UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

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PCTEL, INC.

(Name of Registrant as Specified In Its Charter)

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

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

 

Tuesday, June 15, 2010

4:00 p.m.

 

 

To Our Stockholders:

 

The 2010 annual meeting of stockholders of PCTEL, Inc., a Delaware corporation, will be held on Tuesday, June 15, 2010 at 4:00 p.m. local time at our headquarters, located at 471 Brighton Drive, Bloomingdale, Illinois 60108 for the following purposes:

 

1. To elect two Class II directors whose terms will expire at the 2013 annual meeting of stockholders;

 

2. To approve the amendment and restatement of the 1997 Stock Plan to increase the number of shares available for grant pursuant to awards under the plan and to make certain other changes;

 

3. To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010; and

 

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

 

The foregoing items of business are more fully described in the proxy statement accompanying this notice. Only stockholders of record at the close of business on April 19, 2010 are entitled to notice of and to vote at the meeting.

 

Pursuant to the new rules promulgated by the Securities and Exchange Commission, we have elected to provide access to our proxy materials over the Internet. Accordingly, we will mail, on or about April 28, 2010, a Notice of Internet Availability of Proxy Materials to our stockholders of record and beneficial owners at the close of business on April 19, 2010. On the date of mailing of the Notice of Internet Availability of Proxy Materials, all stockholders and beneficial owners will have the ability to access all of the proxy materials on a website referred to in the Notice of Internet Availability of Proxy Materials. These proxy materials will be available free of charge.

 

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

 

Sincerely,

 

 

Martin H. Singer

Chief Executive Officer and

Chairman of the Board of Directors

 

Bloomingdale, Illinois

April 28, 2010

 

 

 

PCTEL, INC.

471 Brighton Drive

Bloomingdale, Illinois 60108

 

 

PROXY STATEMENT FOR THE

2010 ANNUAL MEETING OF STOCKHOLDERS

 

 

GENERAL INFORMATION

 

The Board of Directors of PCTEL, Inc. is soliciting proxies for the 2010 annual meeting of stockholders. This proxy statement contains important information for you to consider when deciding how to vote on the matters brought before the meeting. Please read it carefully.

 

Our Board of Directors has set April 19, 2010 as the record date for the meeting. Stockholders of record at the close of business on April 19, 2010 are entitled to vote at and attend the meeting, with each share entitled to one vote. There were 19,083,554 shares of our common stock outstanding on the record date. On the record date, the closing price of our common stock on the Nasdaq Global Market was $6.80 per share.

 

This proxy statement is made available on or about April 28, 2010 to stockholders entitled to vote at the meeting.

 

In this proxy statement:

 

 

QUESTIONS AND ANSWERS

 

 

 

 

PCTEL shall provide without charge to each stockholder solicited by these proxy solicitation materials a copy of our Annual Report on Form 10-K, together with the financial statements and financial statement schedules required to be filed with the Annual Report, upon written request sent to PCTEL, Inc., 471 Brighton Drive, Bloomingdale, Illinois 60108, Attn: John W. Schoen, Chief Financial Officer. Our Annual Report on Form 10-K for the year ended December 31, 2009 is not incorporated into this proxy statement and is not considered proxy solicitation material.

 

Deadline for Receipt of Stockholder Proposals and Nominations for 2011 Annual Meeting of Stockholders

 

Stockholders are entitled to present proposals for action and director nominations at the 2011 annual meeting of stockholders only if they comply with the applicable requirements of the proxy rules established by the SEC and the applicable provisions of our bylaws. Stockholders must ensure that such proposals and nominations are received by our Corporate Secretary at the following address: 471 Brighton Drive, Bloomingdale, Illinois 60108, Attn: John W. Schoen, on or prior to the deadline for receiving such proposals and nominations.

 

Proposals for the 2011 annual meeting of stockholders that are intended to be considered for inclusion in the proxy statement and form of proxy relating to such meeting must be received no later than December 29, 2010, and must comply with the procedures of Rule 14a-8 under the Securities Exchange Act of 1934 (the “Exchange Act”) and the provisions of our bylaws.

 

If a stockholder intends to submit a proposal or director nomination for consideration at our 2011 annual meeting of stockholders outside the procedures of Rule 14a-8 under the Exchange Act, the stockholder must comply with the requirements of our bylaws and we are not required to include such proposal or nomination in the proxy statement and form of proxy relating to such meeting. Our bylaws contain an advance notice provision that requires stockholders to submit a written notice containing certain information not less than 120 days prior to the date of our proxy statement for the previous year’s annual meeting of stockholders. For purposes of the 2011 annual meeting of stockholders, this means that such proposals or nominations must also be received by December 29, 2010. A copy of the relevant bylaw provision is available upon written request to our Corporate Secretary at the address provided above.

 

The accompanying proxy card grants the proxy holders discretionary authority to vote on any business raised at the annual meeting. If you fail to comply with the advance notice provisions set forth above in submitting a proposal or nomination for the 2011 annual meeting of stockholders, the proxy holders will be allowed to use their discretionary voting authority if such proposal or nomination is raised at that meeting.

 

SUMMARY OF PROPOSALS

 

The Board of Directors has included three proposals on the agenda for our 2010 annual meeting of stockholders. The following is a brief summary of the matters to be considered and voted upon by the stockholders.

 

Proposal #1: Election of Directors

 

The company has a classified Board of Directors that currently consists of seven directors. Each director serves a three-year term. The first proposal on the agenda for the annual meeting is the election of two Class II directors to serve until the 2013 annual meeting of stockholders. The Board of Directors has nominated Richard C. Alberding and Carl A. Thomsen to serve as the Class II directors. Additional information about the election of directors and a biography of each nominee begins on page 6.

 

The Board of Directors recommends a vote “FOR” each of the two nominees.

 

Proposal #2: Amendment and Restatement of the 1997 Stock Plan

 

The second proposal on the agenda for the annual meeting is for the approval to amend and restate the 1997 Stock Plan to increase the number of shares available for grant pursuant to awards under the 1997 Stock Plan and to make certain other changes. More information about this proposal begins on page 10.

 

The Board of Directors recommends a vote “FOR” the approval of the amendment and restatement of the 1997 Stock Plan.

 

Proposal #3: Ratify the Appointment of the Independent Registered Public Accounting Firm

 

The third proposal on the agenda for the annual meeting is the ratification of the appointment of Grant Thornton LLP as the company’s independent registered public accounting firm for the fiscal year ending December 31, 2010. More information about this proposal begins on page 19.

 

The Board of Directors recommends a vote “FOR” the ratification of the appointment of Grant Thornton LLP as the independent registered public accounting firm.

 

Other Matters

 

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

PROPOSAL #1

 

ELECTION OF DIRECTORS

 

Classification of Board of Directors

 

We have a classified Board of Directors currently consisting of two Class I directors, Brian J. Jackman and John R. Sheehan, whose terms will expire at the 2012 annual meeting of stockholders; two Class II directors, Richard C. Alberding and Carl A. Thomsen, whose terms are expiring at this annual meeting of stockholders; and three Class III directors, Steven D. Levy, Giacomo Marini, and Martin H. Singer, whose terms will expire at the 2011 annual meeting of stockholders. At each annual meeting of stockholders, certain directors are elected for a term of three years to succeed those directors whose terms expire on the annual meeting date.

 

Nominees

 

On the recommendation of the Board of Directors, the nominees for election at the 2010 annual meeting of stockholders as Class II directors are Richard C. Alberding and Carl A. Thomsen. If elected, Messrs. Alberding and Thomsen will continue as directors, and their terms will expire at the annual meeting of stockholders in 2013.

 

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

 

Vote Required and Board of Directors’ Recommendation

 

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

 

The Board of Directors has unanimously approved the director nominees and recommends that stockholders vote “FOR” the election of the director nominees listed above.

Directors and Nominees

 

The following table sets forth certain information regarding the current directors and nominees for directors to be elected at the 2010 annual meeting of stockholders:

 

 

Mr. Jackman has been a director since February 2002. He is currently the President of The Jackman Group, Inc., a management consulting company that he formed in 2005. In September 2001, Mr. Jackman retired from Tellabs, a communications company he had been with since 1982. Mr. Jackman served as President, Global Systems and Technology, and Executive Vice President of Tellabs since 1998, and as President of Tellabs Operations from 1993 to 1998. Prior to that, Mr. Jackman held various management positions in sales and marketing for IBM from 1965 to 1982. Commencing in January 2003, he joined the board of directors of Open Text, Inc., an enterprise content management solutions company, where he also currently serves on the Compensation Committee. In January 2005, Mr. Jackman joined the Board of Directors of Keithley Instruments, a test and measurement equipment company, on which he still serves. In total, Mr. Jackman has served on the boards of eight companies in the technology sector. In addition, Mr. Jackman serves on the board of trustees of Gannon University. Mr. Jackman holds a bachelor of arts degree in English literature from Gannon University in Erie, Pennsylvania and a master degree in business administration from Penn State University. Mr. Jackman’s specific experience with a test and measurement equipment company as well as his extensive experience in sales, marketing and management functions with telecommunications and high tech companies, and his current and prior service on the board of directors of other companies, make him qualified to serve on the company’s Board of Directors and as the Lead Independent Director.

 

Mr. Sheehan has been a director since October 2002. Beginning in 1996 Mr. Sheehan has owned and operated Two Rivers Associates, a business consulting firm specializing in business planning (i.e., strategy development and plan execution), process improvement and executive coaching. Also, since October 2001, Mr. Sheehan has served as a senior consultant in the London Perret Roche Group in Red Bank, New Jersey. He began his career at Bell Laboratories in 1962. In 33 years at Bell Laboratories, Western Electric and AT&T, Mr. Sheehan worked in senior positions in development, manufacturing, strategic planning and general management of business units where he led the development and deployment of data communications equipment, digital switching system, and cellular telephone systems. Since leaving AT&T in 1996, Mr. Sheehan held senior management positions, and served on the Board of Directors, of two internet-based start-up companies (the terms of which ended prior to 2005). Among other duties, he was responsible for business development, business operations, and sales. Mr. Sheehan received a bachelor of science degree in electrical engineering from Drexel University and a master of science degree in

electrical engineering from New York University. Mr. Sheehan’s background in development, manufacturing and strategic planning as well as his educational training as an electrical engineer, enable him to evaluate the product development and operations of the company. Mr. Sheehan’s participation in corporate governance programs and extensive experience in business planning, process improvement and strategy development make him qualified to serve on the company’s Board of Directors and as its Chairman of the Nominating and Governance Committee.

