DEF 14A 1 d320271ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

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ON Semiconductor Corporation

 

 

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Keith D. Jackson

President and

Chief Executive Officer

 

LOGO

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To the Stockholders:

The Annual Meeting of Stockholders of ON Semiconductor Corporation will be held at our principal offices located at 5005 East McDowell Road, Phoenix, Arizona 85008 on Tuesday, May 15, 2012 at 4:00 p.m., local time, for the following purposes:

1. To elect three Class I Directors, each for a three-year term expiring at the Annual Meeting of Stockholders to be held in 2015 or until his successor has been duly elected and qualified, or until the earlier of his death, resignation or removal;

2. To vote on an advisory resolution to approve executive compensation;

3. To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the current year;

4. To approve an amendment to the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan to increase the number of shares available under the plan; and

5. To transact such other business as may properly come before the meeting and any adjournment or postponement of the meeting.

The Board of Directors has fixed the close of business on March 29, 2012, as the record date for determination of stockholders entitled to notice of and to vote at the Annual Meeting or any adjournment or postponement thereof. For ten days prior to the Annual Meeting, a list of stockholders entitled to vote at the Annual Meeting will be available for inspection in the offices of ON Semiconductor Corporation, Law Department, 5005 E. McDowell Road, Phoenix, Arizona 85008 between the hours of 8:30 a.m. and 5:00 p.m., local time, each weekday. Such list will also be available at the Annual Meeting. Directions for attending the Annual Meeting may be found on our website at www.onsemi.com.

Your vote is very important to us. Please vote as soon as possible by signing, dating and returning the proxy card in the enclosed postage-paid envelope or you may vote by internet, telephone or in person as described in the enclosed proxy statement.

 

Sincerely yours,

 

LOGO

April 5, 2012

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDERS MEETING TO BE HELD ON MAY 15, 2012.

 

The Company’s Proxy Statement for the 2012 Annual Meeting of Stockholders and its

Annual Report to Stockholders for the fiscal year ended December 31, 2011 are available at

www.onsemi.com/annualdocs.


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TABLE OF CONTENTS

 

              Page  

PROXY STATEMENT

    1     

MANAGEMENT PROPOSALS

    3     
  

Proposal No. 1: Election of Directors

    3     
     

Class I — Current Terms Expiring in 2012

    5     
     

Class II — Current Terms Expiring in 2013

    7     
     

Class III — Current Terms Expiring in 2014

    8     
  

Proposal No. 2: Advisory Resolution to Approve Executive Compensation

    9     
  

Proposal No.  3: Ratification of Appointment of Independent Registered Public Accounting Firm

    10     
     

Audit and Related Fees

    11     
  

Proposal No.  4: Amendment to the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan

    12     
     

General Information

    12     
     

Summary of Plan Features

    13     

EQUITY COMPENSATION PLAN INFORMATION

    22     

THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE

    23     
  

Committees of the Board

    23     
  

Compensation of Directors

    30     
  

Majority Voting for Directors

    32     
  

Other Board Matters

    33     
  

Corporate Governance Principles

    34     
  

Code of Business Conduct

    36     
  

Compliance and Ethics Program

    37     

COMPENSATION DISCUSSION AND ANALYSIS

    37     
  

Overview

    37     
  

Executive Summary

    37     
  

Compensation Philosophy and Guiding Principles

    40     
  

Purpose of Compensation

    40     
  

Processes and Procedures for Considering and Determining Executive Compensation

    41     
  

Elements of our Compensation Program

    47     
  

Other Elements Affecting Compensation

    55     
  

Impact of Taxation and Accounting Considerations on Executive Compensation

    56     
  

Other Matters Relating to Executive Compensation

    57     

 

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(continued)

 

