the risks that the Company faces in its business. Our Corporate Governance Guidelines set forth the responsibilities of our Board of Directors, including the Board’s oversight of the Company’s risk assessment and risk audit functions and provides for specific actions to mitigate certain risks. The Board regularly reviews information regarding the Company’s results of operations and any related trends and other factors contributing to or affecting those results, long range strategy, financial reporting systems and processes, and access to capital and liquidity, as well as the risks associated with each of these aspects of the Company’s business. The Board of Directors has also approved a Code of Business Conduct and Ethics that establishes standards of conduct for employees that are designed to mitigate risks associated with the Company’s and its employees’ compliance with legal requirements, to foster ethical conduct by employees in dealing with the Company and others and to protect company assets. The Company requires that all employees receive annual training relating to the Code of Business Conduct and Ethics and related policies in order to ensure that employees are familiar with those standards of conduct and to mitigate the risks associated with employees’ failure to meet those standards.

In addition, each of the committees of the Board of Directors is involved in the assessment of risks relevant to their area of responsibility and the implementation of actions designed to address or mitigate those risks. The types of risks that are considered by the committees and some of the actions taken to address those risks include:

 

 

In addition, the Company’s internal audit group, which reports directly to the chairman of the Audit Committee through the vice president of internal audit, prepares an annual risk assessment that includes a review of risks related to the Company’s operations and processes, markets and business environment, as well as risks relating to the availability and reliability of information used by management in its decision making. Based on this risk assessment, the internal audit group makes a recommendation to the Audit Committee concerning an annual plan for the business activities and processes that will be reviewed and analyzed during the year. The Audit Committee approves the risk assessment and annual review plan to be carried out by the internal audit group and receives detailed reports concerning the results of each review conducted by the internal audit group, including recommendations made to address risks that are identified and actions taken by management with respect to those recommendations. The Audit Committee also receives quarterly updates concerning the status and outcome of the reviews conducted by the internal audit group pursuant to the annual review plan and the status of actions taken by management to mitigate risks identified in the reviews.

 

While each of the committees of our Board is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board of Directors is regularly informed through committee reports about risks, our risk assessment and the internal audit group’s annual review plan.

 

Code of Ethics

 

The Board of Directors has approved a Code of Business Conduct and Ethics for our directors, chief executive officer, chief financial officer, principal financial and accounting officers, officers and employees, and each of our subsidiaries and controlled affiliates. The Code of Business Conduct and Ethics addresses such topics as protection and proper use of our assets, compliance with applicable laws and regulations, accuracy and preservation of records, accounting and financial reporting, conflicts of interest and insider trading. A current copy of our Code of Business Conduct and Ethics may be viewed free of charge on the Investor Relations link of our website at the following address: www.nii.com and may also be obtained by writing to us at NII Holdings, Inc., 1875 Explorer Street, 10th Floor, Reston, Virginia 20190, Attention: Investor Relations.

 

Only the Board of Directors or the Audit Committee may consider a waiver of the Code of Business Conduct and Ethics for an executive officer or director. If a provision of the Code of Business Conduct and Ethics is

materially modified, or if a waiver of the Code of Business Conduct and Ethics is granted to a director or executive officer, we will post a notice of such action on the Investor Relations link of our website at the following address: www.nii.com.

 

Meeting Attendance

 

Board and Committee Meetings

 

During 2010, our Board of Directors held 17 meetings and each current member of the Board of Directors attended over 80% of the aggregate meetings of the Board of Directors and the committees on which they served. In addition to attending meetings, directors also fulfill their responsibilities by meeting or communicating informally with one another regarding matters of interest or concern to us, by attending, in person or telephonically, sessions at which they are briefed about the status of particular matters, by review of our reports to directors, by visits to our facilities, and by correspondence and telephone conferences with our executive officers and others regarding matters of interest and concern to us.

 

Annual Meeting of Stockholders

 

We encourage members of the Board of Directors to attend the Annual Meeting. All of our current directors then serving on the Board of Directors attended the 2010 Annual Meeting of Stockholders.

 

Executive Sessions of the Board

 

As required by our Corporate Governance Guidelines, it is the practice of our Board of Directors to have executive sessions where non-employee directors meet in conjunction with each regularly scheduled meeting of the Board of Directors. During these executive sessions, directors can discuss matters of interest and concern and meet with and question our employees outside the presence of employee directors and other members of management.

 

Committees of the Board

 

The standing committees of the Board of Directors are the Audit Committee, the Compensation Committee, the Finance Committee and the Corporate Governance and Nominating Committee. Membership on the Board of Directors and each standing committee, as of April 1, 2011, was as follows:

 

 

 

 

Audit Committee

 

The Audit Committee assists the Board of Directors in its oversight of the quality and integrity of our financial statements and related disclosures and our accounting, auditing, and reporting practices. The Audit Committee’s role includes discussing with management our processes to manage business and financial risk, and for compliance with significant applicable legal, ethical, and regulatory requirements. The Audit Committee is responsible for the appointment, replacement, compensation, and oversight of the independent registered public accounting firm engaged to prepare or issue audit reports on our financial statements and for the oversight of our internal audit function. The Audit Committee relies on the expertise and knowledge of management and the internal auditors in carrying out its oversight responsibilities. The specific responsibilities in carrying out the Audit Committee’s oversight role are delineated in the written charter adopted by the Board. A current copy of the Audit Committee Charter may be viewed free of charge on the Investor Relations link of our website at the following address: www.nii.com and may also be obtained by writing to us at NII Holdings, Inc., 1875 Explorer Street, 10th Floor, Reston, Virginia 20190, Attention: Investor Relations.

 

The Board of Directors, in its business judgment, has determined that all of the members of the Audit Committee are independent as defined by regulations of the Securities and Exchange Commission and the Nasdaq listing standards. The Board of Directors has also determined that all of the members of the Audit Committee have sufficient knowledge in financial and auditing matters to serve on the Audit Committee and that Carolyn Katz, Donald Guthrie and John Risner each qualifies as an “audit committee financial expert” as defined by regulations of the Securities and Exchange Commission.

 

The Audit Committee is authorized to engage or consult from time to time, as appropriate, at our expense, independent legal counsel and other experts and advisors it considers necessary, appropriate or advisable in the discharge of its responsibilities.

 

Compensation Committee

 

The primary responsibilities of the Compensation Committee are to:

 

 

The Compensation Committee is authorized to engage or consult from time to time, as appropriate, at our expense, consultants, independent legal counsel and other experts and advisors it considers necessary, appropriate or advisable in the discharge of its responsibilities. The Compensation Committee operates under a written charter adopted by the Board. A current copy of the Compensation Committee Charter may be viewed free of charge on the Investor Relations link of our website at the following address: www.nii.com and may also be obtained by writing to us at NII Holdings, Inc., 1875 Explorer Street, 10th Floor, Reston, Virginia 20190, Attention: Investor Relations. The Board of Directors, in its business judgment, has determined that all of the members of our Compensation Committee are independent, as defined in the Nasdaq listing standards.

Corporate Governance and Nominating Committee

 

The Corporate Governance and Nominating Committee is responsible for promoting the effective and efficient governance of the Company, including developing and periodically assessing corporate governance policies, developing and administering the Board evaluation process and assisting the Board in the oversight of management succession planning. The Committee also develops qualifications for director candidates and recommends to the Board of Directors persons to serve as our directors and as members of the Board’s committees. The Corporate Governance and Nominating Committee operates under a written charter adopted by the Board. A current copy of the Corporate Governance and Nominating Committee Charter may be viewed free of charge on the Investor Relations link of our website at the following address: www.nii.com and may also be obtained by writing to us at NII Holdings, Inc., 1875 Explorer Street, 10th Floor, Reston, Virginia 20190, Attention: Investor Relations. The Board of Directors, in its business judgment, has determined that all of the members of the Corporate Governance and Nominating Committee are independent, as defined in the Nasdaq listing standards.