 

Mr. Alberding has been a director since August 1999. In June 1991 Mr. Alberding retired from Hewlett-Packard, then a computer, peripherals and measurement products company, having served as Executive Vice President, Corporate Marketing, Sales/Service and International Operations, with responsibility for worldwide company sales, support and administration activities for measurement and computation products, as well as all corporate level marketing activities. In 1997 Mr. Alberding joined and currently serves as a Director and member of the Compensation Committee of Sybase, Inc., a global leader in enterprise software focused on Analytics, Mobile Middleware and Mobile Messaging, and since 2006, has been a Director at Cxtec, Inc., a privately held Cisco value-added reseller and provider of related new and refurbished products. In addition, from 1996 thru August 2009, Mr. Alberding served on the Board of Directors of Quick Eagle, Inc., a private company providing wide area network access solutions for broadband applications. From 1994 until January 2007, Mr. Alberding served on the Board of Directors of Stratex Networks, Inc., a provider of wireless transmission solutions. Mr. Alberding also serves as a member of the Board of Trustees of Cazenovia College and a Director of the Syracuse Symphony Orchestra. Mr. Alberding holds a bachelor of science in accounting, law and marketing from Augustana College, an associate of science degree in electrical engineering from DeVry Technical Institute in Chicago, an associate of arts degree in international business, at INSEAD, in France. He has also attended numerous executive training programs held at Stanford University, Harvard University and the University of Geneva (Switzerland). Mr. Alberding’s experience as an Executive Vice President with a measurement products company, his participation on the board of directors/trustees at other companies and organizations, particularly on the Compensation Committee, and his education and extensive executive training make Mr. Alberding a valued member of the company’s Board of Directors and qualified to serve as the Chairman of the Compensation Committee of the company’s Board of Directors.

 

Mr. Thomsen has been a director since March 2001. Mr. Thomsen served as Senior Vice President, Chief Financial Officer and Corporate Secretary at Stratex Networks, Inc. (now Aviat Networks, Inc.), a provider of wireless transmission solutions, from 1995 to 2007. At Stratex, Mr. Thomsen was responsible for worldwide financial reporting, legal and treasury functions, tax, IT, human resources and investor relations. From 1984-1995, Mr. Thomsen worked at Measurex Corporation, a process control systems company (now a part of Honeywell Corporation) where he served as Senior Vice President and Chief Financial Officer. From 1975 to 1983, Mr. Thomsen was employed by Ampex Corporation (now a part of Honeywell Corporation) in various senior financial positions. Commencing in May 2007, Mr. Thomsen was appointed as a member of the Board of Directors of the Cardiac Therapy Foundation of the Mid-Peninsula, a non-profit organization providing a cardiovascular wellness and rehabilitation program. In December 2009 Mr. Thomsen was elected as a member of the Board of Directors and the Audit Committee of SonicWALL, Inc., a developer of security solutions. Mr. Thomsen holds a bachelor of science degree in business administration from Valparaiso University and a master degree in business administration from the University of Michigan. He is also a certified public accountant, and started his financial career with Arthur Andersen LLP, a public accounting firm. Mr. Thomsen’s experience as a certified public accountant and Chief Financial Officer, his past responsibilities for worldwide financial reporting and other treasury, tax and investor relations matters, as well as his current participation on two other boards of directors, particularly on the Audit Committee, make him qualified to serve as the Chairman of the Audit Committee of the company’s Board of Directors.

 

Mr. Levy has been a director since March 2006. He served as a Managing Director and Global Head of Communications Technology Research at Lehman Brothers from July 1998 until September 2005. Before joining Lehman Brothers, Mr. Levy was a Director of Telecommunications Research at Salomon Brothers from March 1997 to July 1998, a Managing Director and Head of the Communications Research Team at Oppenheimer & Co. from July 1994 to March 1997, and a senior communications analyst at Hambrecht & Quist from July 1986 to July 1994. As a securities analyst for almost 20 years, Mr. Levy became proficient in analyzing business strategies and financial results, having evaluated well over 100 companies. Mr. Levy is currently a member of the Board of

Directors of Allot Communications, a data communications provider for carriers, and also privately held GENBAND Inc, an innovator of IP Infrastructure. He previously (from January 2000 to February 2010) served on the Board of Directors of Zhone Technologies, a broadband technology company, and as a Board member of Tut Systems, Inc., a technology company providing advanced content processing and distribution products and system integration services, prior to its March 2007 acquisition by Motorola, Inc. In total, Mr. Levy has served on five boards of directors and has been a member of the Audit Committee of each of such companies. Mr. Levy holds a master degree in business administration and a bachelor of science degree in materials engineering from Rensselaer Polytechnic Institute. Mr. Levy provides a unique perspective to the Board of Directors and to its Audit Committee as a result of his investment banking experience related to the telecommunications industry and his analytical skills. The company benefits from his knowledge of financial markets, business strategies and competitive data analysis.

 

Mr. Marini has been a director since October 1996. Mr. Marini is the founder and Managing Director of Noventi, a Silicon Valley based early stage technology venture capital firm begun in March 2002. Over the last decade he has been primarily managing venture investments in technology companies. This activity entails evaluating business plans, making investment decisions, assisting management in the formulation and execution of operating plans and strategic plans involving all facets of company operations. It also includes evaluation of the performance of management teams, directing management changes and helping in recruiting executives for portfolio companies. Further, it requires the identification, evaluation and execution of exit strategies, such as acquisitions by other companies or initial public offerings. He has directed investments in over 15 companies, some of which have been acquired by market leaders such as BEA Systems, Cisco, HP and Symantec. Prior to this, Mr. Marini has had broad operating experience. From 1981 to 1992 at Logitech International SA he managed engineering, operations and finance as the company grew to over $200M in annual revenues, effected an initial public offering and expanded manufacturing and development. At Futuretel (1998-1999) and No Hands Software (1993-1994) he managed rapid product development, decisive restructuring, new markets and products entries. Private board of director memberships includes TES S.p.A. since September 1994; Ecrio Inc. since March 1999; Minerva Networks, Inc. beginning May 2003; Neato Robotics, Inc. since December 2006; Aurora Biofuels, Inc. since January 2007, Cosmo Industrie S.p.A. since December 2007 and Mariah Power, Inc. beginning December 2008. Overall, Mr. Marini brings experience with a wide variety of company situations both as a general management executive and as active board member and investor. These qualifications provide a solid basis for serving as a director of a technology company dealing with issues of growth, product and marketing strategy, international expansion and merger and acquisition activities.

 

Mr. Martin H. Singer is the Chief Executive Officer and Chairman of the Board, a position he has held since October 2001. He has been a director of the Company since August 1999. Since 2001, Mr. Singer has changed the company’s direction from that of a commodity, soft-modem supplier, to a leader in broadband wireless technologies. Prior to joining PCTEL, in 1980 Mr. Singer began his career in telecommunications at Bell Laboratories, subsequently moving onto product management positions at AT&T and Tellabs. From 1990 through 1997 he led the Wireless Local Loop division with Motorola’s Cellular Infrastructure Group and was responsible for licensing Motorola’s valuable GSM patents worldwide. From December 1997 to August 2000, Mr. Singer served as President and Chief Executive Officer of SAFCO Technologies, a wireless communications company. He left SAFCO in August 2000 after its sale to Agilent Technologies. Mr. Singer earned his Bachelor of Arts degree at the University of Michigan, and a Master of Arts degree and Ph.D. in Experimental Psychology at Vanderbilt University. Mr. Singer serves as Vice-Chairman of TechAmerica’s Midwest Council and is a Commissioner on Illinois’ Economic Recovery Commission, appointed to that position by the Governor of Illinois in November, 2009. He also served on the Standing Advisory Group for the Public Company Accounting Oversight Board, the organization established by Congress to provide oversight to the implementation of the Sarbanes-Oxley Act. In March 2009, Mr. Singer was appointed a member of the Board of Directors of Westell Technologies, Inc., a leading provider of broadband products, gateways and conferencing services, also serving as Chairman of their Compensation Committee. In 2006, Mr. Singer was appointed to the Board of Directors of ISCO International, a provider of spectrum conditioning solutions to wireless and cellular providers worldwide, where he also chaired the Compensation Committee until he left the board in 2007. Mr. Singer has 8 patents in telecommunications and has written numerous articles and lobbies on issues relating to U.S. competitiveness, corporate governance and telecommunications. Mr. Singer is a seasoned industry expert with strong knowledge of the company’s business and technology. He provides expertise in business strategy, intellectual property, strategic alliances and business technology.

PROPOSAL #2

 

AMENDMENT AND RESTATEMENT OF 1997 STOCK PLAN

 

The stockholders are being asked to approve an amendment and restatement of the PCTEL, Inc. 1997 Stock Plan (the “1997 Stock Plan”), including an increase in the number of shares reserved for issuance under the 1997 Stock Plan and certain other amendments as described below. The Board of Directors has approved the proposed amendment and restatement of the 1997 Stock Plan, subject to, and effective as of, approval from the stockholders at this 2010 annual meeting. If the stockholders approve the amendment and restatement of the 1997 Stock Plan, it will replace the current version of the 1997 Stock Plan. If the 1997 Stock Plan is approved, no further awards will be made under the 2001 Nonstatutory Stock Option Plan (the “2001 Plan”), but it will continue to govern awards previously granted thereunder. If the stockholders do not approve the 1997 Stock Plan, the current 1997 Stock Plan and 2001 Plan will remain in effect through the remainder of their respective terms. Approval of the 1997 Stock Plan requires the affirmative vote of the holders of a majority of the shares of the company’s common stock that are present in person or by proxy and entitled to vote at this 2010 annual meeting.

 

The Board of Directors believes that long-term incentive compensation programs align the interests of management, employees and the stockholders to create long-term stockholder value. The Board of Directors believes that plans such as the 1997 Stock Plan increase the company’s ability to achieve this objective, especially, in the case of the 1997 Stock Plan, by allowing for several different forms of long-term incentive awards, which the Board of Directors believes will help the company to recruit, reward, motivate and retain talented personnel.

 

In order to better manage and control the amount of PCTEL common stock used for equity compensation, the Board of Directors adopted a Burn Rate Policy for fiscal years 2010, 2011 and 2012. The Burn Rate Policy will require the company to limit the number of shares that are granted subject to stock awards over the three-year period to an annual average of 5.15% of outstanding PCTEL common stock (which is equal to the average of the median burn rate plus one standard deviation for the 2009 and 2010 calendar years for Russell 3000 companies in our Global Industry Classification Standards Peer Group (4520 Technology Hardware & Equipment), as published by Institutional Shareholder Services in 2009). The annual burn rate will be calculated as (i) the number of shares subject to stock awards (including stock options, stock appreciation rights, restricted stock, restricted stock units and other stock awards) granted under the 1997 Stock Plan in a fiscal year and the number of shares subject to performance units and performance shares that are paid out during such fiscal year divided by (ii) the weighted average number of shares used for calculating basic earnings per share for such fiscal year, both as reported in the company’s SEC filings. Solely for purposes of applying the burn rate analysis to the number of shares granted in a year, each share subject to a full value award (i.e., restricted stock, restricted stock unit, performance shares and any other award that does not have an exercise price per share equal to the per share fair market value of the company’s common stock on the grant date) will count as equivalent to 2.0 shares. This limitation shall not apply to awards (a) settled in cash as opposed to the delivery of shares of common stock, (b) sold under an employee stock purchase plan, or (c) assumed or substituted in acquisitions.

 

The 1997 Stock Plan is also designed to allow the company to deduct in full for federal income tax purposes the compensation recognized by its executive officers in connection with certain awards granted under the 1997 Stock Plan. Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), generally denies a corporate tax deduction for annual compensation exceeding $1 million paid to the chief executive officer and other “covered employees” as determined under Section 162(m) of the Code and applicable guidance. However, certain types of compensation, including performance-based compensation, are generally excluded from this deductibility limit. To enable compensation in connection with stock options, stock appreciation rights, and certain restricted stock grants, restricted stock units, performance shares and performance units awarded under the 1997 Stock Plan to qualify as “performance-based” within the meaning of Code Section 162(m) (“Section 162(m)”), the 1997 Stock Plan limits the sizes of such awards as further described below. By approving the 1997 Stock Plan, the stockholders will be approving, among other things, eligibility requirements for participation in the 1997 Stock Plan, performance measures upon which specific performance goals applicable to certain awards would be based, limits on the numbers of shares or compensation that could be made to participants, and the other material terms of the awards described below.