               Page  

COMPENSATION COMMITTEE REPORT

     58     

COMPENSATION OF EXECUTIVE OFFICERS

     59     
  

Summary Compensation Table

     59     
  

Grants of Plan-Based Awards in 2011

     61     
  

2011, 2010, and 2009 Awards of PBRSUs

     62     
  

Outstanding Equity Awards At Fiscal Year-End 2011

     67     
  

2011 Option Exercises and Stock Vested

     68     
  

Employment, Severance, and Change in Control Agreements and Arrangements

     68     
  

Potential Payments Upon Termination of Employment or Change of Control

     75     

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     81     

AUDIT COMMITTEE REPORT

     81     

PRINCIPAL STOCKHOLDERS

     82     

SHARE OWNERSHIP OF DIRECTORS AND OFFICERS

     84     

RELATIONSHIPS AND RELATED TRANSACTIONS

     85     
  

Policies and Procedures

     85     
  

Related Party Transactions

     85     

SECTION 16(a) REPORTING COMPLIANCE

     85     
  

Section 16(a) Beneficial Ownership Reporting Compliance

     85     

MISCELLANEOUS INFORMATION

     86     
  

Solicitation of Proxies

     86     
  

Annual Report/Form 10-K

     86     
  

Stockholders Sharing the Same Address

     86     
  

Other Business

     87     
  

Stockholder Communications with the Board of Directors

     87     
  

Stockholder Nominations and Proposals

     87     

APPENDIX A

     A-1     

 

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ON SEMICONDUCTOR CORPORATION

5005 E. McDowell Road

Phoenix, Arizona 85008

PROXY STATEMENT

This statement and the accompanying notice and proxy card are furnished in connection with the solicitation by the Board of Directors (“Board”) of ON Semiconductor Corporation (“we” or the “Company”) of proxies to be used at its annual meeting of stockholders to be held on Tuesday, May 15, 2012 at 4:00 p.m., local time, at our principal offices located at 5005 East McDowell Road, Phoenix, Arizona 85008 and at any adjournment or postponement thereof (“Annual Meeting”). This statement and the accompanying notice and proxy card are first being mailed to stockholders on or about April 5, 2012.

Whether or not you plan to attend the Annual Meeting, the Board encourages you to vote your shares as more fully described in the proxy card and below.

If you are the “record holder” of your shares, meaning that you hold the shares in your own name and not through a bank or brokerage firm, you may vote in one of four ways:

Vote by internet. The website address for internet voting is on your proxy card. Internet voting is available 24 hours a day;

Vote by telephone. The toll-free number for telephone voting is on your proxy card. Telephone voting is available 24 hours a day;

Vote by mail.  Mark, date, sign and mail promptly the enclosed proxy card (a postage-paid envelope is provided for mailing in the United States); or

Vote in person. You may vote in person if you or your validly designated proxy attends the Annual Meeting.

If the shares you own are held in “street name” by a bank or brokerage firm, the bank or brokerage firm, as the record owner, will vote your shares according to your instructions. You will need to follow the directions your bank or brokerage firm provides you.

All shares represented by valid proxies will be voted as specified. If no specification is made, the proxies will be voted according to the Board’s recommendations below:

 

    

Proposal

  

Board
    Recommendation    

   
    1.     

Election of three Class I Directors, each for a three-year term expiring at the annual meeting of the Company’s stockholders to be held in 2015 or until his successor has been duly elected and qualified, or until the earlier of his death, resignation or removal

 

   FOR  
    2.     

Advisory resolution to approve executive compensation

 

   FOR  
    3.     

Ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the current year

 

   FOR  
    4.     

Amendment to ON Semiconductor Corporation Amended and Restated Stock Incentive Plan to increase the number of shares available under the plan

 

   FOR  

 

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We are not aware of any other matters that will be brought before the stockholders for a vote. If other matters properly come before the Annual Meeting, all shares validly represented by proxies will be voted in accordance with the discretion of the appointed proxies.

Record Date and Quorum

The Board has fixed the close of business on March 29, 2012, as the record date for determination of stockholders entitled to notice of and to vote at the Annual Meeting. As of the record date, there were 453,660,612 shares of our common stock outstanding and entitled to vote at the Annual Meeting.

The presence, in person or by proxy, of holders of a majority of the shares entitled to vote at the Annual Meeting will constitute a quorum. Abstentions, withheld votes and broker non-votes are included in determining whether a quorum is present for the meeting. Abstentions include shares present in person but not voting and shares represented by proxy but with respect to which the holder has abstained. Broker non-votes occur when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power on that item and has not received instructions from the beneficial owner. Although brokers have discretionary power to vote your shares with respect to “routine” matters, they do not have discretionary power to vote your shares on “non-routine” matters. As discussed in more detail below, we believe the following proposals will be considered non-routine and therefore your broker will not be able to vote your shares with respect to these proposals unless the broker receives appropriate instructions from you: Proposal No. 1 (Election of Directors), Proposal No. 2 (Advisory Resolution to Approve Executive Compensation), and Proposal No. 4 (Amendment to the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan). Broker non-votes will not be counted as either votes cast for or against a matter, but will be counted for purposes of determining a quorum for the meeting.