 

The Corporate Governance and Nominating Committee has set forth guidelines for the evaluation of potential nominees. These guidelines set forth standards by which potential nominees are to be evaluated, including, but not necessarily limited to, the following:

 

 

While we do not have a formal diversity policy, the Corporate Governance and Nominating Committee considers diversity of talents, skills and expertise in evaluating potential nominees.

 

During 2010, the Corporate Governance and Nominating Committee was assisted by Russell Reynolds Associates in the identification and evaluation of potential director candidates. This search culminated in the appointment of Kevin Beebe to our Board of Directors on June 25, 2010 to serve as a new director in the class of directors whose current terms expire in 2012.

 

It is the policy of the Corporate Governance and Nominating Committee to consider candidates recommended by stockholders. Stockholders entitled to vote for the election of directors may submit candidates for consideration if we receive written notice, in proper form, for each such recommended nominee. If the notice is not written and in proper form, then the Corporate Governance and Nominating Committee cannot consider the nominee. To be in proper form, the notice must include (1) each nominee’s written consent to be named as a nominee and to serve, if elected, (2) the name and address of the stockholder making the nomination and evidence of share ownership pursuant to the requirements of Rule 14a-8 of the Securities and Exchange Commission relating to stockholder proposals, and (3) information about the person nominated for election conforming with the Securities and Exchange Commission’s biographical requirements for directors. All stockholder nominations should be sent to:

 

Executive Vice President, General Counsel and Secretary

NII Holdings, Inc.

1875 Explorer Street, 10th Floor

Reston, Virginia 20190

Finance Committee

 

The primary responsibilities of the Finance Committee are to assist the Board of Directors in fulfilling its oversight responsibilities with respect to the financial affairs and policies of the Company and to consult with and provide guidance to management with respect to the Company’s capital requirements and financing efforts. The Board of Directors may also delegate its power to the Finance Committee to approve the pricing and other terms of various financing transactions. The Finance Committee operates under a written charter adopted by the Board. A current copy of the Finance Committee Charter may be viewed free of charge on the Investor Relations link of our website at the following address: www.nii.com and may also be obtained by writing to us at NII Holdings, Inc., 1875 Explorer Street, 10th Floor, Reston, Virginia 20190, Attention: Investor Relations.

 

Communications with the Board of Directors

 

As provided for in our Corporate Governance Guidelines, stockholders may communicate directly with the Board of Directors by electronic mail sent to boardinquiries@nii.com or by regular mail sent to the address below. The Board of Directors has instructed the Board Communications Designee to examine incoming communications to determine whether the communications are relevant to the Board of Director’s roles and responsibilities. The Board of Directors has authorized the Board Communications Designee to disregard or discard inappropriate communications such as spam, business solicitations or advertisements, resumes or similar communications. The Board Communications Designee will forward any service inquiries or complaints to the appropriate groups within the Company for processing and response.

 

The Board Communications Designee will review all appropriate communications and report such communications to the chair of or the full Corporate Governance and Nominating Committee, the full Board of Directors, or the independent directors, as appropriate. The Board Communications Designee will take additional action or respond to letters in accordance with instructions from the relevant Board source. Communications relating to the Company’s accounting, internal accounting controls, or auditing matters will be referred promptly to members of the Audit Committee. Stockholder communications to the Board of Directors should be sent to:

 

Gary D. Begeman

Board Communications Designee

NII Holdings, Inc.

1875 Explorer Street, 10th Floor

Reston, Virginia 20190

 

The Audit Committee of the Board of Directors reviews and approves or ratifies transactions involving the Company and “related persons” (directors and executive officers or their immediate family members, or stockholders owning five percent or more of our outstanding common stock) in accordance with the requirements of The NASDAQ Stock Market. In determining whether to approve or ratify a related party transaction, the Audit Committee evaluates whether the transaction is in the best interests of the Company taking into consideration all relevant factors, including as applicable the Company’s business rationale for entering into the transaction and the fairness of the transaction to the Company. The Audit Committee generally seeks to consider and approve these transactions in advance where practicable, but may also ratify them after the transactions are entered into, particularly in instances where the transactions are entered into in the ordinary course of business or if the transaction is on terms that are consistent with a policy previously approved by the Audit Committee or the Board of Directors (as was the case with the transactions involving the use of our aircraft by our employees described below). In instances where the transaction is subject to renewal or if the Company has the right to terminate the relationship, the Audit Committee expects to periodically monitor the transaction to ensure that there are no changed circumstances that would render it advisable for the Company to amend or terminate the transaction.

 

Currently, the only related person transactions are the transactions involving the aircraft use arrangements as described in more detail below. The Audit Committee approved these arrangements.

Aircraft Management Arrangements

 

In August 2008, we entered into agreements with Steven M. Shindler, chairman of our Board, pursuant to which we provided management services relating to a Falcon 2000EX aircraft, which we refer to as the managed aircraft, that was leased by SMS Services LLC, or SMS Services, an entity controlled by Mr. Shindler and leased by SMS Services without crew to certain parties including Mr. Shindler. Under the terms of these agreements, we provided flight crew, maintenance and other administrative services necessary to support the operation of the managed aircraft in exchange for compensation in the form of a monthly management fee and a right to lease the managed aircraft without crew for up to 100 hours per year (with each annual period commencing in August) in exchange for a nominal lease payment pursuant to the lease agreement between us and SMS Services. On February 6, 2010, the managed aircraft was damaged in a hangar collapse and was subsequently deemed a total loss. During 2010, we used a total of 8.6 hours of flight time, and we had utilized a total of 96.5 hours of the 100 hours available under this lease agreement for the annual period ended August 2010. The managed aircraft has not been replaced.

 

Executive Use of Company Aircraft

 

We have implemented a policy that generally limits the use of company owned or leased aircraft to company business purposes, although our chief executive officer may approve the use of these aircraft for non-business purposes by executives other than himself. In addition, we do make the company aircraft available for use to our executives at times when it is not in use for regular business purposes through time sharing arrangements on terms that are consistent with our FAA authorizations and that provide for payments to us in amounts that recover the incremental operating costs associated with the employee’s use of the aircraft. We use the payments received from the executives using the aircraft under these arrangements to offset the operating costs of our aircraft. In 2010, Messrs. Shindler and Dussek utilized our aircraft under time sharing arrangements and paid us a total of $249,357 and $23,701 respectively for this use.

 

Compensation Committee Report

 

The Compensation Committee of the Board of Directors is responsible for the development, oversight and implementation of our compensation program for executive officers, including our executive chairman, chief executive officer, our chief financial officer and each of our three other most highly compensated executive officers who earned more than $100,000 in total compensation for services, who we refer to as the named executive officers, and in that role annually reviews and establishes the compensation of our executive officers. The Compensation Committee is committed to a philosophy that links a significant portion of each executive’s compensation to corporate performance. That philosophy guides the Compensation Committee’s discussions and determinations with respect to executive compensation.

 

The Compensation Committee’s primary goals in structuring compensation for executives are to attract, motivate and retain qualified and experienced executives and to provide executives with meaningful and competitive financial rewards for superior performance. To achieve these goals, the Compensation Committee seeks to provide a mix of annual and long-term compensation that will align the short- and long-term interests of our executives with those of the company and our stockholders. In 2010, the Compensation Committee approved an executive compensation program that consisted of base salaries, an annual cash bonus plan with payouts based on performance against defined targets and long-term equity incentive awards of stock options and restricted stock.