 

Changes Being Made To The Plan

 

The following is a summary of the material changes being made to the 1997 Stock Plan:

 

 

The Board of Directors believes strongly that the approval of the amended and restated 1997 Stock Plan is essential to the company’s continued success. In particular, the Board of Directors believes that the company’s employees are its most valuable assets and that the awards permitted under the 1997 Stock Plan are vital to the company’s ability to attract and retain outstanding and highly skilled individuals in the extremely competitive labor markets in which the company competes. Such awards also are crucial to the company’s ability to motivate employees to achieve its goals.

 

Vote Required And Board of Directors’ Recommendation

 

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

 

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE AMENDMENT AND RESTATEMENT OF THE 1997 STOCK PLAN.

Summary of The 1997 Stock Plan, as Amended and Restated

 

The following is a summary of the principal features of the amended and restated 1997 Stock Plan and its operation. The summary is qualified in its entirety by reference to the 1997 Stock Plan itself set forth in Appendix A.

 

The 1997 Stock Plan provides for the grant of the following types of incentive awards: (i) stock options, (ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock units, (v) performance shares, (vi) performance units, (vii) dividend equivalents, and (viii) other stock or cash awards. Each of these is referred to individually as an “Award.” Those who will be eligible for Awards under the 1997 Stock Plan include employees, directors and consultants who provide services to PCTEL and its affiliates. As of April 15, 2010, approximately 150 employees, directors and consultants would be eligible to participate in the 1997 Stock Plan.

 

Number of Shares of Common Stock Available Under the 1997 Stock Plan.  The maximum aggregate number of shares that may be awarded and sold under the 1997 Stock Plan after the effective date of the amendment and restatement is equal to the sum of (i) 2,724,798 shares, plus (ii) any shares returned (or that would have otherwise returned) to the 1997 Stock Plan on or after the date of approval of the amendment and restatement of the 1997 Stock Plan as a result of the 1997 Stock Plan’s lapsed share and share counting provisions, plus (iii) any shares returned (or that would have otherwise returned) to the Director Plan on or after the date of approval of the amendment and restatement of the 1997 Stock Plan as a result of termination of options or repurchase of shares issued under the Director Plan. The shares may be authorized, but unissued, or reacquired common stock.

 

Shares subject to Awards other than options or stock appreciation rights will count against the 1997 Stock Plan’s share reserve as 1.78 shares for each share subject to such award. If shares acquired pursuant to Awards other than options or stock appreciation rights are forfeited or repurchased by PCTEL and would otherwise return to the share reserve as described above, then 1.78 times the number of shares forfeited or repurchased will return to the share reserve.

 

If PCTEL declares a stock dividend or engages in a reorganization or other change in its capital structure, including a merger, the Board of Directors will proportionately adjust (i) the shares covered by an outstanding Award, (ii) the number of shares available for issuance under the 1997 Stock Plan, (iii) the number and price of shares subject to outstanding Awards, and (iv) the number of shares specified as per-person limits on Awards, as appropriate, to reflect the change.

 

Administration of the 1997 Stock Plan.  The Board of Directors or a committee of directors or of other individuals satisfying applicable laws and appointed by the Board of Directors will administer the 1997 Stock Plan. To make grants to certain of the officers and key employees, the members of the committee must qualify as “non-employee directors” under Rule 16b-3 of the Securities Exchange Act of 1934. The committee members must also qualify as “outside directors” under Section 162(m) (so that PCTEL can receive a federal tax deduction for certain compensation paid under the 1997 Stock Plan). Subject to the terms of the 1997 Stock Plan, the Board of Directors or its committee has the sole discretion to select the employees, consultants, and directors who will receive Awards, determine the terms and conditions of Awards, and to interpret the provisions of the 1997 Stock Plan and outstanding Awards. The Board of Directors or other committee administering the 1997 Stock Plan is referred to below as the “Administrator.”

 

Notwithstanding the foregoing, the Administrator may not modify or amend an option or stock appreciation right to reduce the exercise price of such option or stock appreciation right after it has been granted (except pursuant to the 1997 Stock Plan’s adjustment provisions described above) nor may the Administrator cancel any outstanding option or stock appreciation right and replace it with any other Award with a lower exercise price, unless, in either case, such action is approved by the PCTEL stockholders. Also, if approved in advance by PCTEL’s stockholders, the Administrator may offer to buy out an option or a stock appreciation right.

 

Notwithstanding anything in the 1997 Stock Plan to the contrary, the Administrator may allow a program where participants may voluntarily surrender existing options without consideration and such participants will remain eligible to receive their respective ordinary course equity grants in the next grant cycle. Any shares subject to such a voluntary surrender program will not become available for future grant or sale under the 1997 Stock Plan.

Options.  The Administrator is able to grant nonstatutory stock options and incentive stock options under the 1997 Stock Plan. The Administrator determines the number of shares subject to each option, although the 1997 Stock Plan provides that a participant may not receive options for more than 300,000 shares in any fiscal year, except in connection with his or her initial service as an employee, in which case he or she may be granted an option to purchase up to an additional 150,000 shares.

 

The Administrator determines the exercise price of options granted under the 1997 Stock Plan, provided the exercise price must be at least equal to the fair market value of the common stock on the date of grant. In addition, the exercise price of an incentive stock option granted to any participant who owns more than 10% of the total voting power of all classes of outstanding PCTEL stock must be at least 110% of the fair market value of the common stock on the grant date.

 

For grants occurring on or following the approval of the amendment and restatement of the 1997 Stock Plan, the term of an option may not exceed 7 years, except that, with respect to any participant who owns 10% of the voting power of all classes of the company’s outstanding capital stock, the term of an incentive stock option may not exceed 5 years.

 

After a termination of service with PCTEL, a participant will be able to exercise the vested portion of his/her option for the period of time stated in the Award agreement. If no such period of time is stated in the participant’s Award agreement, the participant will generally be able to exercise his/her option for (i) three months following his or her termination for reasons other than death or disability, and (ii) twelve months following his or her termination due to death or disability.

 

Stock Appreciation Rights.  The Administrator will be able to grant stock appreciation rights, which are the rights to receive the appreciation in fair market value of common stock between the exercise date and the date of grant. PCTEL can pay the appreciation in either cash or shares of common stock. Stock appreciation rights will become exercisable at the times and on the terms established by the Administrator, subject to the terms of the 1997 Stock Plan. The Administrator, subject to the terms of the 1997 Stock Plan, will have complete discretion to determine the terms and conditions of stock appreciation rights granted under the 1997 Stock Plan, provided, however, that the exercise price will not be less than 100% of the fair market value of a share on the date of grant. For grants occurring on or following the approval of the amendment and restatement, the term of a stock appreciation right may not exceed 7 years. No participant will be granted stock appreciation rights covering more than 300,000 shares during any fiscal year, except that a participant may be granted stock appreciation rights covering up to an additional 150,000 shares in connection with his or her initial service as an employee with PCTEL or its affiliates.

 

After termination of service with PCTEL, a participant will be able to exercise the vested portion of his or her stock appreciation right for the period of time stated in the Award agreement. If no such period of time is stated in a participant’s Award agreement, a participant will generally be able to exercise his or her stock appreciation right for (i) three months following his or her termination for reasons other than cause, death, or disability, and (ii) twelve months following his or her termination due to death or disability. In no event will a stock appreciation right be exercised later than the expiration of its term.

 

Restricted Stock.  Restricted stock are shares of PCTEL common stock which vest in accordance with the terms and conditions established by the Administrator in its sole discretion. For example, the Administrator may set restrictions based on the achievement of specific performance goals, or on the passage of time subject to the participant’s continued service as an employee with PCTEL. The Administrator, in its discretion, may accelerate the time at which any restrictions will lapse or be removed. On the date set forth in the Award agreement, the restricted stock for which restrictions have not lapsed will revert to PCTEL and again will become available for grant under the 1997 Stock Plan.

 

The Award agreement will generally grant PCTEL a right to repurchase or reacquire unvested shares upon the termination of the participant’s service with PCTEL for any reason (including death or disability). The Administrator will determine the number of shares granted pursuant to an Award of restricted stock, but no participant will be granted a right to purchase or acquire more than 150,000 shares of restricted stock during any fiscal year, except

that a participant may be granted up to an additional 75,000 shares of restricted stock in connection with his or her initial service as an employee with PCTEL or its affiliates.

 

Restricted Stock Units.  Awards of restricted stock units result in a payment to a participant only if the vesting criteria the Administrator establishes is satisfied. For example, the Administrator may set restrictions based on the achievement of specific performance goals. Upon satisfying the applicable vesting criteria, the participant will be entitled to the payout specified in the Award agreement. Notwithstanding the foregoing, at any time after the grant of restricted stock units, the Administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout. The Administrator, in its sole discretion, may pay earned restricted stock units in cash, shares, or a combination thereof. Restricted stock units that are fully paid in cash will not reduce the number of shares available for grant under the 1997 Stock Plan. On the date set forth in the Award agreement, all unearned restricted stock units will be forfeited to PCTEL.

 

The Administrator determines the number of restricted stock units granted to any participant, but during any fiscal year of PCTEL, no participant may be granted more than 150,000 restricted stock units, except that the participant may be granted up to an additional 75,000 restricted stock units in connection with his or her initial employment with PCTEL or its affiliates.

 

Performance Units and Performance Shares.  The Administrator will be able to grant performance units and performance shares, which are Awards that will result in a payment to a participant only if the performance goals or other vesting criteria the Administrator may establish are achieved or the Awards otherwise vest. The Administrator will establish performance or other vesting criteria in its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance units and performance shares to be paid out to participants. Notwithstanding the foregoing, after the grant of performance units or shares, the Administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such performance units or shares.

 

During any fiscal year, no participant will receive performance units having an initial value greater than $500,000. In addition, no participant will receive more than 150,000 performance shares during any fiscal year, except that a participant may be granted up to an additional 75,000 performance shares in connection with his or her initial employment with PCTEL. Performance units and performance shares will have an initial value equal to the fair market value of a share of the company’s common stock on the date of grant.

 

Dividend Equivalents.  The Administrator may, in its discretion, include in any award agreement a dividend equivalent right entitling the participant to receive amounts equal to the dividends that would be paid, during the time any such Award is outstanding, on the shares of common stock covered by such Award as if such shares were then outstanding. The participant of a dividend equivalent right will have only the rights of a general unsecured creditor until payment of such amount is made as specified in the applicable Award agreement.