Required Vote

On February 16, 2012, the Board approved an amendment to the Company’s bylaws and Corporate Governance Principles to change the way our directors are elected. See “The Board of Directors and Corporate Governance— Majority Voting for Directors” below in this proxy statement. As a result, each Director standing for election at the Annual Meeting in Proposal No. 1 must be elected by a majority of the votes cast with respect to that Director’s election, meaning that the number of votes cast “for” the Director nominee must exceed the number of votes cast “against” that Director nominee. Abstentions and broker non-votes, as applicable, are not treated as votes cast and, therefore, will have no effect on Proposal No. 1. Any incumbent Director nominee who is not elected by majority vote shall promptly tender his resignation to the Board. The Corporate Governance and Nominating Committee, or such other Board committee designated by the Board, will make a recommendation to the Board on whether to accept or reject the resignation, or whether other action should be taken. In such a situation, the Board will act on the committee’s recommendation and publicly disclose its decision and the rationale behind its decision within 90 days from the date of the certification of the election results.

The affirmative vote of a majority of the votes duly cast on that item at the Annual Meeting is required to approve Proposal No. 2 (Advisory Resolution to Approve Executive Compensation), Proposal No. 3 (Ratification of Appointment of Independent Registered Public Accounting Firm) and Proposal No. 4 (Amendment to the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan). Abstentions and broker non-votes, as applicable, are not treated as votes cast and, therefore, will have no effect on Proposal Nos. 2, 3 and 4.

 

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Your broker is NOT able to vote on your behalf in any director election without specific voting instructions from you. In addition, your broker is not able to vote on your behalf on Proposal Nos. 2 and 4. Accordingly, we encourage you to vote your shares on Proposals Nos. 1, 2 and 4, as well as Proposal No. 3, either by returning your proxy by internet, mail or telephone so that your shares will be voted at the meeting if you cannot attend in person.

Revocation of Proxies

You may revoke your proxy at any time before it is exercised by submitting to our Secretary a written notice of revocation or a properly executed proxy bearing a later date, or by attending the Annual Meeting and voting in person.

MANAGEMENT PROPOSALS

Proposal No. 1:

Election of Directors

The Board is currently divided into three classes of Directors. Directors hold office for staggered terms of three years or until their successors are duly elected and qualified, or until the earlier of their death, resignation or removal. One of the three classes is elected each year to succeed the Directors whose terms are expiring. Class I Directors will be elected at the Annual Meeting to serve for a term expiring at the annual meeting in the year 2015. Due to his reaching the age of retirement set forth in the Company’s Corporate Governance Principles, Robert H. Smith, who is a current Class I Director, will not stand for re-election at the 2012 Annual Meeting. Each of the nominees has agreed to serve as a director if elected by the stockholders. The Class II Directors’ terms will expire in 2013. The Class III Directors’ terms will expire in 2014.

The Board has determined that a majority of our Board is independent according to the applicable rules of the Securities and Exchange Commission (“Commission”) and the listing standards of the NASDAQ Global Select Market (“NASDAQ”), including each of the following current Directors and nominees: J. Daniel McCranie, Atsushi Abe, Curtis J. Crawford, Ph.D., Bernard L. Han, Emmanuel T. Hernandez, Phillip D. Hester, Daryl A. Ostrander, and Teresa M. Ressel. The Board also determined that Robert H. Smith, who is retiring and will not stand for re-election at the Annual Meeting, is an independent director and that Francis P. Barton, who did not stand for re-election at the 2011 annual meeting but who served as a director until that date, was an independent director during the period of his service in 2011.

Transactions Considered in Independence Determinations.   Consistent with NASDAQ listing standards, in making its independence determinations, the Board considered transactions occurring since the beginning of 2009 between the Company and entities associated with the independent directors or members of their immediate family. The Board determined that no “categorical” bars to independence under NASDAQ listing standards applied to any of the non-employee directors. In making its determination that no relationships exist that, in the opinion of the Board, would impair the director’s independence, the Board considered the following transactions, relationships or arrangements: (i) the transactions, relationships or arrangements under the headings “Relationships and Related Transactions — Related Party Transactions” and “Management Proposals — Proposal 1: Election of Directors” included in our annual meeting proxy statements filed with the Commission on April 1, 2011 and April 9, 2010 and (ii) the associations certain of our non-employee Directors have with other companies in the semiconductor industry, as disclosed in their biographies and discussed further below.