 

A discussion of the principles, objectives, components, analyses and determinations of the Compensation Committee with respect to executive compensation are included in the Compensation Discussion and Analysis that follows this Committee report. The specific decisions of the Compensation Committee regarding the compensation of named executive officers are reflected in the compensation tables and narrative that follow the Compensation Discussion and Analysis.

The Compensation Committee has reviewed the Compensation Discussion and Analysis included in this report and discussed it with our management. Based on this review and discussion, the Compensation Committee recommended that the Compensation Discussion and Analysis be included in our annual report on Form 10-K for the fiscal year ended December 31, 2010 or proxy statement for the 2011 annual meeting of stockholders.

 

Compensation Committee

 

Charles M. Herington, Chairman

Kevin L. Beebe

Raymond P. Dolan

Rosendo G. Parra

 

Compensation Committee Interlocks and Insider Participation

 

No member of the Compensation Committee is a current or former officer of us or any of our subsidiaries. In addition, there are no compensation committee interlocks with other entities with respect to any such member.

 

Compensation Discussion and Analysis

 

The Compensation Committee of our Board of Directors annually, or more frequently as necessary, reviews and establishes the salary and other compensation of our executive officers, including the named executive officers, and provides oversight of our equity based compensation programs for other employees.

 

Compensation Objectives and Philosophy

 

In making its determinations relating to executive compensation, the Compensation Committee’s principal compensation objectives are to:

 

 

To achieve these objectives the Compensation Committee has followed a philosophy that focuses on an executive’s total compensation, including cash and non-cash compensation, and that links a significant portion of each executive’s compensation to corporate performance while taking into account the impact of individual executive’s contributions to our success.

 

In particular, the Compensation Committee believes that total compensation for each executive should generally be set at a level commensurate with the executive’s and our performance and comparable to the total compensation paid by a peer group of companies to executives in similar positions and with similar levels of experience. The Compensation Committee also believes that the greater portion of our executives’ compensation should be at risk and focused on long-term results. Consistent with this belief, the base salary and annual bonus components, which are paid in cash, are generally a relatively smaller portion, and the long-term equity incentives are a relatively larger portion, of total compensation than is the case for the executives employed by the peer companies.

 

The Compensation Committee generally does not take into account the potential payments to executives under our severance plans, including payments that may be made in connection with an executive’s termination in connection with a change of control or in other circumstances as described below in “— Severance Plans,” when determining total compensation. The Compensation Committee believes that the terms of these arrangements, which require actual or constructive termination in order for an employee to be eligible for benefits, are generally

consistent with those offered by similarly situated companies and are consistent with the current market views on these arrangements.

 

Our current compensation program does not provide for the reduction or recovery of payments and awards made to our executives in the event that our financial statements were to be restated in the future in a manner that would have negatively impacted the size or payment of the award at the time of payment, but we intend to implement a policy to recover payments in compliance with the rules issued by the Securities and Exchange Commission pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act when such rules are finalized. Under our current executive compensation program, a significant portion of the executives’ overall compensation is in the form of equity that vests over multiple years. When combined with our ownership guidelines, which require our executives to accumulate a significant investment in our common stock over time, our executives have a very large component of their compensation, as well as the value of their required investment in the Company, at risk should there be a material negative restatement of our financial statements. By structuring our executive compensation program using a combination of options and restricted stock, we have further linked the executives to the long-term success of the stockholders.

 

Setting Executive Compensation

 

When determining each executive’s total compensation and mix of compensation components, the Compensation Committee looks to a number of factors to be sure it is effectively implementing our executive compensation philosophy. Those factors include the following:

 

 

The Compensation Committee also takes into consideration, among other things, the recommendations made by the chief executive officer (with respect to the compensation of executives other than his own), recommendations of our human resources professionals and the advice and recommendations of the Compensation Committee’s executive compensation consultant.

 

Role of the Compensation Consultant

 

The Compensation Committee has engaged Mercer (US) Inc., an outside global human resources consulting firm, to conduct an annual review of the Company’s executive compensation program. In connection with its review, Mercer advises the Compensation Committee as to the external competitiveness of our executive compensation packages and practices and provides the Compensation Committee with data relating to total compensation levels and relative amounts of cash and equity compensation earned by executives in comparable positions within the peer group of companies described below, as well as information regarding industry trends relevant to executive compensation. Specifically, Mercer provides the Compensation Committee with, among other things, the following analyses that assess the competitiveness of our senior executives’ compensation:

 

 

 

For executive officers other than our five most highly paid, in instances where there are no or a limited number of executives at the peer companies who hold comparable positions to those of one of our executives, Mercer also determines the external market competitive compensation using data from multiple relevant surveys and presents that data to the Compensation Committee.

 

Use of Comparative Industry Data

 

With respect to comparative industry data, the Compensation Committee reviews executive salaries and evaluates the compensation structures and the financial performance of comparable companies in a designated peer group established by the Compensation Committee with assistance from Mercer. The peer group is focused principally on high performing public companies selected from the Nasdaq 100 and includes those in the telecommunications or related industries and companies that are similar to us in terms of service focus, multinational operations or business complexity, revenues, assets, market capitalization and other characteristics. The Compensation Committee re-evaluates our peer group companies on an annual basis. During its evaluation in early 2010, the Compensation Committee determined that rapid growth in our business and financial performance during 2009 and early 2010 as compared to that experienced by many of our 2009 peer group companies had resulted in our Company moving to the 90th percentile of our 2009 peer group for financial measures like revenues and market capitalization. Based on this growth, the Compensation Committee determined that some of our 2009 peer group companies were no longer appropriate for peer comparisons and with assistance from Mercer, updated the peer group companies to create a peer group for which our Company fell at the median of the group with respect to size, revenues, market capitalization and other similar factors. In 2010, the following companies were selected as the peer group for purposes of collecting comparative industry market data:

 

 

The financial performance measures used by the Compensation Committee to evaluate our performance in comparison to the performance of the peer group companies include revenues, revenue growth, return on invested capital, return on assets, return on equity and total stockholder return.

 

Determination of Total Compensation and Compensation Components

 

The Compensation Committee sets total compensation ranges for our executive officers based on factors such as the competitive environment, historic compensation levels of the executive and similarly situated executives within our Company, individual performance, the compensation levels contemplated by the Company’s annual budget and the recommendations made by the chief executive officer (with respect to the compensation of executives other than his own). Based on these criteria and the financial performance measures used to evaluate our performance in comparison to the peer group of companies, the Compensation Committee establishes the total compensation ranges for each executive based on the ranking of the Company’s performance within, and the comparable compensation amounts for similarly situated executives within, the peer group. For 2010, the Compensation Committee targeted total compensation for executive officers at the 65th percentile for comparable positions within our peer group companies, which reflected the Company’s relative performance compared to the

peer group companies with respect to the identified performance measures during the one and three year evaluation periods used by Mercer in its analysis. Subsequent to this decision, our chief executive officer requested that his 2010 total compensation target the 60th percentile in light of changes made in 2010 to the Company’s compensation strategy for our non-executive officer employees. In some instances, adjustments were made to the total compensation ranges to take into account the executive’s tenure, experience, responsibilities of the position and other contributions. Due to the mix of cash and non-cash components of the compensation package, the target market percentile for total compensation set for each executive will only be realized by the executives to the extent our Company meets its performance objectives and there is substantial appreciation in share value.

 

Once total compensation ranges are set for executive officers, the Compensation Committee determines how that compensation will be allocated among the principal components of our compensation program, which include:

 

 

The Compensation Committee allocates the executives’ total compensation among components of executive compensation to strike an appropriate balance between cash and stock compensation and between short-term and long-term incentives consistent with our overall philosophy on executive compensation. This allocation is designed to ensure that a significant portion of each executive’s total compensation is tied to our performance and to the creation of stockholder value. We differentiate the composition of compensation among the members of the executive team based on each executive’s position and responsibility, with senior executives having a greater percentage of both their total compensation and cash compensation tied to corporate performance. Accordingly, executives with greater roles and responsibilities associated with achieving our performance targets bear a greater proportion of the risk if those goals are not achieved and receive a greater proportion of the reward if our performance targets are met or surpassed. In addition, as an executive’s position and responsibility increases, the long-term incentive compensation component of the executive’s compensation becomes more significant relative to the other components of compensation because our most senior executives have the greatest influence on our strategic performance over time.