 

Performance Goals.  The granting or vesting of Awards of restricted stock, restricted stock units, performance shares, performance units and other incentives under the 1997 Stock Plan may be made subject to the attainment of performance goals relating to one or more business criteria within the meaning of Section 162(m) of the Code and may provide for a targeted level or levels of achievement including: cash flow; cash position; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; earnings per share; economic profit; economic value added; equity or stockholder’s equity; market share; net income; net profit; net sales; operating earnings; operating income; profit before tax; ratio of debt to debt plus equity; ratio of operating earnings to capital spending; return on equity; return on net assets; return on sales, revenue, sales growth; or total return to stockholders. The performance goals may differ from participant to participant and from Award to Award and may be used to measure the performance of PCTEL as a whole or in part by functional responsibility of PCTEL and may be measured relative to a peer group or index.

 

Awards to Outside Directors.  Generally, on the date one first becomes a non-employee director (“Outside Director”), such Outside Director will automatically receive restricted stock with an aggregate fair market value of $50,000. Subsequently, on the date of each annual meeting, each Outside Director receives a grant of restricted stock with an aggregate fair market value of $35,000, subject to either re-election to the board at such meeting or continued service as a director. Outside directors who serve as members or chairs of committees receive additional

service awards of restricted stock with aggregate fair market value as follows: (i) audit committee member, $5,000; (ii) audit committee chair, $10,000; (iii) compensation committee member, $5,000; (iv) compensation committee chair, $9,000; (v) nominating and governance committee member, $5,000; (vi) nominating and governance committee chair, $7,000; and (vi) lead director, $10,000. The terms of automatic awards to Outside Directors are as follows: (a) first awards vest annually over 3 years, subject to continued service as a director and (b) subsequent awards and additional service awards are not subject to any time-based or other similar restrictions.

 

Transferability of Awards.  Awards granted under the 1997 Stock Plan are generally not transferable, and all rights with respect to an Award granted to a participant generally will be available during a participant’s lifetime only to the participant. The 1997 Stock Plan prohibits the implementation of an award transfer program without the consent of the stockholders.

 

Change in Control.  In the event of a change in control of PCTEL, absent any contractual agreement to the contrary, each outstanding Award, other than Awards that vest or are paid-out based upon the satisfaction of performance goals, will be assumed or an equivalent Award substituted by the successor corporation or a parent or subsidiary of the successor corporation. In the event that the successor corporation, or the parent or subsidiary of the successor corporation, refuses to assume or substitute for the Awards, the participant will fully vest in and have the right to exercise all of his/her outstanding non-performance based Awards, including shares as to which such Awards would not otherwise be vested or exercisable, and all non-performance based restrictions on restricted stock will lapse. With respect to any restricted stock, restricted stock unit, performance share, performance unit, other performance-based Award or any Award under the Retention Plan which is not assumed or substituted for, all performance goals or other vesting criteria will be deemed achieved at target levels and all other terms and conditions met. If the change in control occurs during a performance period, the participant will receive a pro-rated amount of the performance-based Award based on the amount of time he/she was a service provider during the performance period before the change in control. If an Award becomes fully vested and exercisable in lieu of assumption or substitution in the event of a change in control, the Administrator will notify the participant in writing or electronically that the Award will be fully vested and exercisable for 15 days from the date of such notice, and the Award will terminate upon the expiration of such period.

 

With respect to Awards granted to Outside Directors, in the event of a change in control of PCTEL, the Outside Director will fully vest in and have the right to exercise all of his or her Awards, including shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on restricted stock will lapse, and, with respect to restricted stock units, performance shares and performance units, all performance goals or other vesting criteria will be deemed achieved at target levels and all other terms and conditions met. Each Outside Director will receive payment of a pro-rated amount of the performance shares, performance units, or other performance-based Award that would have actually been earned had the Outside Director remained a service provider through the end of the performance period based on the amount of time the Outside Director was a service provider during the performance period before the change in control.

 

Amendment and Termination of the 1997 Stock Plan.  The Administrator will have the authority to amend, alter, suspend or terminate the 1997 Stock Plan, except that stockholder approval will be required for any amendment to the 1997 Stock Plan to the extent required by any applicable laws. No amendment, alteration, suspension or termination of the 1997 Stock Plan will impair the rights of any participant, unless mutually agreed otherwise between the participant and the Administrator and which agreement must be in writing and signed by the participant and PCTEL. The 1997 Stock Plan will terminate in 2020, unless the Administrator or the Board of Directors terminates it earlier.

 

Number of Awards Granted to Employees, Consultants, and Directors

 

The number of Awards that an employee, director or consultant may receive under the 1997 Stock Plan is in the discretion of the Administrator and therefore cannot be determined in advance. The following table sets forth (a) the aggregate number of shares of common stock subject to Awards granted under the 1997 Stock Plan during the last

fiscal year, and (b) the average per share exercise price or value of such Awards. As of April 19, 2010, the fair market value of PCTEL’s common stock is $6.80.

 

Awards Granted for the Fiscal Year Ended December 31, 2009

 

 

Federal Tax Aspects

 

The following paragraphs are a summary of the general federal income tax consequences to U.S. taxpayers and PCTEL of Awards granted under the 1997 Stock Plan. Tax consequences for any particular individual may be different.

 

Incentive Stock Options.  A participant recognizes no taxable income for regular income tax purposes as a result of the grant or exercise of an incentive stock option qualifying under Section 422 of the Code. Participants who neither dispose of their shares within two years following the date the option was granted nor within one year following the exercise of the option normally will recognize a capital gain or loss equal to the difference, if any, between the sale price and the purchase price of the shares. If a participant satisfies such holding periods upon a sale of the shares, PCTEL will not be entitled to any deduction for federal income tax purposes. If a participant disposes of shares within two years after the date of grant or within one year after the date of exercise (a “disqualifying disposition”), the difference between the fair market value of the shares on the exercise date and the option exercise price (not to exceed the gain realized on the sale if the disposition is a transaction with respect to which a loss, if sustained, would be recognized) will be taxed as ordinary income at the time of disposition. Any gain in excess of that amount will be a capital gain. If a loss is recognized, there will be no ordinary income, and such loss will be a capital loss. Any ordinary income recognized by the participant upon the disqualifying disposition of the shares generally should be deductible by PCTEL for federal income tax purposes, except to the extent such deduction is limited by applicable provisions of the Code.

 

The difference between the option exercise price and the fair market value of the shares on the exercise date is treated as an adjustment in computing the participant’s alternative minimum taxable income and may be subject to an alternative minimum tax which is paid if such tax exceeds the regular tax for the year. Special rules may apply with respect to certain subsequent sales of the shares in a disqualifying disposition, certain basis adjustments for

purposes of computing the alternative minimum taxable income on a subsequent sale of the shares and certain tax credits which may arise with respect to participants subject to the alternative minimum tax.

 

Nonstatutory Stock Options.  Options not designated or qualifying as incentive stock options will be nonstatutory stock options having no special tax status. A participant generally recognizes no taxable income as the result of the grant of such an option. Upon exercise of a nonstatutory stock option, the participant normally recognizes ordinary income equal to the amount that the fair market value of the shares on such date exceeds the exercise price. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of stock acquired by the exercise of a nonstatutory stock option, any gain or loss, based on the difference between the sale price and the fair market value on the exercise date, will be taxed as capital gain or loss. No tax deduction is available to PCTEL with respect to the grant of a nonstatutory stock option or the sale of the stock acquired pursuant to such grant.

 

Stock Appreciation Rights.  In general, no taxable income is reportable when a stock appreciation right is granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the fair market value of any shares of PCTEL common stock received. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.

 

Restricted Stock.  A participant acquiring restricted stock generally will recognize ordinary income equal to the fair market value of the shares on the vesting date. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. The participant may elect, pursuant to Section 83(b) of the Code, to accelerate the ordinary income tax event to the date of acquisition by filing an election with the Internal Revenue Service no later than 30 days after the date the shares are acquired. Upon the sale of shares acquired pursuant to a restricted stock award, any gain or loss, based on the difference between the sale price and the fair market value on the date the ordinary income tax event occurs, will be taxed as capital gain or loss.

 

Restricted Stock Unit Awards.  There are no immediate tax consequences of receiving an award of restricted stock units. A participant who is awarded restricted stock units will be required to recognize ordinary income in an amount equal to the fair market value of shares issued to such participant at the end of the applicable vesting period or, if later, the settlement date elected by the Administrator or a participant. Any additional gain or loss recognized upon any later disposition of any shares received would be capital gain or loss.

 

Performance Shares and Performance Unit Awards.  A participant generally will recognize no income upon the grant of a performance share or a performance unit award. Upon the settlement of such awards, participants normally will recognize ordinary income in the year of receipt in an amount equal to the cash received and the fair market value of any cash or non-restricted shares received. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value on the date the ordinary income tax event occurs, will be taxed as capital gain or loss.

 

Dividend Equivalent Awards.  A participant generally will recognize ordinary compensation income each time a dividend is paid pursuant to the dividend equivalent rights Award equal to the fair market value of the dividend received. If the dividends are deferred, additional requirements must be met to ensure that the dividend is taxable upon actual delivery of the shares, instead of the grant of the dividend.

 

Tax Effect for PCTEL.  PCTEL generally will be entitled to a tax deduction in connection with an award under the 1997 Stock Plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, the exercise of a nonstatutory stock option). Special rules limit the deductibility of compensation paid to the chief executive officer and other “covered employees” as determined under Section 162(m) and applicable guidance.

 

Section 409A.  Section 409A of the Code provides certain requirements for non-qualified deferred compensation arrangements with respect to an individual’s deferral and distribution elections and permissible distribution events. Awards granted under the 1997 Stock Plan with a deferral feature will be subject to the requirements

of Section 409A of the Code. If an award is subject to and fails to satisfy the requirements of Section 409A of the Code, the recipient of that award may recognize ordinary income on the amounts deferred under the award, to the extent vested, which may be prior to when the compensation is actually or constructively received. Also, if an award that is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on compensation recognized as ordinary income, as well as interest on such deferred compensation.

 

THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON PARTICIPANTS AND PCTEL WITH RESPECT TO THE GRANT AND EXERCISE OF AWARDS UNDER THE 1997 STOCK PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF A PARTICIPANT’S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.

PROPOSAL #3

 

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

 

The Audit Committee has appointed Grant Thornton LLP, independent registered public accounting firm, to audit the company’s financial statements for the fiscal year ending December 31, 2010. This appointment is being presented to the stockholders for ratification at the 2010 annual meeting of stockholders.

 

Before selecting Grant Thornton LLP as the independent registered public accounting firm for the company for fiscal year 2010, the Audit Committee carefully considered the firm’s qualifications as independent auditors. This included a review of the qualifications of the engagement team, the quality control procedures the firm has established and its reputation for integrity and competence in the fields of accounting and auditing. The Audit Committee’s review also included matters required to be considered under the SEC’s rules on auditor independence, including the nature and extent of non-audit services, to ensure that Grant Thornton LLP’s independence will not be impaired.

 

Grant Thornton LLP has been conducting independent audits of the company’s financial statements since May 2006. Representatives of Grant Thornton LLP are expected to be present at the 2010 annual meeting of stockholders. They will have the opportunity to address the audience at the meeting, and will be available to answer appropriate questions from stockholders.