In connection with clause (ii) above, in making independence determinations, the Board considered a category of transactions occurring since 2009 which involved the Company doing business with

 

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organizations in our industry that have a Company non-employee director serving in a board or management position.1 In each instance, the amounts paid to and received from each company (and ON Semiconductor) were significantly below the “categorical” bar to independence set forth in the NASDAQ listing standards, which uses a threshold of 5% of consolidated revenues of such entity. With the exception of the transaction with Cypress Semiconductor Corporation (“Cypress Semiconductor”), each of the below commercial relationships were in the ordinary course of business for ON Semiconductor and the other companies involved and were on terms and conditions available to similarly situated customers and suppliers. In particular, the Board considered the following transactions and relationships with respect to the independence of certain non-employee directors:

 

 

With respect to the independence of Mr. McCranie and Mr. Smith, the Board considered the Company’s continued activity with Virage Logic Corporation (“Virage Logic”) relating primarily to the purchase of new licenses and the payment of maintenance, renewal and royalty fees under license agreements between the Company and Virage Logic and between AMIS Holdings, Inc. (“AMI”) and Virage Logic (prior to the Company’s acquisition of AMI). Mr. McCranie was the President and Chief Executive Officer of Virage Logic from January 2007 to October 2008, was a director of Virage Logic from January 2007 until Virage Logic was purchased by Synopsys, Inc. (“Synopsys”) in September 2010, and served as the Executive Chairman of Virage Logic from October 2008 until Virage Logic was purchased by Synopsys in September 2010. Mr. Smith was a director of Virage Logic before its acquisition by Synopsys in 2010, and served in that position since 2003.

 

 

With respect to the independence of Mr. Hester, the Board considered sales to and purchases of supplies from National Instruments Corporation (“NIC”). Since December 2009, Mr. Hester has been the Senior Vice President of Research and Development of NIC.

 

 

Additionally, on December 22, 2008, the Company entered into a consulting agreement with Mr. Hester, which was later amended on April 22, 2009. Under the agreement, Mr. Hester provided research and development process related consulting services to the Company, on an hourly fee for service basis, starting on January 5, 2009 and ending on April 30, 2009.

 

 

With respect to the independence of Mr. Hernandez, the Board considered that Mr. Hernandez joined the Board of Directors of MEMC Electronic Materials, Inc. (“MEMC”) in May 2009. The Company purchases primarily silicon wafers and polysilicon from MEMC.

 

 

With respect to the independence of Mr. McCranie, the Board considered the purchase of the CMOS image sensor business unit from Cypress Semiconductor in February 2011. Mr. McCranie is a director of Cypress Semiconductor.

 

 

Additionally, with respect to the independence of Mr. McCranie, the Board also considered the sales of wafer, die and engineering services to Freescale Semiconductor Holdings I, Ltd. (“Freescale Semiconductor”) and certain of its subsidiaries. Mr. McCranie became a director of Freescale Semiconductor in March 2011.

 

 

1 In situations where the Company non-employee director’s interest was only related to his service as a director of the other company, Item 404 of Regulation S-K explicitly provides that a direct or indirect material interest does not exist for such director. In each other transaction where a determination was required, the Company non-employee director was determined not to have a direct or indirect material interest that would require disclosure under Item 404 of Regulation S-K as a “related party transaction.” Such determination included a consideration of any equity (or derivative rights) owned by the Company’s non-employee director in such other company.

 

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With respect to the independence of Ms. Ressel, the Board considered that Ms. Ressel was the Chief Executive Officer of UBS Securities LLC from 2007 to 2012 and that an affiliate of that entity provides certain cash management services to the Company, while another affiliate is a syndicate lender under the Company’s revolving credit facility.

Unless you withhold your vote or indicate otherwise on your proxy card, and except in a case of a broker non-vote, proxies will be voted FOR the election of the nominees. The Board has no reason to believe that any of the following nominees will be unable to serve. If, however, any one of them should become unavailable, the Board may reduce the size of the Board or designate a substitute nominee. If the Board designates a substitute, shares represented by proxies will be voted for the substitute nominee.