 

As a matter of process, the Compensation Committee begins the allocation of the executive’s total compensation among the components of executive compensation by setting base salary and annual target bonus amounts for each executive. Base salary is based primarily on historic base salary levels with adjustments to reflect customary annual increases consistent with our annual budget for base salary increases, to recognize outstanding individual performance or expanded duties, or to address changes in the competitive marketplace. The Compensation Committee also takes into account the recommendations made by the chief executive officer regarding the appropriate base salary and annual target bonus amounts for executives other than his own. Incremental amounts paid to executives who work outside the United States pursuant to foreign government required programs including mandatory vacation allowances and retirement benefits or to compensate them for the additional costs and other obligations relating to those assignments, such as amounts paid for security services, housing costs, travel costs and certain related tax obligations, are not taken into consideration in determining base salary and are not used in calculating the annual target bonus amounts as described below or in determining those executives’ total compensation.

 

The annual target bonus amount for each executive officer is determined by multiplying his or her base salary by the target bonus percentage applicable to that position. The Compensation Committee, in consultation with our senior executives, designs the annual bonus program to provide incentives to achieve the corporate performance goals established by our Board of Directors for the year in which the bonus is earned.

 

Consistent with the Compensation Committee’s view that the greater portion of executive compensation should be at risk, the base salary and annual bonus components generally represent a smaller portion of total compensation for our executives than is the case for executives within the peer group of companies. As a result, a relatively greater proportion of our executives’ total compensation is allocated to long-term equity incentives in the form of nonqualified stock options and restricted stock grants. The resulting increased emphasis on stock option grants is consistent with our compensation philosophy because stock options require stock price appreciation in

order for executives to realize any benefit, thus directly aligning executive and stockholder interests. Restricted stock awards provide a similar alignment of interests while providing a substantial retention incentive through their vesting terms.

 

To determine the amount of the long-term equity incentives for each executive officer, including grants of restricted stock and nonqualified stock options, the equity compensation target amount is calculated by subtracting the cash components of compensation (i.e., base salary and the target annual bonus amount) for each executive officer from the total compensation target range for that executive officer, with the remaining amount of compensation allocated to long-term equity.

 

The equity compensation target amount is then allocated approximately 25% to restricted stock and 75% to nonqualified stock options with both the restricted stock and nonqualified options vesting ratably over a three year period. The number of shares of restricted stock provided to each executive is determined by dividing the portion of the equity compensation target amount allocated to restricted stock by the closing value of the underlying common stock on a specified date chosen for compensation valuation purposes. The number of shares subject to grants of nonqualified stock options provided to each executive officer is then determined by dividing the remaining equity compensation target amount by the fair market value per option, which is determined using the Black-Scholes option pricing model. The number of shares of restricted stock and shares subject to options is then compared to the annual grants made to that executive officer in prior years and to the grants proposed to be made to other executive officers to ensure equity/parity among similarly situated executives. In the case of executive officers other than the chief executive officer, the amount of the long-term equity incentive target and the proposed grants of restricted stock and options are also reviewed in light of the recommendations of the chief executive officer with respect to the proposed grants as described in more detail in “— Long-Term Equity Incentives” below.

 

As a result of this process, the sum of the values of

 

 

are, absent unusual circumstances or adjustments, generally within the total compensation target range for the executive officer for that year.

 

2010 Executive Compensation

 

Total Compensation

 

In April 2010, the Compensation Committee established the total compensation ranges for our executive officers, including the named executive officers in this proxy statement, which we refer to as our 2011 named executive officers. The Compensation Committee’s goal in that process is to generally align our compensation with that of the comparable compensation amounts for similarly situated executives within the peer group of companies with adjustments based on Company performance and the executive’s tenure, position, skills, experience, attainment of goals and other contributions. In setting the total compensation ranges, the Compensation Committee evaluated our performance in comparison to the performance of peer group companies over one and three year periods with respect to revenues, revenue growth, return on invested capital, return on assets, return on equity and total stockholder return. In particular, in making the comparisons with the peer group, the Committee considered our peer group ranking for each of these performance measures individually and in the aggregate.

 

In making the comparisons of our executive officers’ compensation to that of the executives at the peer group companies, the Compensation Committee took into account both the overall level of compensation paid to the named executive officers within the peer group companies and the nature of the positions held by the executives at the peer group companies in comparison to the positions held by our named executive officers and also considered compensation of our five most highly paid executive officers as compared to those of our peer companies based on ordinal ranking of the peer group officers in summary compensation tables. The comparable compensation amounts

for the peer group executives were determined using information reported by the peer group companies as adjusted and normalized to take into account differences in valuation techniques we use compared to those used by the peer group companies and differences in the terms of the compensation arrangements used by the peer group companies. In situations where the Compensation Committee determines a comparable position for one of our executives is not available in our peer group companies, the Compensation Committee evaluates the total compensation of that executive based on factors that include the executive’s performance, mix of responsibilities and compensation of executives at our Company with similar levels of responsibility using the available peer company information in combination with compensation survey data compiled by Mercer and other consultants.

 

In making the 2010 executive compensation decisions, the Compensation Committee relied primarily on the relative ranking of our performance compared to the peer group companies using the performance measures described above, which was at approximately the 65th percentile of our peer group companies. Based on that comparison, the Compensation Committee set the target for the total compensation for each of our executive officers at the 65th percentile for comparable positions within our peer group companies. Subsequent to this decision, our chief executive officer requested that his 2010 total compensation target the 60th percentile in light of changes made in 2010 to the Company’s compensation strategy for our non-executive officer employees. Adjustments were also made by the Compensation Committee to the target for the total compensation for certain executives which caused the total compensation awarded to those executives in 2010 to fall above or below the 65th percentile target to reflect: (i) the Compensation Committee’s assessment of the individual performance of the executive officer; (ii) adjustments needed for the internal alignment of the total compensation targets and compensation components for similarly situated executives; (iii) for our market presidents, the performance of their respective markets and the competitiveness of salary and executive positions in those markets, and (iv) for certain of our market presidents whose base salary and bonus amounts are paid in local currency, the impact of fluctuations in foreign currency exchange rates.

 

In allocating the amounts of the different types of compensation that comprise total compensation, the Compensation Committee determined that it was prudent to provide for base salary increases for executive officers in light of the Company’s performance in 2009, the improvement in economic conditions in late 2009 and early 2010 as compared to those prevailing in early 2009, and the decision not to increase the base salaries of executive officers in 2009 from 2008 levels. The Compensation Committee generally maintained the 2009 bonus target percentages for 2010, with modest increases for some executive officers based on performance, to provide for a target amount of cash compensation, to balance the amount of total compensation at risk based on the Company’s performance and to align the executive with similarly situated executives. In all instances, the dollar value of the bonus target for executive officers increased due to increases in base salary, which is used as the basis for determining the target bonus amounts. For 2010, the Compensation Committee approved long-term equity awards for the named executive officers in the form of nonqualified stock options and restricted stock grants. For our named executive officers other than our chief executive officer, the 2010 equity grants had an aggregate value that was greater than the value of the equity grants made to these executives in 2009 due to adjustments made to incorporate base salary changes, reflect individual and market achievement, align grants provided to similarly situated executives and to adjust for the target total compensation percentile.