 

Summary of Fees

 

The following table summarizes the approximate aggregate fees billed to the company or expected to be billed to the company by Grant Thornton LLP for the company’s 2009 and 2008 fiscal years:

 

 

 

 

Pre-Approval of Independent Auditor Services and Fees

 

The Audit Committee reviewed and pre-approved all audit and non-audit fees for services provided to the company by Grant Thornton LLP and has determined that the firm’s provision of such services to the company during fiscal year 2009 is compatible with and did not impair Grant Thornton LLP’s independence. It is the practice of the Audit Committee to consider and approve in advance all auditing and non-auditing services provided to the company by the independent registered public accounting firm in accordance with the applicable requirements of the SEC.

Vote Required and Recommendation

 

Stockholder ratification of the selection of Grant Thornton LLP as the independent registered public accounting firm for the company is not required by the company’s bylaws or other applicable legal requirement. However, the Board of Directors is submitting the selection of Grant Thornton LLP to the stockholders for ratification as a matter of good corporate practice. Notwithstanding the selection by the Audit Committee of Grant Thornton LLP or stockholder ratification of that selection, the Audit Committee may direct the appointment of a new independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in the best interest of the company and the stockholders. In the event of a negative vote on ratification, the Audit Committee will reconsider its selection.

 

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

 

The Board of Directors recommends that stockholders vote “FOR” the ratification of Grant Thornton LLP as the company’s independent registered public accounting firm.

 

CORPORATE GOVERNANCE

 

Board and Committee Meetings

 

The Board of Directors held a total of nine meetings during fiscal 2009, which includes two subcommittee meetings. Each of the two subcommittees was formed by the Board of Directors on an ad hoc basis and was comprised of three members, including the Chairman of the Board. The subcommittee’s task in each case was to assure that the final terms of an acquisition satisfied the conditions approved by the full Board of Directors and to give final approval of the transaction to management.

 

The Board of Directors currently has an Audit Committee, a Compensation Committee and a Nominating and Governance Committee. The members of each of the committees are listed in the table below. Each member of the Audit Committee, Compensation Committee and Nominating and Governance Committee meets the Nasdaq independence requirements. The Board of Directors has determined that Mr. Thomsen qualifies as an “audit committee financial expert” as defined under the rules and regulations of the SEC, and that all members of the Audit Committee meet the Nasdaq financial literacy requirements. During 2009, each of the directors attended at least 75% of the total number of meetings of the Board of Directors and any committee on which such director served.

 

 

A copy of each charter for the committees of the Board of Directors is available on the website located at www.pctel.com in the “Investor Relations” section under “Corporate Governance”.

 

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

Board Leadership Structure

 

The Board of Directors believes that their familiarity with the company, their insight into the industries in which the company is engaged, and their knowledge of the challenges and opportunities arising in this evolving economy place the Board of Directors in the best position to determine the optimal leadership structure for the company. The Board of Directors has determined that combining the role of Chairman of the Board and Chief Executive Officer is the optimal structure for the company at this time. Mr. Singer, who currently fills both roles, commenced his involvement with the company as a Director on the company’s Board in 1999, became the non-executive Chairman of the Board in February 2001, and subsequently became the Chief Executive Officer in October 2001. The Board of Directors believes that the stockholders are best served by Mr. Singer retaining both roles, thereby unifying the leadership and direction of the Board with the management of the company, and enabling the company to move decisively to meet challenges and maximize opportunities for growth. The Board of Directors maintains independent and effective oversight of the company’s business through the strong leadership provided by the Lead Independent Director and the Board committees, and through the composition of the Board, with all directors other than the Chairman being independent directors.

 

Independence

 

Currently the Board of Directors has seven members. The Board of Directors has determined that the six non-employee directors are “independent directors” based on the Nasdaq and SEC standards for independence. Only independent directors may serve on the Audit, Compensation and Nominating and Governance Committees.

 

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

 

Risk Management

 

The Board of Directors, as a whole and through its committees, has responsibility for the oversight of risk management. With the oversight of the full Board of Directors, the officers are responsible for the day-to-day management of the material risks that PCTEL faces. In its oversight role, the Board of Directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. The involvement of the full Board of Directors in setting the company’s business strategy at least annually is a key part of its oversight of risk management, its assessment of management’s appetite for risk and its determination of what constitutes an appropriate level of risk for PCTEL. The full Board of Directors regularly receives updates from management and outside advisors regarding certain risks facing the company, including litigation and various operating risks.

 

In addition, committees of the Board of Directors each oversee certain aspects of risk management. For example, the Audit Committee is responsible for overseeing risk management of financial matters, financial reporting, the adequacy of the risk-related internal controls, internal investigations and enterprise risks; the Compensation Committee oversees risks related to compensation policies and practices; the Compensation Committee and Audit Committee meet at least once annually in a joint session to discuss issues of risk management; and the Nominating and Governance Committee oversees governance related risks, such as board independence and conflicts of interest, as well as management and director succession planning. The committees report their findings to the full Board of Directors.

 

Senior management attend, as needed, Board of Directors and committee meetings and are available to address any questions or concerns raised by the Board on risk management-related and any other matters. Annually, the Board of Directors holds strategic planning sessions with senior management to discuss strategies, key challenges, and risks and opportunities for PCTEL.

Director Nomination Process

 

Stockholder Recommendations and Nominations.

 

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

 

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

 

In accordance with the advance notice provision in the bylaws, director nominations to be considered at the next annual meeting of stockholders must be received not less than 120 days prior to the date of the proxy statement for the previous year’s annual meeting of stockholders. For purposes of the 2011 annual meeting of stockholders, director nominations must be received by December 29, 2010.

 

Identifying and Evaluating Nominees for Director.

 

The Nominating and Governance Committee uses the following procedures for identifying and evaluating any individual recommended or offered for nomination to the Board of Directors:

 

 

 

The Nominating and Governance Committee requires the following minimum qualifications to be satisfied by any candidate recommended or offered for nomination to the Board of Directors:

 

 

Diversity

 

In evaluating the suitability of candidates for the Board of Directors, the Nominating and Governance Committee considers certain relevant factors in addition to the minimum qualifications listed above, including among other things, judgment, skill, diversity, knowledge of the communications industry, experience with

businesses and other organizations of comparable size, understanding of fiduciary and governance responsibilities in publicly held companies, actual or potential conflicts of interest, number of board positions held with other companies, and the particular needs of the Board of Directors or its committees to optimize their effectiveness. The Nominating and Governance Committee considers the diversity of the candidates, and of the Board of Directors as a whole, based on factors such as business background, experience and potential contributions to the Board of Directors. The Nominating and Governance Committee attempts to ensure that the Board of Directors is comprised of individuals with experience in industries that are complementary to PCTEL’s business and others with financial and accounting experience in order to bring diverse business experience, knowledge and perspectives to the Board of Directors.

 

Compensation of Directors

 

Cash and Stock Compensation.  In 2009, the non-employee directors received an annual cash retainer of $22,500 and shares of restricted common stock equivalent to $35,000. They also received $1,500 per Board meeting attended (unless the Board meeting was conducted by teleconference, in which case directors received $1,000 for each such telephonic meeting in which they participated) and $1,000 per committee meeting attended. In addition, the non-employee directors received the following additional shares of restricted stock:

 

 

All the grants of restricted stock to the non-employee directors, as described above, were awarded on the date of the annual meeting (i.e., June 9, 2009) and have no vesting period. The number of shares granted was based on the total dollar value divided by the closing price of the company’s common stock on Nasdaq on the date of grant.

 

Deferred Compensation Plan.  The non-employee directors are eligible to participate in the Board of Directors Deferred Compensation Plan. The principal purpose of the Board of Directors Deferred Compensation Plan is to provide retirement benefits and income tax deferral opportunities for the non-employee directors. The Board of Directors Deferred Compensation Plan permits the deferral of cash compensation that would otherwise be received by the non-employee directors for their service on the Board of Directors. Compensation that is deferred under the Board of Directors Deferred Compensation Plan will be paid out by the company upon the termination of a non-employee director’s service on the Board of Directors. If such termination occurs after the non-employee director has reached the age of 55, such non-employee director may elect to receive the deferred compensation in a lump sum, annually over 15 years, or over the lifetime of the non-employee director in no less than 20 guaranteed annual payments.

 

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

 

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

Non-Employee Directors’ Compensation for the Fiscal Year Ended December 31, 2009

 

 

 

 

Stockholder Communications with the Board of Directors

 

Stockholders who wish to communicate directly with the independent directors may do so by sending an e-mail message to the Vice President and General Counsel at general.counsel@pctel.com. The general counsel monitors these communications, consults with the current Lead Independent Director, and provides a summary of all received messages to the Board of Directors at its regularly scheduled meetings. Where the nature of the communication warrants, the general counsel may obtain more immediate attention of the appropriate committee or the Lead Independent Director, of independent advisors or of management. The general counsel may decide whether a response to any stockholder communication is necessary.

 

Attendance at the Annual Meeting of Stockholders

 

All directors are welcome to attend the 2010 annual meeting of stockholders and it is expected that the Lead Independent Director will be in attendance. At the 2009 annual meeting of stockholders, Mr. Singer was in attendance.

 

Code of Ethics

 

In September 2009, the Board of Directors approved revisions of the company’s Code of Ethics and Business Conduct (the “Code of Ethics”) and eliminated the Code of Ethics for Principal Executive and Key Financial Officers in order to merge the two codes of ethics into a consolidated code which serves both purposes. We satisfied the disclosure required under Form 8-K regarding an amendment to, or waiver from, a provision of the Code of Ethics by posting such information on the company’s website at www.pctel.com in the “Code of Ethics and Business Conduct” tab in the “Investor Relations” section under “Corporate Governance”.

 

Compensation Committee Interlocks and Insider Participation

 

During 2009, none of Richard C. Alberding, John R. Sheehan, or Brian J. Jackman was an officer or employee of PCTEL while serving as a member of the Compensation Committee. In addition, no executive officer of PCTEL served as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Board of Directors or Compensation Committee.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information regarding the beneficial ownership of the company’s common stock as of March 31, 2010 by:

 

 

Beneficial ownership is determined based on the rules of the SEC. Percent of beneficial ownership is based upon 19,092,062 shares of the company’s common stock outstanding as of March 31, 2010. In addition, options for shares of common stock that are exercisable as of March 31, 2010 or will become exercisable on or before May 30, 2010 (60 days subsequent to March 31), are treated as outstanding and beneficially owned by the person holding the options for the purpose of computing the percentage ownership of such person and are listed below under the “Number of Shares Underlying Options” column, but those option shares are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, PCTEL believes that the stockholders listed below have sole voting or investment power with respect to all shares listed beside each stockholder’s name, subject to applicable community property laws.

 

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

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

 

The original charter of the Compensation Committee was adopted by the Board of Directors in August 1999. The Compensation Committee has reviewed the charter on an annual basis and has modified it from time to time, most recently in May 2007, to clarify the responsibilities of the Compensation Committee in recognition of the company’s corporate governance needs as well as current industry requirements and practices. The charter of the Compensation Committee is located on the company’s website (www.pctel.com). It may be found in the “Investor Relations” section under “Corporate Governance”.

 

The Compensation Committee maintains minutes of its meetings, and reports to the Board of Directors on at least a quarterly basis to make the Board of Directors aware of significant matters that require its attention. The Compensation Committee met a total of seven times in 2009.