Set forth below is information concerning our nominees and other directors, including their business experience and public company directorships for the past five years.

In each biography below, we describe certain of the experiences, qualifications, attributes or skills that caused the Board to determine that the person should serve as a director of the Company as of the date of this proxy statement. In addition to the specific qualifications described below, we believe that each director has the integrity, honesty and adherence to high ethical standards necessary to set the “tone at the top” for our Company. Each is possessed of the business acumen and sound judgment that we believe are required for the proper functioning of our Board. Most of our directors also have significant other public company board experience that broadens their knowledge of board processes, issues and solutions.

In Proposal No. 1, you are asked to vote for each of the nominees for Class I directors listed below.

Class I — Current Terms Expiring in 2012

Atsushi Abe, 58.  Mr. Abe has served as a director of ON Semiconductor Corporation since February 2011. From December 2009 to the present, Mr. Abe has served as the managing partner of Sangyo Sosei Advisory Inc., a technology, media and telecommunication industry focused M&A advisory firm. From August 2004 to March 2009, he served as a partner at Unitas Capital (formerly CCMP Capital Asia and JP Morgan Partners Asia) and was responsible for investments in Japan and in technology companies generally. From August 1998 until July 2004, Mr. Abe worked for Deutsche Bank Group in San Francisco and in Tokyo as a managing director and held leadership positions including head of Global Corporate Finance in Japan, head of Global Semiconductor Investment Banking and head of TMT Investment Banking in Asia. From December 1992 through July 1998, Mr. Abe worked as a managing director for Alex Brown & Sons, Inc. in San Francisco and Tokyo, which was subsequently acquired by Deutsche Bank Group. Prior to joining Alex Brown & Sons, Inc., Mr. Abe spent over 14 years at Mitsui & Co., Ltd. where he held various management positions in the Industrial Electronics Division and Principal Investment Unit. Mr. Abe has served on the board of Edwards Group Limited, an UK based vacuum technology company, from May 2007 through October 2009.

Mr. Abe has extensive experience in the investment banking and private equity industry, particularly in the area of technology. Mr. Abe’s experience in M&A as well as in capital markets transactions provides valuable knowledge and perspective in financial transactions and negotiations. In addition, his familiarity with technology companies and businesses throughout Asia, including Japan, offers the Board unique insight.

Curtis J. Crawford, Ph.D., 64. Dr. Crawford has served as a director of ON Semiconductor Corporation since September 1999. Dr. Crawford served as ON Semiconductor’s Chairman of the Board from September 1999 until his resignation from that position in April 2002. Dr. Crawford is Founder, President and Chief Executive Officer of XCEO, Inc. (“XCEO”), a consulting firm specializing in leadership and

 

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corporate governance that provides mentoring and support for executives. Prior to founding XCEO, Inc., he was the President and Chief Executive Officer of Onix Microsystems, Inc., a developer and manufacturer of optically transparent switches for communication networks, from February 2002 to April 2003. From 1999 to March 2001, he was Chairman, and from 1998 to March 2001, he was President and Chief Executive Officer of Zilog, Inc., a semiconductor design, manufacturing and marketing company. From 1997 to 1998, Dr. Crawford was Group President of the Microelectronics Group and President of the Intellectual Property division of Lucent Technologies. From 1995 to 1997, he was President of the Microelectronics Group. From 1993 to 1995, Dr. Crawford was President of AT&T Microelectronics, a business unit of AT&T Corporation. From 1991 to 1993, he held the position of Vice President and Co-Chief Executive Officer of AT&T Microelectronics. From 1988 to 1991, he held the position of Vice President, Sales, Service and Support for AT&T Computer Systems. Prior to 1988, he served in various sales, marketing and executive management positions at various divisions of IBM. Dr. Crawford currently serves as a member of the board of trustees of DePaul University and as a member of the boards of directors of Xylem and E.I. du Pont de Nemours. In the past five years, Dr. Crawford has also served on the board of directors for Agilysys, Inc. and ITT Corp. Dr. Crawford is the author of three books on leadership and corporate governance.

Dr. Crawford is a long-time member of the Board with the resulting in-depth knowledge of the Company’s strengths and issues. He has extensive experience in the semiconductor industry. He not only has management and technology experience, including as a chief executive officer of a publicly held semiconductor company, but offers us his extensive knowledge of leadership and corporate governance.