The annual total compensation for 2010 for each of our 2011 named executive officers (effective from April 1, 2010 through March 31, 2011) and the percentage change from 2009 total compensation based on the fair values reviewed by the Compensation Committee in April 2010 are as follows:

 

 

 

 

In order to provide consistency between companies when doing its peer group comparisons of total compensation, the Compensation Committee calculates the value of options for our Company and the comparison companies assuming the full life of the options, which, in our case, is ten years, rather than the expected life of the options used in calculating the values for the Summary Compensation Table. The use of the full life of the options generally results in a higher grant date fair value than the value reflected in the Summary Compensation Table.

 

The decline in our chief executive officer’s total compensation reflects his request that his total compensation for 2010 be set at a target based on the 60th percentile of the peer group instead of the 65th percentile utilized in 2009. The decline in Mr. Foyo’s total compensation reflects the amortization of prior year equity grants included in his total compensation amount as reviewed and approved by the Compensation Committee for 2009. In 2009, the Compensation Committee adopted a change from its prior practice of making periodic grants of restricted stock to an approach under which the executive officers’ long-term equity incentives granted on an annual basis would be allocated between restricted stock and options that each vest on a pro rata basis over a three year period from the date of grant. As part of the transition to this new methodology, and to account for the restricted stock grant made in prior years that had not yet fully vested, the Compensation Committee, in making the compensation determinations for 2009, included the amortization of restricted stock awards made to some of our executive officers that were not fully vested in total compensation for those executive officers.

The total compensation of Messrs. Hemmady, Chaia and Strauss increased due to increases in base salary and long-term equity grants to reflect the performance and growth of our Company in 2009 and the past performance of these executives. The percentage increase in total compensation for Messrs. Hemmady and Chaia also reflect increases in the bonus target percentage to reflect performance and balance the amount of cash compensation provided as well as compensation at risk based on our Company’s performance. In addition, for Mr. Chaia, the increase also reflects adjustments made to align the target bonus percentage for his position with the percentage provided for similarly situated positions in our Company and is also due in part to the year over year strengthening of the Brazilian Real relative to the U.S. dollar that affects Mr. Chaia’s base salary and annual cash bonus, which are paid in Brazilian Reais.

 

As noted above, the 2010 total compensation includes the value of the restricted stock grant on the date of grant computed in accordance with FASB ASC Topic 718, and the fair market value of the option awards made during the applicable year determined on the date of grant using the Black-Scholes method in accordance with FASB ASC Topic 718. The compensation amounts actually realized by the named executive officers with respect to the stock awards and option awards made to them could vary significantly from the values reflected in the table above as a result of, among other things, significant fluctuations in the market value of our common stock from the values at the date of grant.

 

Base Salary

 

In April 2010, the Compensation Committee determined that it was prudent to provide for base salary increases for executive officers in light of the Company’s performance in 2009, the improvement in economic conditions in late 2009 and early 2010 as compared to those prevailing in early 2009, and the decision in 2009 not to increase the base salaries of executive officers in 2009 from 2008 levels. The base salary increases provided to our executive officers ranged from 4.8% to 23.3%, with the increases provided to our named executive officers ranging from 5.0% to 23.3% in each case based on the executive officer’s performance, adjustments made to bring total compensation in line with the cash and total compensation targets, adjustments made to better align the cash compensation of internal peers, and, in the case of our market presidents, to reflect the performance of their respective market and competitiveness of salary and executive positions in those markets.

 

The annual base salaries in 2010 (effective from April 1, 2010 through March 31, 2011) for our named executive officers and the percentage of total compensation base salaries represented are as follows:

 

 

 

 

Annual Bonus

 

In 2011, cash bonuses were paid to our executive officers for the achievement of certain corporate financial and operating targets relating to our 2010 fiscal year (the “2010 Bonus Plan”). In February 2010, the Compensation Committee determined the criteria relating to our performance that were used to determine the amounts paid under our 2010 Bonus Plan for all employees eligible for the annual bonus and located at our headquarters. These criteria were consolidated operating income before depreciation and amortization, or consolidated OIBDA, consolidated net subscriber additions and consolidated OIBDA margin, which is the amount equal to consolidated OIBDA divided by revenues for the year. For employees who are eligible for annual bonus and responsible for operations in one or more foreign markets, the criteria relating to our performance that were used to determine the amounts paid under the 2010 Bonus Plan were OIBDA, net subscriber additions and OIBDA margin for the applicable country, as well as consolidated OIBDA, consolidated net subscriber additions and consolidated OIBDA margin.

The Compensation Committee believes that the performance criteria used in our 2010 Bonus Plan strike an appropriate balance between growth and profitability and mitigate risk to the Company because actions taken to improve our performance with respect to one of the criteria would normally be expected to have a corresponding negative impact on other criteria. For example, if management were to implement promotional programs designed to aggressively pursue growth in subscriber additions, those actions would be expected to increase expenses, resulting in a potential deterioration in OIBDA and OIBDA margin.

 

Up to 10% of the target bonus amount was determined based on individual performance subject to the approval of the Compensation Committee. The amount of payout of the individual evaluation metric for our chief executive officer was determined by the Compensation Committee. For our other executive officers, the chief executive officer made individual performance payout recommendations for each executive officer based on the executive officer’s annual performance evaluation. These recommendations were reviewed by the Compensation Committee and taken into account in making the bonus awards for the executive officers.

 

The 2010 Bonus Plan also provided for an adjustment of the performance targets in the event the average currency exchange rates are more than 10% above or below levels contemplated in the budget used to set the performance goals. No payouts were affected by adjustments made to 2010 bonus payments due to foreign currency fluctuations.

 

The targeted bonus criteria amounts for each of Messrs. Dussek, Hemmady and Strauss, the named executive officers located at headquarters, were as follows (dollar amounts in thousands):

 

 

 

 

The targeted amounts for Messrs. Chaia and Foyo, who are the named executive officers responsible for our operations in Brazil and Mexico respectively, were as follows (dollar amounts in thousands):

 

 

 

 

The 2010 Bonus Plan was designed to provide incentive bonuses that would reward executives for superior achievement and be competitive as compared to bonuses paid by the peer group of companies established by the Compensation Committee, while being consistent with the Compensation Committee’s views on the appropriate

levels of total compensation and the amount of compensation at risk. The performance measures and the target amounts used for the 2010 Bonus Plan were initially developed and recommended by our senior executives based on their assessment of our 2010 operating and financial goals that were included in our operating budget for 2010.

 

The terms of the 2010 Bonus Plan were evaluated by the Compensation Committee, with the input of Mercer, in light of the Compensation Committee’s overall compensation philosophy of placing greater weight on the “at risk” components of compensation and our short- and long-term strategies and goals. The targets are set in a manner to drive Company performance against reasonable financial performance metrics, but are not goals that would cause our executives to take inappropriate business risks. The Compensation Committee generally maintained the 2009 bonus target percentages for 2010, with modest increases for some executive officers based on performance, to balance the amount of total compensation at risk based on the Company’s performance and to align the executive with similarly situated executives. In all instances, the dollar value of the bonus target for executive officers increased due to increases in base salary, which is the basis for determining the target bonus levels. The target bonus percentages for Messrs. Hemmady and Chaia were adjusted as part of the decision to increase their total compensation in light of the Company’s and individual performance, to balance the amount of cash and equity compensation and the amount of total compensation at risk for these positions based on our performance, and for Mr. Chaia, to align the target bonus percentage for his position with that provided for the positions of similarly situated executives in our Company.