 

Responsibilities of the Compensation Committee

 

Acting on behalf of the Board of Directors, the Compensation Committee’s responsibilities are outlined in its charter and include the following:

 

 

Annual Compensation Process

 

The compensation of the CEO and all other executive officers and key managers is established prior to the end of the first quarter of the fiscal year. The Compensation Committee has full authority to determine the compensation of the executive officers and key managers of the company other than the CEO. The CEO’s compensation must be approved each year by the non-employee directors of the Board of Directors based on the recommendation of the Compensation Committee. In making its recommendation with respect to the CEO’s compensation, the Compensation Committee takes into consideration the results of a performance evaluation of the CEO for the preceding year. The annual evaluation of the CEO’s performance is based upon evaluation forms circulated by the Nominating and Governance Committee and completed by all non-employee directors with respect to the CEO’s performance, the business and financial performance of the company, the CEO’s success in executing the company’s near term objectives and long range strategies, and the quality of the CEO’s interaction with the Board of Directors, the management and the stockholders. At the time of this performance evaluation, the Compensation Committee solicits guidance from the Board of Directors as to the general elements that should be addressed in the CEO’s total

compensation package for the upcoming year. In addition, the Chair of the Committee, as well as the Lead Independent Director, will solicit comment from the CEO in the course of the Compensation Committee’s formulation of its recommendation.

 

The Compensation Committee uses its independent judgment utilizing the advice of The Delves Group, the Committee’s independent compensation consultant (described in “Compensation Philosophy — Survey Data, Peer Groups and Use of Industry Benchmarking Data” below and referred to hereinafter as the “Independent Compensation Consultant”), in formulating its recommendation to the Board of Directors with respect to the CEO’s compensation. The Compensation Committee’s discussions of the elements of compensation for the CEO are conducted in closed session, typically with its Independent Compensation Consultant in attendance but with no company employees present. The CEO is not permitted to participate in the deliberations by the Board of Directors in its evaluation of the Compensation Committee’s recommendation for CEO compensation.

 

The Compensation Committee also establishes the compensation for the executive officers (other than the CEO) and key managers. The CEO provides significant assistance to the Compensation Committee each year and attended five of the Compensation Committee’s seven meetings in 2009. The CEO assists the Compensation Committee by providing his insights as to the individual performance of each of the other executive officers and key managers whose compensation is determined by the Compensation Committee. In addition, the CEO and the Compensation Committee review the compensation data compiled by the Independent Compensation Consultant and, consistent with such data, the company’s compensation philosophy and the individual performance of the executive officer or key manager, the CEO makes a specific recommendation for the salary, bonus and equity components of such executive officer’s or key manager’s compensation. The Committee gives significant consideration to the recommendations of the CEO although it is not required to do so. After consulting with its Independent Compensation Consultant and the CEO, the Compensation Committee, in its discretion, sets the annual compensation for the executive officers and key managers.

 

Compensation Philosophy

 

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

 

 

It is the Compensation Committee’s practice to review at least annually all components of compensation for the executive officers and key managers to ensure that the amount and structure of total compensation for each is consistent with the compensation philosophies and objectives. Internal pay equity among the executive officers and key managers (i.e., the relationship that exists between the total compensation paid to the CEO to compensation

levels paid to other executive officers and key managers) is also a factor in the Committee’s assessment of total compensation.

 

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

 

Independent Compensation Consultant.  The Compensation Committee relies significantly upon the services of the Independent Compensation Consultant in applying its judgment as to appropriate levels and components of compensation for the executive officers and key managers in the company. In 2009, the Compensation Committee renewed the annual engagement of The Delves Group, an independent, Chicago-based compensation consulting firm as the Independent Compensation Consultant, to assist the Committee in establishing the company’s compensation goals and objectives, to provide relevant peer group and survey data on the compensation practices of other companies, and to advise on industry trends in executive compensation. The Committee first engaged The Delves Group in 2004 and has renewed this engagement each year. Although the fees of the Independent Compensation Consultant are paid by the company, the consultant is accountable and has direct reporting responsibility to the Compensation Committee. The Compensation Committee’s practice is to invite a representative of the Independent Compensation Consultant to attend substantially all Compensation Committee meetings. The Independent Compensation Consultant provides no services to the company other than the services it provides to the Compensation Committee.

 

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

 

The peer group information is designed to be more specific. The Independent Compensation Consultant, with assistance from the company’s management and guidance from the Compensation Committee, is responsible for selecting the companies that are included within this peer group and for compiling relevant executive compensation and corporate performance data. Although it is not possible to construct a group of companies with characteristics entirely similar to PCTEL, the Independent Compensation Consultant compiles data from companies that are similar in terms of industry sector, revenue level, market capitalization, operating and financial characteristics and other relevant factors.

 

The peer group of companies for 2010 consists of the 12 companies listed below, with 2008 revenues ranging from approximately $19 to $220 million and median 2008 revenues of approximately $104 million:

 

 

All of the companies listed above were also in the peer group used by the Compensation Committee in 2009. Three companies included in the peer group in 2009 were omitted from the 2010 peer group, two due to changes in ownership making the relevant information unavailable and the other due to financial difficulties experienced by such company.

 

The compensation data derived from this peer group, which was ranked by amount, consisted of annual and long-term compensation amounts representing yearly averages over a three-year period. The financial performance data derived from this peer group included revenue growth, EBA (earnings before amortization) and EBA margin,

EBITD (earnings before interest, taxes and depreciation), and TSR (total shareholder return). The Independent Compensation Consultant provided a comprehensive pay-for-performance analysis in connection with the Compensation Committee’s evaluation of executive compensation, comparing levels of compensation, expressed in dollars and percentages, against both compensation and performance data contained in the survey and peer group information.

 

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

 

Although peer group and industry benchmarks continue to provide the Compensation Committee with useful information, the recessionary environment in the United States and the relevant industries since the data was collected has resulted in the Compensation Committee also relying on other more current information provided by the Independent Compensation Consultant.

 

Principal Elements of Compensation

 

The principal elements included in executive compensation for the CEO, executive officers and key managers consist of:

 

 

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

 

Annual Bonuses under the Short Term Incentive Plan.  This plan is a performance-based bonus plan that awards annual cash or stock bonuses based on the achievement of corporate objectives or, for those participants not engaged solely in corporate functions, a combination of corporate and functional objectives, in each case tailored to specific growth and business goals established by management with the approval of the Compensation Committee and, with respect to the CEO, established by the Board of Directors. Executive officers and key managers are permitted to earn maximum potential bonuses expressed as a percentage of their annual salary. The bonus awarded each year is structured to be payable at lesser or greater amounts based on the company’s level of achievement of the identified performance objectives.

 

The Compensation Committee views the bonus component of executive compensation as its principal tool in structuring incentives designed to realize the company’s annual revenue and earnings objectives. The performance objectives that are the basis of awards under the Short Term Incentive Plan are in general tied to, or derived from, the company’s annual financial plan for the upcoming year as approved by the Board of Directors. As a result, awards under this plan tend to focus more on near term operational and financial objectives of the company. See the discussion below on page 37 under “Short Term Incentive Plan.”

Long-Term Incentives.  The company provides long-term incentives on an annual basis through the grant of restricted stock and stock options under its stock plans. The nature and terms of equity awards are determined by the Compensation Committee, based on the kinds of motivations that the Compensation Committee is seeking to establish. The Compensation Committee believes that it is important to structure a compensation package for the executive officers and key managers with a reasonable amount of compensation at risk, and accordingly has from time to time awarded stock options and performance-based restricted stock.

 

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

 

In 2005 the Compensation Committee began using restricted stock grants instead of stock options as the principal form of long-term incentive award for the executive officers and key managers. The Compensation Committee believes that restricted stock grants (i) can be more readily adapted to performance-oriented goals and objectives than stock options; (ii) provide greater motivational benefit in the hands of the company’s management and encourage focus on longer term results; (iii) promote increasing ownership of the company’s stock by management, and (iv) serve to retain executive officers and key managers. In addition, the use of restricted stock requires substantially fewer shares to achieve the same economic incentive as a stock option, thereby permitting the company to grant smaller awards and conserve the stock reserves under the company’s stock plans. Because restricted stock grants do not require the payment of an exercise price by the recipient, they have inherently greater value to the recipient.

 

Stock Ownership Guidelines

 

In order to align further the interests of the company’s executives with the interests of the stockholders, in March 2010 the Board of Directors adopted a policy prescribing ownership levels of PCTEL stock. The CEO is required to maintain PCTEL stock with a value equal to twice his annual salary and each other officer of the company reporting his/her stock ownership pursuant to Section 16 of the Securities and Exchange Act of 1934 is required to maintain PCTEL stock with a value equal to his/her annual salary. All officers of the company to whom this requirement applies will have an initial period of three years to achieve compliance.

 

Under the insider trading policy adopted by the company at the time of the initial public offering in 1999 and amended in October 2002 and December 2007, insiders are prohibited from trading in PCTEL’s common stock while in possession of material non-public information. To obviate the possibility of hedging the economic risk of ownership, this prohibition extends to trading in derivative securities of the company, including any put or call options.

 

Equity Incentive Plans and Terms of Grant

 

The company has traditionally provided long-term incentives to its executive officers and key managers through the grant of restricted stock and stock options under the 1997 Stock Plan. This Plan was approved by the stockholders at the time it was originally adopted in 1997; in 2006 material amendments to the 1997 Stock Plan (including an increase in the reserve of shares for issuance under the 1997 Stock Plan) were approved by the stockholders; on August 20, 2008 non-material modifications were made to the 1997 Stock Plan, effective January 1, 2009, to comply with regulations promulgated under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and to amend the Board of Directors’ compensation. The company is currently seeking stockholder approval of an amendment and restatement of the 1997 Stock Plan to, among other things, increase the reserve of shares under the Plan. (See Proposal #2 on page 10 for additional details.) In addition to the traditional long-term incentives provided through the 1997 Stock Plan, the company has adopted a Retention Plan for the named executive officers and certain key managers that has both performance-based and service-based components in order to create a strong retention inducement closely tied to performance. The Retention Plan is also provided through the 1997 Stock Plan.

Material Terms of Stock Option Grants.  Stock options granted to employees under the current 1997 Stock Plan have a term of 10 years and are exercisable over time, typically over a period of 48 months from the date of grant, subject to the continued employment of the recipient; however, stock options will have a term of seven years if Proposal #2 is approved by the stockholders. Under this 48-month exercisability schedule, there is a one year “cliff” period at the conclusion of which 25% of the shares subject to the option grant become exercisable; thereafter, the remaining option shares become exercisable in equal monthly increments over the balance of the four-year vesting period. All stock option grants made to the company’s employees, including officers, have an exercise price equal to the fair market value of the common stock on the date of grant, based on the trading price of the company’s common stock as reported by Nasdaq. The Compensation Committee and the Board of Directors have determined, as a matter of policy, that all stock option grants under the 1997 Stock Plan will be non-statutory options for federal tax purposes. A non-statutory option is taxable to the recipient upon exercise of the option to the extent that the fair market value of the stock on the exercise date exceeds the exercise price.