Daryl A. Ostrander, 63.  Mr. Ostrander has served as a director of ON Semiconductor Corporation since February 2009. Mr. Ostrander has 35 years of experience in the semiconductor industry with expertise in semiconductor manufacturing, semiconductor technology, and production implementation of new products. From 1981 to 2008, Mr. Ostrander was the Senior Vice President, Manufacturing and Technology for AMD, a global provider of microprocessor solutions for the computing, communications and consumer electronic markets. Since 2008, Mr. Ostrander has operated his own enterprise, Ostrander Holdings, LLC. On February 1, 2010, Mr. Ostrander became a director of RF Micron, Inc., a private startup company focused on the development of next generation Radio Frequency Identifier (RFID) micro chips for itemized tracking applications. On February 3, 2011, Mr. Ostrander became a member of the advisory board for Correlated Magnetics Research, LLC, a company focused on development of correlated magnetic structures and programmable magnet technology. On June 6, 2011, Mr. Ostrander became a member of the advisory board for Caddie Central, LLC, a company that provides caddie tournament management and software services for resorts and golf tournaments.

Mr. Ostrander has extensive experience in the semiconductor industry. In addition to his management experience in a publicly held semiconductor company and his entrepreneurial experience, his focus on manufacturing processes offers the Board a different viewpoint.

Required Vote.   To be elected, each of the three Class I Director-nominees must receive the affirmative vote of the majority of votes cast, meaning that the number of votes cast “for” a director nominee must exceed the number of votes cast “against” that director nominee. Abstentions and broker non-votes are not treated as votes cast and, therefore, will have no effect on the proposal to elect Directors.

The Board of Directors recommends a vote “for” election of each of the

Class I Director-nominees in Proposal No. 1.

The individuals listed below are also presently serving as Directors.

 

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Class II — Current Terms Expiring in 2013

J. Daniel McCranie, 68.   Mr. McCranie has served as the Chairman of the Board of Directors of ON Semiconductor Corporation since August 2002 and as a Director since November 2001. Mr. McCranie served as Executive Chairman of Virage Logic, a provider of application optimized semiconductor intellectual property platforms, from October 2008 until it was purchased by Synopsys in September 2010. Previously, Mr. McCranie served as President and Chief Executive Officer of Virage Logic from January 2007 to October 2008, Executive Chairman of Virage Logic from March 2006 to January 2007, and Chairman of the Board of Directors of Virage Logic from August 2003 to March 2006. Prior to joining Virage Logic, from 1993 until his retirement in 2001, Mr. McCranie was employed in various positions with Cypress Semiconductor, a supplier of diversified, broadline semiconductor products, focusing on the communications industry, lastly as its Executive Vice President, Marketing and Sales. From 1986 to 1993, Mr. McCranie was President, Chief Executive Officer and Chairman of SEEQ Technology, Inc., a manufacturer of semiconductor devices. Mr. McCranie currently serves on the board of directors of Cypress Semiconductor and Freescale Semiconductor. Within the last five years, Mr. McCranie also served on the boards of directors of Virage Logic and Actel Corporation, a designer and provider of field programmable gate arrays and programmable system chips.

Mr. McCranie has extensive experience in the semiconductor industry, including management experience as a chief executive officer of two publicly held semiconductor corporations, with the resulting knowledge and understanding of what such a position entails. As a long-time member of our Board, Mr. McCranie has gained a deep understanding of the Company’s strengths and issues.

Emmanuel T. Hernandez, 56. Mr. Hernandez has served as a director of ON Semiconductor Corporation since November 2002. From April 2005 to November 2008, Mr. Hernandez served as the Chief Financial Officer of SunPower Corporation. He retired as Chief Financial Officer of SunPower Corporation in November 2008, but continued in a transition role at SunPower Corporation until January 2009. Prior to April 2005, Mr. Hernandez served for more than 11 years as the Executive Vice President of Finance and Administration and Chief Financial Officer for Cypress Semiconductor, having joined that company in 1993 as its Corporate Controller. Prior to that, Mr. Hernandez held various financial positions with National Semiconductor Corporation from 1976 through 1993. Mr. Hernandez currently serves on the board of directors of Aruba Networks, MEMC Electronic Materials, Inc., EnStorage, Inc., a private company that develops flow battery/storage technology for the renewable energy industry, Soraa, Inc., a private company that is developing LED and laser technology, and is an operating partner for Khosla Ventures. In addition, in the past five years, Mr. Hernandez has also served on the board of directors of Integration Associates.