 

As determined by the Compensation Committee, the 2010 incentive bonus target percentage of base salary, the potential cash payout at 100% of target and the percentage of total compensation the target bonus at 100% payout represented were as follows:

 

 

Under the terms of the 2010 Bonus Plan, payouts are adjusted in one percent increments above and below targets, with total payouts ranging from 80% to 120% of the target bonus amount based on the percentage of the specific target performance goals achieved. The minimum achievement required to qualify for any bonus payment was 80% of the specified target performance goals under the 2010 Bonus Plan. The maximum payout of a bonus was 120% of the target bonus amounts for each metric. In order to obtain a payout of 120% on a metric, achievement of at least 120% of the specified target performance goal had to be achieved.

 

To determine bonus amounts earned by our executive officers during the plan year, the Compensation Committee meets following the fiscal year end to review our financial and operating performance as compared to the applicable performance measures and to discuss performance factors and other criteria related to the award of bonuses. In some instances, the Compensation Committee, upon the recommendation of management, makes adjustments to the bonus payments based on, among other things, changes in our corporate goals, plans and business conditions during the course of the bonus plan year if it concludes that such adjustments are appropriate and are consistent with our overall goals and strategy. The Compensation Committee did not make any adjustments to the 2010 bonus payments for the named executive officers. The Compensation Committee considers, but is not bound by, the recommendations of executive officers, including the chief executive officer, with respect to the payment or amounts of bonuses to executive officers.

 

Based on the Company’s results and, as applicable, the results in the market for which the named executives are responsible, and taking into account the individual performance component of the bonus plan, the named executive officers’ bonus payouts under the 2010 Bonus Plan ranged from 112% to 116% of the target bonus amounts, which were based on predetermined percentages of base salary as described above. Based on the foregoing, the bonuses

awarded to the named executive officers with respect to our performance in 2010 and the percentage change from the bonus paid in 2009 were as follows:

 

 

 

 

The change in the bonus amounts paid in 2010 relative to 2009 was primarily due to the increases in the executive officers’ base salaries, the adjustments in the target bonus percentages described above, and a higher level of bonus achievement relative to the performance targets in 2010 in comparison to 2009, and for Mr. Chaia, the year over year strengthening of the Brazilian Real relative to the U.S. dollar.

 

Long-Term Equity Incentives

 

The Compensation Committee provides equity-based incentives to executive officers through the 2004 Incentive Compensation Plan, which permits the grant of stock options, stock appreciation rights, stock awards, performance stock awards, incentive awards and stock units. The amount of executive compensation allocated to long-term equity incentives in 2010 was determined by subtracting base salary and bonus potential from the total compensation target range set for each executive officer by the Compensation Committee, with the remaining amount of compensation allocated to long-term equity as described below.

 

In 2010, the Compensation Committee considered the long-term equity incentives available under the 2004 Incentive Compensation Plan and granted restricted stock and nonqualified stock options to our executive officers, with the long-term equity incentive target of each executive officer, allocated approximately 25% to restricted stock and 75% to nonqualified stock options. Both the restricted stock and stock options vest ratably over a three year period and vesting is not conditioned on any individual performance of the executive or on our financial or operating performance. The 2010 nonqualified stock option grants expire after ten years. The exercise price of each option is the closing price of our common stock on the date of grant.

 

The value of the restricted stock grant is determined by multiplying the number of shares of restricted stock proposed to be granted to each executive by the closing price of our common stock on a date prior to the April 2010 Compensation Committee meeting, which is the fair value computed in accordance with FASB ASC Topic 718. The value of the stock option grant is determined by multiplying the number of stock options proposed to be granted to each executive by the value of each option, which is computed using the Black-Scholes option-pricing model using the same closing price of our common stock as used for the restricted stock calculation and using the same assumptions that we use in calculating the compensation expense attributable to such grants under FASB ASC Topic 718, except that for purposes of this analysis, we disregard estimated forfeitures related to service-based vesting conditions and use the full 10 year term as the expected life of the options. This is done in order to provide consistency between companies when the Compensation Committee conducts its peer group comparisons of total compensation. For comparison purposes, the Compensation Committee calculates the value of options for our Company and the comparison companies assuming the full life of the options, which, in our case, is ten years, rather than the expected life of the options used in calculating the values for the Summary Compensation Table. The use of the full life of the options generally results in a higher grant date fair value than the value computed for the Summary Compensation Table. The number of shares of restricted stock and shares subject to options is then compared to the annual grants made to that executive officer in prior years and to the grants proposed to be made to other executive officers to ensure equity/parity among similarly situated executives.

The number of shares of restricted stock and the number of shares subject to options granted in 2010 to Mr. Dussek, our chief executive officer, was determined by the Compensation Committee, with assistance from Mercer, based, among other things, on the compensation levels of the chief executive officers at the peer group companies using a target of the 60th percentile of the peer group and the value of the proposed grants as described above. That determination also took into account the assessment of Mr. Dussek’s performance by the Compensation Committee and other members of our Board of Directors and historic grant levels, as well as Mr. Dussek’s request that a lower percentile ranking be used for the determination of his compensation in light of changes made in 2010 to the Company’s compensation strategy for non-executive officer employees. The value of Mr. Dussek’s equity award for 2010 decreased as compared to his award for 2009 due to adjustments made for the target total compensation percentile.

 

The number of shares of restricted stock and the number of shares subject to options granted in 2010 to each executive officer other than Mr. Dussek was determined by the Compensation Committee based, among other things, on recommendations of our chief executive officer. Those recommendations were developed using the amount of the proposed long-term equity incentive target for each executive based on the Compensation Committee’s recommended target of the 65th percentile of the peer group, and the value of the grants as described above. Those recommendations also took into account a number of factors, including the executive’s position and responsibility, the assessment by the chief executive officer of the executive’s performance, the historic grant levels with adjustments to recognize outstanding individual performance or expanded duties, the competitive environment and the compensation paid to executives with similar duties at comparable companies and the budgeted amounts for non-cash equity compensation. The number of shares of restricted stock and shares subject to options was also compared to the annual grants made to that executive officer in prior years and to the grants proposed to be made to other executive officers to ensure equity/parity among similarly situated executives. For 2010, the Compensation Committee approved long-term equity awards for the named executive officers other than Mr. Dussek with an aggregate value that was greater than the value of the equity grants made to these executives in 2009 due to adjustments made to incorporate base salary changes, reflect individual and market achievement, align grants provided to similarly situated executives and to adjust for the target total compensation percentile.

 

The value of the annual long-term equity grants provided to each of our named executive officers in 2010, the percent change of the equity grant for 2010 compared to 2009 and the percentage of total compensation the 2010 long-term equity grants represented based on values reviewed by the Compensation Committee in April 2010 are as follows:

 

 

 

 

The Compensation Committee believes using equity-based incentives grants as the most significant component of our executives’ compensation is consistent with our compensation philosophy because it directly aligns executive and stockholder interests. Specifically, the use of stock options as a significant component of our long-term incentive compensation requires stock price appreciation in order for executives to realize any benefit, thus directly aligning executive and stockholder interests. Restricted stock awards provide a similar alignment of interests, while also providing a substantial retention incentive through their vesting terms.

 

Timing of Long-Term Incentive Awards

 

Our practice with respect to the timing of long-term incentive awards that we have followed since the approval of the 2004 Equity Plan has been to make grants of nonqualified stock options and/or awards of restricted stock to executive officers once each year in late April, which had historically coincided with scheduled meetings of the Board of Directors and various committees, including the Compensation Committee. Non-employee directors also typically received annual grants of stock options in connection with the April board meetings. Awards of stock options or other equity incentives to new executive officers and directors occur at the time of the person’s appointment or election as an executive officer or director. In addition, our chief executive officer may grant, under authority delegated to him by the Compensation Committee, a limited number of stock options (not to exceed 10,000 shares in any single grant and 100,000 shares in the aggregate, with such aggregate amount subject to renewal by the Compensation Committee from time to time) to employees who are not executive officers. Pursuant to the 2004 Equity Plan, the exercise price of all stock options is not lower than the closing market price of our stock on the date of grant.