 

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

 

Material Terms of Service-Based Restricted Stock Grants.  Restricted stock grants typically vest in equal annual increments over four years from the date of grant, subject to the continued employment of the recipient. In some cases, restricted stock grants have been made with shorter vesting periods (two or three years) depending on the purpose for which they have been awarded, and in some cases restricted stock grants vest only at the end of a defined period (“cliff vesting”). Unlike stock options, as restricted stock grants vest there is no exercise price to be paid to enable the recipient of the grant to realize the value of the stock at the vesting date. As a result, even though the stock price of the company may drop below the price of the stock on the grant date of the restricted share, the share continues to hold residual value in the hands of the recipient. The fair market value of the restricted stock as it vests (based on the trading price of the stock) represents taxable gain to the employee at that time. The company requires the employee recipients to meet their statutory tax withholding obligations on each vesting date through the delivery of their vested shares net of the number of shares used to satisfy the withholding obligation.

 

Material Terms of Performance-Based Restricted Stock Grants.  In 2007 and 2008 the Compensation Committee awarded performance-based restricted stock grants to the CEO and the other named executive officers as an element of executive compensation; however, the Compensation Committee did not grant any performance-based restricted stock in 2009 due to the difficulty in long-term forecasting for that period. In 2010 the Compensation Committee did not award any restricted shares based solely on performance, but granted restricted share awards under the Retention Plan described below which have both a performance-based and service-based component. The principal terms of the performance-based incentive grants are summarized below on page 41 under “Long-Term Equity Incentives: Service-Based Stock Options and Service-Based and Performance-Based Restricted Stock”.

 

Material Terms of Long-Term Retention Plan.  For the past several years the Compensation Committee has reviewed various programs relating to retention of the executive team and in March 2010 the Compensation Committee adopted a Long-Term Retention Plan (the “Retention Plan”) to address both its concern regarding retention of certain executives and key managers given the reduction in salary and bonuses over the past few years despite focused and productive efforts by such executives and key managers, and its desire to drive revenue growth in this recessionary environment. The Retention Plan is structured with a performance-based restricted stock grant and a service-based vesting period. The performance-based restricted stock will be earned by the participants only if the company reaches or exceeds 14% revenue growth over its 2009 annual revenue. The amount of restricted stock earned is based upon the company’s actual annual 2010 revenue. See “Long-Term Equity Incentives: Service-Based Stock Options and Service-Based and Performance-Based Restricted Stock — 2010 Long-Term Incentives for the CEO” and “— 2010 Long-Term Incentives for Other Named Executive Officers” for the amount of restricted stock earned at different levels of annual revenue. Once earned, the restricted stock cliff vests on one of two future dates

(i.e., four years or seven years after the date of grant, each inclusive of the performance period) based upon the Compensation Committee’s approximation of estimated tenure. By combining performance and service components in the Retention Plan, the Compensation Committee intends to reward performance and encourage retention. The Retention Plan was adopted by the Board of Directors as a one-year program and may be re-adopted, modified or abandoned in 2011.

 

Accounting.  The company records a compensation charge equal to the value of each equity incentive award on the date of grant in accordance with FASB ASC Topic 718.

 

Administrative Protocols for the Grant of Equity Incentives

 

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

 

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

 

 

Administrative Protocols in Stock Option and Restricted Stock Grants.  The company adopted a Statement of Administrative Policy in November 2006, codifying approved procedures in respect of award grants under the 1997 Stock Plan and the 2001 Nonstatutory Stock Option Plan, as amended and restated on November 7, 2008, which the company uses to make awards to non-officer employees (“2001 Stock Plan”). This policy is administered by the Compensation Committee. The key elements of the policy are as follows:

 

 

 

2009 Company Financial Performance, Officer Responsibilities and 2010 Executive Compensation

 

A portion of executive compensation is tied to the company’s financial performance, which historically has been measured by annual revenue and EBTA (defined as the company’s income net of taxes, stock-based compensation, amortization of intangibles, goodwill impairment and restructuring charges). Beginning in 2009, the metrics for measuring the company’s financial performance were annual revenue and non-GAAP operating profit (defined as GAAP operating profit excluding the following items: stock-based compensation, amortization or impairment of intangible assets, restructuring costs, and the gain or loss on the sale or disposal of assets and/or product lines, including the related royalties). The difference between the two metrics is that non-GAAP operating profit excludes interest and the gain or loss related to the disposal of assets and/or product lines and the related royalties. The Compensation Committee made this change in 2009 in order to eliminate the impact of actions and circumstances that are not within management’s control on the company’s ability to achieve the planned financial performance. For example, in 2008 the foregone interest income due to the company’s stock buyback and the special dividend paid to stockholders, as well as the general decline in interest rates, all negatively impacted the calculation of EBTA.

 

For fiscal 2009, the company’s financial performance was below planned revenue. The company generated annual revenue of $56.0 million in 2009 as compared with planned revenue of $71.0 million. The company’s non-GAAP operating profit for 2009 was $1.4 million as compared with planned non-GAAP operating profit of $3.0 million. The difference between planned annual revenue and actual annual revenue and between planned non-GAAP operating profit and actual non-GAAP operating profit is primarily attributable to the worldwide economic decline, the reduction in wireless carrier capital expenditures, the dramatic drop in state and local budgets for public safety networks, and the lack of credit available to wireless equipment distributors and enterprises, all of which adversely impacted sales of the company’s products.

 

The company’s 2010 financial plan, initially adopted by the Board of Directors in November 2009, was subsequently revised upward by management and approved by the Board of Directors in April 2010 to account for acquisitions by the company and other significant events not contemplated at the time of formulation of the 2010 financial plan. For 2010, a portion of executive compensation will continue to be tied to the company’s financial performance pursuant to the 2010 financial plan, and revenue and non-GAAP operating profit will continue to be the metrics used to measure the company’s financial performance.

 

Mr. Singer recommended to the Compensation Committee changes to the elements of compensation to be paid to the company’s executive officers and key managers in 2010. These recommendations include a salary freeze for the executive officers together with an increase in the maximum potential bonus (which is partially paid in the

company’s common stock) in order to tie compensation more closely to performance. In addition, Mr. Singer recommended that the Compensation Committee adopt the Retention Plan comprised of performance-based restricted stock grants based upon the company’s revenue growth that, if earned, would have a service-based component. This Retention Plan will serve as an incremental motivational tool to drive revenue growth as well as a retention incentive for the executive officers and certain key managers. The Compensation Committee considered these recommendations in light of its ongoing discussions regarding compensation and retention and in consultation with the Independent Compensation Consultant. See the discussion beginning on page 33 under “Equity Incentive Plans and Terms of Grant-Material Terms of Long-Term Retention Plan” and on page 30 under “Compensation Philosophy-Independent Compensation Consultant”.

 

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

 

 

CEO Total Direct Compensation

 

Mr. Singer’s total direct target compensation for 2010, consisting of salary, target bonus and long-term incentives equates to $1,292,750 representing an increase from total direct target compensation of $890,975 and total direct actual compensation of $763,350 in 2009. The 2010 target level is aligned with the 75^th percentile of total direct compensation of comparable companies based on survey and peer group executive compensation information provided by the Compensation Committee’s Independent Compensation Consultant. In comparison to its peer group, PCTEL’s financial performance for 2009 was, in general, at or above the median based upon the most recent publicly available data collected by the Independent Compensation Consultant. The Committee believes that Mr. Singer’s total direct target compensation for 2010 is appropriate.

 

Executive Salaries

 

CEO Salary.  In 2008, Mr. Singer’s salary was maintained at $450,000 consistent with 2007 in recognition of the need to manage corporate operating expenses and to continue emphasis on stock appreciation and plan attainment as key elements of Mr. Singer’s overall compensation. In 2009, Mr. Singer’s salary was reduced by 6% to $425,000 as part of the overall cost reductions that the company undertook in response to the impact of the worldwide economic decline. Mr. Singer’s salary will remain at $425,000 in 2010.

Salaries for Other Named Executive Officers.

 

 

 

 

In 2009, the Compensation Committee accepted Mr. Singer’s recommendation and reduced the salaries for the current named executive officers by 2% to 8%, with the exception of Mr. Rugeles, whose salary remained at the 2008 level. In 2010, the Compensation Committee retained salaries at the 2009 level. The salary reductions have been part of the overall cost reductions the company has undertaken to reduce operating expenses in this recessionary environment.

 

Short Term Incentive Plan

 

The company pays annual bonuses to its executive officers and key managers under its Short Term Incentive Plan. The Short Term Incentive Plan for 2009 represented a continuation of the bonus structure that was originally conceived and implemented by the Compensation Committee in 2004. The annual bonuses were designed to:

 

 

Modifications have been made to the 2010 Short Term Incentive Plan as a result of the realignment of the company in 2010 along functional responsibilities rather than organizational units, as more fully discussed on page 35 under “2009 Company Financial Performance, Officer Responsibilities and 2010 Executive Compensation”. The 2010 Short Term Incentive Plan provides a direct link between management compensation and the achievement of annual corporate-level and functional goals.

 

Key Terms of Short Term Incentive Plan.  The amount of the bonus awarded pursuant to the Short Term Incentive Plan each year is based upon the achievement of goals established in connection with the company’s annual financial plan, as reviewed and approved by the Board of Directors for a particular year. These goals are approved by the Compensation Committee (or, in the case of the CEO, by the Board of Directors, upon the recommendation of the Compensation Committee) during the first quarter of the performance year.

 

In establishing performance goals under the Short Term Incentive Plan, the Compensation Committee takes into consideration the following factors:

 

 

Once the corporate and functional goals of the company have been established for a fiscal year, the Compensation Committee has awarded payment to the executive officers and key managers under the Short Term Incentive Plan in a manner that has been consistent with such goals.

 

Bonus Payments in Stock.  Bonuses awarded under the 2009 Short Term Incentive Plan were paid to executives and key managers entirely in immediately vested shares of the company’s common stock in lieu of cash. The Compensation Committee and Board of Directors have determined that approximately one-half of the bonuses paid to executives and key managers under the 2010 Short Term Incentive Plan will be paid in shares of the company’s immediately vested common stock and the remainder will be paid in cash. The Compensation Committee approves the use of common stock as the currency for payment of all or a portion of the bonuses under the Short Term Incentive Plan in part to increase the equity ownership of management in the company, which the Compensation Committee believes serves to more closely align the interests of management with those of the company’s stockholders. The number of shares paid to an employee is determined by dividing the amount of the stock portion of the bonus by the closing price of the company’s common stock on Nasdaq on the effective date of the award.

 

Summary of the 2009 Short Term Incentive Plan

 

In March 2009, the Compensation Committee and the Board of Directors adopted a 2009 Short Term Incentive Plan (the “2009 STIP”) with substantially the same structure as the 2008 Short Term Incentive Plan, except that the EBTA metric was replaced with non-GAAP operating profit. The performance measures used in the 2009 STIP were derived from the 2009 financial plan. The target bonus percentage was reduced from 40% of the maximum potential bonus in 2008 to 30% of the maximum potential bonus in 2009 to address deteriorating market conditions. As a result of the failure to achieve the 2009 financial plan, only one named executive officer actually received a bonus.

 

The participation in the 2009 STIP by the CEO and the other named executive officers is summarized below.