 

In 2010, grants of nonqualified stock options and restricted stock to executive officers were made by the Compensation Committee on April 23, 2010. Non-employee directors serving on the Board of Directors also received grants of restricted stock on April 23, 2010. The exercise price of the stock options granted to executive officers was the closing market price on the date of grant.

 

We also follow a practice of disclosing our financial results for the first quarter of the fiscal year following the April Board of Directors meeting at which time those results are discussed. The 2010 first quarter earnings release was made publicly available on April 29, 2010. Although the members of the Compensation Committee were aware of the impending release of information relating to first quarter results at the time grants of stock options were made, the Compensation Committee did not use such information in determining the amount of the awards to be made to executive officers and directors for that fiscal year nor did the Compensation Committee withhold the making of grants to confer a benefit on the recipient of a grant or avoid a loss in value of a grant.

 

We are aware that the release of our quarterly financial results may have an impact on the market price of our common stock, and therefore the value of the option grant, depending on whether the information is favorable or unfavorable. However, we believe that the April Board of Directors meeting is an appropriate time during the year to make option grants and that a consistent application of our option granting practices from year to year regardless of the content of the first quarter earnings release is also appropriate. As noted above, we have followed this consistent practice since the 2004 Equity Plan was adopted. The stock options granted by the Compensation Committee are designed to create incentives for the creation of long-term stockholder value and contain delayed vesting provisions that prevent recipients of stock options from taking advantage of short-term fluctuations in the market price of our common stock.

 

We have not planned in the past, nor do we plan in the future, to time the release of material non-public information for the purpose of affecting the value of executive compensation. We do not have a practice of setting the exercise price of options based on the stock price on any date other than the grant date, nor do we use a formula or any other method to select a price based on a period before, after or surrounding the grant date. Nonqualified stock options are always granted at the closing price of our common stock on the date of grant.

 

Executive Stock Ownership Guidelines

 

In 2004, we adopted executive stock ownership guidelines that require our chief executive officer and the executive officers who report to our chief executive officer to attain designated stock ownership levels, and therefore maintain a vested interest in our equity performance. Over a five-year period, which commenced in 2004

for the individuals who were executive officers at the time the guidelines were adopted and which commences upon the appointment of the individual as an executive officer for those appointed to those positions after 2004, the executive officers covered subject to the guidelines are expected to reach the targeted ownership levels based on specific share value targets per executive officer level. The types of stock ownership that are applied to satisfy the ownership requirements under our guidelines include the value of stock directly owned by the executives and the value of unexercised but vested options to the extent that the fair market value of our common stock exceeds the option exercise price. The penalty for an executive’s failure to comply with the stock ownership guidelines may include a discontinuation of future equity grants until compliance is achieved.

 

As chief executive officer, the executive stock ownership guidelines require that Mr. Dussek reach a targeted stock ownership level with a value equal to two times his base salary by December 31, 2011, a value equal to four times his base salary by December 31, 2012 and a value equal to five times his base salary by December 31, 2013. For the remaining named executive officers, the ownership guidelines require the executive officer to reach the following targeted minimum stock ownership levels by the following dates:

 

 

Based on their base salary level paid in 2010 and the closing price of our common stock on the NASDAQ Global Select Market on December 31, 2010 of $44.66, each of our executive officers subject to an ownership target under the executive stock ownership guidelines at December 31, 2010 met their respective ownership targets.

 

Our corporate policy that applies to trading in our stock by executive officers restricts the hedging by the named executive officers of the economic risk of ownership of our common stock.

 

Tax Deductibility Under Section 162(m)

 

Section 162(m) of the Internal Revenue Code imposes a limitation on the deductibility of nonperformance-based compensation in excess of $1 million paid to named executive officers of public companies. As noted above, the Compensation Committee has implemented a compensation program that links a substantial portion of each executive’s compensation to performance and requires each executive officer to attain designated stock ownership levels, and therefore maintain a vested interest in our equity performance, but has not implemented a policy that limits the amount of compensation based on the limitations of Section 162(m). We intend to qualify executive compensation for deductibility under Section 162(m) if doing so is consistent with our best interests and the interests of our stockholders. Since our corporate objectives may not always be consistent with the requirements of full deductibility, it is conceivable that we may enter into compensation arrangements in the future under which payments are not deductible under Section 162(m). We currently believe that we should be able to continue to manage our executive compensation program for the named executive officers to preserve the related federal income tax deductions, although individual exceptions may occur.

 

Retirement, Deferred Compensation and Pension Plans

 

Our executive officers who are eligible may participate at their election in our 401(k) retirement savings plan that provides employees with an opportunity to contribute a portion of their cash compensation to the plan on a tax-deferred basis to be invested in specified investment options and distributed upon their retirement. Consistent with the 401(k) plan, we match 100% of each employee’s contributions to the 401(k) plan up to a maximum of 4% of the employee’s eligible compensation each pay period. The employer matching contribution vests based on the employee’s years of service. Our matching contribution for 2010 for named executive officers was $29,400 in the aggregate.

 

We do not have any pension plans. In addition, we have not adopted a supplemental executive retirement plan or other “excess plan” that pays benefits to highly compensated executives whose salaries exceed the Internal Revenue Service’s maximum allowable salary for qualified plans. In December 2008, the Compensation Committee approved the adoption of an Executive Deferral Plan, which became effective January 1, 2009. Under the

Executive Deferral Plan, executives may defer a portion of their compensation with the amount deferred by a participating executive attributed to a hypothetical account and treated as if it is invested in deferred stock units with the value of those units linked to the value of our common stock. No compensation was deferred by executive officers in 2010. We do not have any other nonqualified deferred compensation plans.

 

Severance Plans

 

We previously adopted two severance plans that provide for the payment of severance benefits to employees, including our executive officers, if their employment is terminated in specified circumstances. One plan provides for the payment of severance benefits if the executive officer’s employment is terminated without cause for certain reasons and the other plan provides for the payment of severance benefits if the executive officer’s employment is terminated without cause, or if the executive officer terminates his or her employment with good reason, in connection with a change of control. The two severance plans are mutually exclusive meaning that an executive may be eligible to receive payments under one or the other of the plans depending on the circumstances surrounding the termination of the executive’s employment, but it is not possible for an executive to receive payments under both plans. These arrangements have been in place for several years and were not modified in 2010. While the Compensation Committee generally does not take into account the potential payments to executives under our severance plans, including termination and change of control arrangements, in performing its annual evaluation of the total compensation that may be realized by our executive officers, the Compensation Committee believes that the terms of these arrangements are generally consistent with those offered by similarly situated companies including those in the peer group. A description of the terms of our severance plans, the specific circumstances that trigger payment of benefits, an estimate of benefits payable upon the occurrence of those triggering events and other information relating to such plans can be found below under the caption “Executive Compensation — Potential Payments under Severance Plans.”

 

Annual Compensation of Executive Officers

 

Summary Compensation Table

 

In the table below and discussion that follows it, we summarize the compensation earned during 2010 by our chief executive officer, our chief financial officer, and each of our three other most highly compensated executive officers who earned more than $100,000 in total compensation for services rendered in all capacities during 2010. We refer to these individuals in this proxy statement as the “named executive officers.” Mr. Strauss was not a named executive officer prior to 2010, and Mr. Chaia was not a named executive officer prior to 2009.

 

Summary Compensation Table

 

 

 

 

 

 

Grants of Plan-Based Awards Table

 

In the table below and discussion that follows, we summarize the grants of stock options and stock awards to each of the named executive officers during 2010. Our non-equity incentive bonus plan adopted for 2010 does not provide for payouts in fiscal years after 2010, and we historically have not issued any performance-based equity incentive plan awards.