 

 

 

 

Summary of the 2010 Short Term Incentive Plan

 

The Compensation Committee and the Board of Directors adopted a 2010 Short Term Incentive Plan (the “2010 STIP”) in March 2010 with the same two corporate metrics as the 2009 STIP (although the weighting of the metrics has been adjusted, as described in the immediately succeeding paragraph). Over the past three years the Board of Directors has steadily decreased the percentage of the target bonus payable if the company achieves the financial plan so that the value of the bonus pool would not represent an increasing percentage of the company’s profit during a recessionary period. The 2010 STIP restores a portion of the reductions made in the target bonus percentage paid if the company achieves the 2010 financial plan. The target bonus percentage for 2010 if the company achieves the 2010 financial plan is 60% compared with 75% in 2007, 40% in 2008 and 30% in 2009; however, the company will have to increase non-GAAP operating profit (defined as GAAP operating profit excluding the following items: stock-based compensation, amortization and impairment of intangible assets and goodwill related to the company’s acquisitions, restructuring costs, and the gain or loss on the sale or disposal of assets) by more than 3.5 times over the 2009 actual non-GAAP operating profit and increase annual revenue by nearly 20% over 2009 actual annual revenue in order to meet the 2010 financial plan. This restoration and the accompanying freeze in salaries (following a reduction in salaries in 2009) is intended to tie compensation more closely to performance while maintaining the same relationship of the total bonus pool to the company’s non-GAAP operating profit.

 

The realignment of the company on a functional responsibilities model rather than a organizational unit model necessitates certain changes to the 2010 STIP. The goals established under the 2010 STIP for the CEO and Chief Financial Officer are weighted 100% in favor of corporate goals as has been the case in prior years, and the goals for the Senior Vice President of Sales and Marketing are also weighted 100% in favor of corporate goals in 2010. The corporate goal metrics are weighted 60% annual revenue and 40% non-GAAP operating profit as compared with 50% for each metric in 2009. The goals for the Vice President of Global Sales are allocated between corporate goals (as described in the preceding sentence) and applicable functional goals which are established by the Board of Directors related to his specific responsibilities and described in the following table. Each of the goals established under the 2010 STIP is consistent with the 2010 financial plan approved by the Board of Directors. The participation

in the 2010 STIP by the CEO and the other named executive officers and the goals set for each named executive officer for 2010 are summarized in the table below:

 

 

 

 

The Board of Directors adopted and the stockholders approved an Executive Compensation Plan for the CEO and the other named executive officers in 2007. This plan governs the 2010 STIP for purposes of Section 162(m) of the Code.

 

Achievement of 2010 Financial Plan.

 

The company’s 2010 financial plan contemplates overall financial performance that is significantly improved from the actual results for 2009. The 2010 financial plan is predicated on a substantial worldwide economic recovery as well as a recovery in the industries in which the company competes. Although the payment under the 2010 STIP if the 2010 financial plan is achieved will be higher than the payment would have been under the 2009 STIP if the company had achieved the 2009 financial plan, there will not be any payments for corporate goals under the 2010 STIP unless the company has achieved a 14% increase in revenue and more than doubles non-GAAP operating profit from actual 2009 results. Therefore, although the 2010 STIP is intended to establish financial and operational goals that are reasonably achievable and which lead to rational levels of compensation when compared with prior years, achievement of the established goals will be difficult if the economic recovery is weaker than forecasted and substantial revenue growth cannot be achieved. The Compensation Committee anticipates that it will be at least as challenging for the Vice President of Global Sales to achieve his assigned functional goals as it is to achieve the corporate goals, which he also shares with the other named executive officers. It is the Compensation Committee’s current expectation and intention that the payment in aggregate dollars to the participants in the 2010 STIP will be greater than the aggregate amounts paid out under the 2009 STIP given that none of the participants in the 2009 STIP received any payment except the Vice President and General Manager of Global Sales who received less than $20,000 under the 2009 STIP. As a result of the uncertainty of the strength or timing of the economic recovery, management of the company will not release annual guidance to the financial community relating to the company’s projected 2010 financial performance.

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

 

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

 

 

2009 Long-Term Incentives for the CEO.  In March 2009, upon the recommendation of the Compensation Committee, the Board of Directors approved a grant of 81,000 shares of service-based restricted stock to Mr. Singer that will vest in equal annual increments over four years, subject to his continued service. The increase in the number of shares of restricted stock from the 55,600 granted in 2008 was intended to create comparable economic value to the 2008 grant and is aligned with the 80,000 restricted share grant in 2007. The 2009 grant was below the median range for long-term incentives based on survey and peer group information provided by the Compensation Committee’s Independent Compensation Consultant. See “Compensation Philosophy — Survey Data, Peer Groups and the Use of Industry Benchmarking Data” on page 30 for a discussion of how the range is established.

 

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

 

 

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

 

The increase in restricted shares to the named executive officers from the 2008 restricted share grant was intended to create comparable economic value to the 2008 grant. The 2009 grant was below the median range for long-term incentives based on survey data provided by the Compensation Committee’s Independent Compensation Consultant. See “Compensation Philosophy — Survey Data, the Peer Groups and the Use of Industry Benchmarking Data” on page 30 for a discussion of how the range is established. The Compensation Committee did not award any performance-based restricted stock in 2009 due to the instability in the economic environment and the resulting difficulty in forecasting.

 

2010 Long-Term Incentives for the CEO.  The Board of Directors accepted the recommendation of the Compensation Committee in March 2010 to grant 80,000 service-based shares of restricted stock to Mr. Singer that will vest in equal annual increments over four years, subject to his continued service. This restricted stock grant is slightly decreased from the 81,000 shares granted in 2009. The 2010 grant is between the median and 75th percentile range for long-term incentives based on survey and peer group information provided by the Compensation Committee’s Independent Compensation Consultant.

The Compensation Committee has also introduced the 2010 Long-Term Retention Plan (the “Retention Plan”) adopted by the Board of Directors in March 2010. As stated in the section entitled “Equity Incentive Plans and Terms of Grant — Long-Term Retention Plan” above, the Retention Plan is structured with a performance-based restricted stock grant and a service-based vesting period. The performance-based restricted stock will be earned by Mr. Singer only if the company reaches or exceeds 14% revenue growth over the company’s 2009 annual revenue. The specific award to Mr. Singer for various levels of revenue growth under the Retention Plan is reflected in table below:

 

 

The number of restricted shares awarded will be pro-rated if actual annual revenue equals or exceeds 14% but falls between the revenue levels stated above. Once earned, the restricted stock will cliff vest in February, 2014 and will only be received by Mr. Singer if he continues to be an employee of the company on such date; provided that the restricted stock will cliff vest earlier if Mr. Singer were to retain only his role as Chairman of the Board.

 

2010 Long-Term Incentives for Other Named Executive Officers.  In March 2010, the Compensation Committee approved the grant of service-based restricted stock to the named executive officers identified below. The restricted stock vests in equal annual increments over four years.

 

 

The restricted shares granted to the named executive officers in 2010 are consistent with or below the 2009 grants. The 2010 grant in all cases is below the 75th percentile for long-term incentives, and in most cases is also below the median for long-term incentives, based on survey data provided by the Compensation Committee’s Independent Compensation Consultant. See “Compensation Philosophy — Survey Data, the Peer Groups and the use of Industry Benchmarking Data” on page 30.

 

The named executive officers will also participate in the Retention Plan introduced by the Compensation Committee in 2010 and described under “Equity Incentive Plans and Terms of Grant — Material Terms of Long-Term Retention Plan.” The table below sets forth the number of restricted shares granted in 2010 for each named executive officer. If earned, the restricted shares reflected below will cliff vest in February 2017 and will only be received by each named executive officer if he continues to be an employee of the company on such date.

 

 

Other Benefits

 

 

 

Change in Control and Severance Arrangements

 

The table below and the summary of retention arrangements related to benefits associated with a Change in Control of the company should be read in conjunction with the tables under the caption “Potential Payments Upon Termination as of December 31, 2009” on page 53.

 

 

 

 

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

 

The named executive officers and other key managers are also entitled to severance and related benefits in connection with the involuntary termination of their employment under their employment and/or severance agreements with the company. The principal severance benefits include salary continuation and company-paid healthcare benefits for a specified period of time. In addition, upon the occurrence of an involuntary termination (or, with respect to the CEO, death or disability), severance benefits include vesting of any service-based restricted shares which are scheduled to vest within the following 12 months, and immediate vesting of performance-based restricted shares in the amount targeted for vesting in the performance year in which termination, death or disability occurs.

 

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

 

Section 162(m) of the Internal Revenue Code

 

Under Section 162(m) of the Code, the company is able for federal tax purposes to deduct compensation paid to the CEO and the four other named executive officers only if the compensation for such officer is less than $1 million during the fiscal year, or is “performance-based,” as defined under Section 162(m). The Compensation Committee has considered the corporate tax deductibility limits under Section 162(m). Although it is the objective of the Committee to seek to qualify all executive compensation as deductible, the Committee has not adopted a policy with this objective in order to provide flexibility and to ensure that the executive compensation programs remain competitive.

 

In 2009, all compensation paid to the officers of the company was below the $1 million threshold under Section 162(m) for purposes of corporate tax deductibility.

 

Section 409A of the Internal Revenue Code

 

Section 409A of the Code, the final Treasury Regulations and the administrative guidance promulgated thereunder (collectively, “Section 409A”) regulate the tax treatment of non-qualified deferred compensation arrangements. These include requirements and/or regulations effective January 1, 2009 with respect to an individual’s election to defer compensation and the individual’s selection of the timing and form of distribution of the deferred compensation. Section 409A also generally provides that distributions must be made on or following the occurrence of certain events (e.g., the individual’s separation from service, a predetermined date, or the individual’s death). Section 409A imposes restrictions on an individual’s ability to change his or her distribution

timing or form after the compensation has been deferred. For certain individuals who are officers, Section 409A requires that such individual’s distribution commence no earlier than six months after such officer’s separation from service.

 

The Committee evaluated the various benefit plans and compensation arrangements that the company has in place for the executive officers and certain key managers, and approved modifications of these plans and arrangements as necessary to comply with final Section 409A regulations prior to their effective date.

 

Adjustment of Awards

 

The company’s financial statements and the related financial performance goals and measures used by the Compensation Committee as the basis for executive compensation have not been subject to subsequent revision or restatement. As a result, the Compensation Committee has never been required to consider an adjustment of an award. However, if such a circumstance were to occur, the Compensation Committee and the Board of Directors would consider all appropriate remedial measures, which may include the recovery of amounts that were inappropriately awarded to an individual executive officer or key manager.

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee of the Board of Directors has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K of the Securities Exchange Act of 1934, as amended, and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the company’s 2009 Annual Report on Form 10-K.

 

The Compensation Committee

 

Richard C. Alberding (Chair)
Brian J. Jackman
John R. Sheehan

 

EXECUTIVE COMPENSATION AND OTHER MATTERS

 

The following table presents the compensation of the Chief Executive Officer, Chief Financial Officer, and three other most highly compensated executive officers for the fiscal years ended December 31, 2009, 2008 and 2007. We refer to these individuals elsewhere in this proxy statement as “named executive officers.”

 

Summary Compensation Table

 

 

 

 

 

 

 

The following table provides information on plan-based awards granted in fiscal 2009 to each of the named executive officers.

 

Grants of Plan-Based Awards for the Fiscal Year Ended December 31, 2009

 

 

 

 

The following table shows the number of exercisable and unexercisable equity awards held by the named executive officers on December 31, 2009.

 

Outstanding Equity Awards at Fiscal Year End December 31, 2009