 

Grants of Plan-Based Awards
Fiscal Year 2010

 

 

 

 

Supplemental Discussion of Awards

 

The exercise price for the options listed above, which is equal to the closing price of a share of our common stock as reported on the Nasdaq Global Select market on the date of grant, may be paid in cash, in shares of our common stock valued at fair market value on the date of exercise or pursuant to a cashless exercise procedure under which the optionee provides irrevocable instructions to a brokerage firm to sell the purchased shares and to remit to us, out of the sale proceeds, an amount equal to the exercise price plus all required tax withholding and other deductions. Both the restricted stock and the right to exercise the options granted vest ratably over a three year period and vesting is not conditioned on any individual performance of the executive or on our financial or operating performance. The options expire ten years from the date of grant. An earlier expiration date may apply in the event of the optionee’s termination of employment, retirement, death or disability. For information on how we determined the number of restricted stock awards and stock option grants for 2010, see the “Compensation Discussion and Analysis” section above.

Outstanding Equity Awards at Fiscal Year-End Table

 

The equity awards reflected in the table below include the number and value of stock options and shares of restricted stock that remain outstanding as of December 31, 2010.

 

Outstanding Equity Awards at Fiscal Year-End 2010

 

 

 

 

 

Option Exercises and Stock Vested Table

 

In the table below, we list information on the exercise of options and the vesting of restricted stock during the year ended December 31, 2010.

 

Option Exercises and Stock Vested
Fiscal Year 2010

 

 

 

 

Equity Compensation Plan Information

 

The following table sets forth information as of December 31, 2010, with respect to compensation plans under which shares of our common stock are authorized for issuance.

 

 

 

 

Pension Benefits and Nonqualified Deferred Compensation

 

None of our executive officers are entitled to pension benefits from us. None of our executive officers participated in our Executive Deferral Plan in 2010.

 

Potential Payments under Severance Plans

 

We have arrangements with each of our named executive officers under our Change of Control Severance Plan that provide for payments and benefits if an executive officer’s employment is terminated in connection with the

occurrence of certain events involving a change in control. In addition, we have an obligation to make payments and provide certain benefits to our named executive officers under our Severance Plan and 2004 Incentive Compensation Plan resulting from termination of employment upon the occurrence of certain events. The following is a summary of the payments that we or our successor may make under each of these arrangements.

 

Payments upon Termination of Employment

 

Each of our named executive officers is covered by our Change of Control Severance Plan and our Severance Plan. The Change of Control Severance Plan provides for the payment of certain benefits if an executive officer’s employment is terminated by the company without cause or by the executive officer for good reason in connection with a change of control. No benefits are required to be paid unless the executive officer’s employment is terminated. The named executive officers are also entitled to severance benefits if their employment is terminated by the company in specified circumstances under the Severance Plan. Although the benefits under the Severance Plan apply without regard to whether any change of control has occurred or is pending, the Change of Control Severance Plan provides that employees entitled to receive amounts paid under the Change in Control Severance Plan will not be entitled to cash severance under any other severance plan, including the Severance Plan. Each of the named executive officers has also received awards of stock options and restricted stock under the 2004 Incentive Compensation Plan, which contains provisions that may accelerate the vesting of awards made to a named executive officer if we terminate the executive officer’s employment with us or if the executive officer terminates his or her employment with us for good reason in connection with a change of control.

 

Except as noted below, we otherwise have not entered into any employment agreements or other arrangements that provide for benefits in connection with a termination of employment of our named executive officers.

The following table shows the estimated amount of the payments to be made to each of the named executive officers who continued to be employed by us as of December 31, 2010 upon termination of their employment in connection with a change of control under the Change of Control Severance Plan, their involuntary termination under the Severance Plan or upon their termination in connection with their death or disability. For purposes of calculating the value of the benefits, we have assumed that the triggering event for payment occurred under each of the arrangements as of December 31, 2010. The footnotes to the table contain an explanation of the assumptions made by us to calculate the payments, and the discussion that follows the table provides additional details on these arrangements.

 

Potential Payments upon Termination of Employment

 

 

 

 

Change of Control Severance Plan

 

The Change of Control Severance Plan provides that each named executive officer will receive a payment if a change of control, as defined below, occurs and he either is terminated without cause or resigns for good reason. Messrs. Dussek and Hemmady will be entitled to receive 250% of their annual base salary and target bonus at the date of his termination upon such an event, and Messrs. Chaia, Foyo and Strauss will be entitled to receive 200% of such amounts, all as provided in the plan. Each named executive officer will be entitled to receive his payment under the plan in a lump sum within thirty days following his termination of employment.

We or the surviving entity will also pay the full premium cost of continued health care coverage for each named executive officer under the federal “COBRA” law in such a termination. We will make the COBRA payments up to the lesser of 18 months or the time at which the named executive officer is reemployed and is eligible to receive group health coverage benefits under another employer-provided plan. The payments may also cease for any of the reasons provided in the COBRA law.

 

In addition, in the event that any of the named executive officers incur any legal, accounting or other fees and expenses in a good faith effort to obtain benefits under the Change of Control Severance Plan, we or the surviving entity will reimburse the named executive officer for such reasonable expenses. The named executive officer will be entitled to receive a tax gross-up payment in the event that any payments made under the plan is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code. Such reimbursement and gross-up payments will be subject to Section 409A of the Internal Revenue Code and will be paid within the timeframe prescribed by the regulations thereunder.

 

A change of control will be deemed to occur under the plan when:

 

 

A named executive officer will receive compensation under the plan if:

 

 

Severance Plan

 

The Severance Plan provides payments to a named executive officer in the event of an involuntary termination of employment, which includes termination due to job elimination, work force reductions, lack of work, a

determination by us that the executive officer’s contributions no longer meet the needs of the business and any other reason determined by us. Under the Severance Plan, each of the named executive officers will be entitled to a payment equal to 12 months of his annualized base salary, not including any bonus, incentive payments or commission payments. Each named executive officer will also receive a pro rata payment of his bonus based on the portion of the year that he was employed by us. We will pay the bonus to the named executive officer when we pay bonuses to employees at the same position level for the bonus plan year in the following year, and such bonus will be based on the achievement level of the named executive officer’s business unit for the applicable year.

 

We will make a lump sum payment of the amount due under the Severance Plan to each named executive officer. We reserve the right to make the payments periodically for a period not to exceed 24 months. In order to receive payments under the Severance Plan, each named executive officer must return all of our property and execute a release agreement:

 

 

The release agreement will also require the executive officer to comply with specified confidentiality, non-disparagement and non-solicitation obligations. Our obligation to make or continue severance payments to the executive officer will cease if the executive officer does not comply with those obligations.

 

2004 Incentive Compensation Plan

 

The 2004 Incentive Compensation Plan covers the grant of certain incentives and awards, including stock options, stock appreciation rights, stock, performance shares, incentive awards, stock units and dividend equivalent rights, to our employees, including the named executive officers. Under the 2004 Plan, if a change of control occurs and the incentives and awards granted under the plan are not assumed by the surviving entity, or the employee is terminated within a certain period following a change of control, each outstanding award is treated as explained below. A change of control under the 2004 Plan is defined the same as in the Change of Control Severance Plan and the same events that trigger payments to the executive officer under the Change of Control Severance Plan trigger payments under the 2004 Plan, both as described above.

 

 

 

The 2004 Plan provides that the administrator of the plan shall determine what amounts will be payable to the named executive officer upon death, disability or retirement in the agreement under which awards are made under the plan.

 

Director Compensation Table

 

In the table and discussion below, we summarize the compensation paid to our non-employee directors and Mr. Shindler in 2010.

 

Director Compensation
Fiscal Year 2010