Mr. Hernandez has extensive experience in the semiconductor industry. In addition, through his experience as chief financial officer of both a publicly held semiconductor company and a publicly held solar company, Mr. Hernandez has significant management experience and relevant knowledge of financial statement preparation and regulatory compliance. As a long time member of our Board, Mr. Hernandez has gained a deep understanding of the Company’s strengths and issues.

Teresa M. Ressel, 49.    Ms. Ressel has served as a Director of the Company since March 2012. Ms. Ressel served in executive roles for UBS from 2004 until earlier this year. She joined UBS Investment Bank in 2004 as the Chief Operating Officer, The Americas, was subsequently named the Chief Executive Officer of UBS Securities LLC in 2007, and was employed at various entities of UBS between 2004 and 2012. In those capacities, Ms. Ressel managed a broad array of supervisory control, regulatory, compliance, and logistics functions covering the United States and Canada, as well as banking activities intersecting the Americas. From 2001 until 2004, Ms. Ressel served at the United States Department of Treasury. She was confirmed by the United States Senate as the Ninth Assistant Secretary for

 

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Management and Budget of the United States Department of Treasury and was designated by Presidential directive as the Chief Financial Officer of the department, where she served in both capacities. From 2000 to 2001, Ms. Ressel provided private equity consulting services. From 1994 to 2000, Ms. Ressel was a Vice President and then Senior Vice President at Kaiser Permanente (“KP”). In various positions at KP, Ms. Ressel served as the Vice President, Corporate Audit and Corporate Environmental Health & Safety Programs; the Vice President and Chief Compliance Officer; and the Senior Vice President and Chief Operating Officer, e-Commerce. From 1990 until 1994, Ms. Ressel was employed with Hewlett Packard as a Corporate Program Manager, first within the Corporate Manufacturing Group, Palo Alto, California and subsequently Hewlett Packard Asia Pacific Ltd. Ms. Ressel has been a member of the Board of Trustees of the University of Connecticut Medical Center since 2009.

Ms. Ressel has significant experience in the financial industry as well as a technical background in engineering. As a senior executive in financial and non-financial industries she has extensive experience in the preparation of financial statements and regulatory and non-regulatory compliance in both the private and government sectors. She also brings to our Board of Directors broad international experience and she has knowledge of end-user market affiliations.

Class III — Current Terms Expiring in 2014

Keith D. Jackson, 56. Mr. Jackson was elected as a Director and appointed as President and Chief Executive Officer of ON Semiconductor Corporation in November 2002. Mr. Jackson has over 30 years of semiconductor industry experience. Before joining ON Semiconductor, he was with Fairchild Semiconductor Corporation, serving as Executive Vice President and General Manager, Analog, Mixed Signal, and Configurable Products Groups beginning in 1998, and, more recently, was head of its Integrated Circuits Group. From 1996 to 1998, he served as President and a member of the board of directors of Tritech Microelectronics in Singapore, a manufacturer of analog and mixed signal products. From 1986 to 1996, Mr. Jackson worked for National Semiconductor Corporation, most recently as Vice President and General Manager of the Analog and Mixed Signal division. He also held various positions at Texas Instruments Incorporated, including engineering and management positions, from 1973 to 1986. Mr. Jackson has served on the board of directors of the Semiconductor Industry Association since 2008 and joined the board of directors of Veeco Instruments Inc. in February 2012.

Mr. Jackson is our chief executive officer and as such, offers the Board his extensive experience in the semiconductor industry and intimate and detailed understanding of the day to day workings of our Company and the issues that it faces.

Phillip D. Hester, 56. Mr. Hester has served as a director of ON Semiconductor Corporation since August 2006. In December 2009, Mr. Hester was appointed as the Senior Vice President of Research and Development at NIC where he was an independent technology consultant from April 2008 to December 2009. From 2005 to April 2008, he served as the Chief Technology Officer at Advanced Micro Devices, Inc. (“AMD”). From approximately mid-2006 to April 2008, Mr. Hester had also been a Senior Vice President of AMD. From September 2005 to approximately mid-2006, Mr. Hester was a Vice President of AMD. In his positions with AMD, Mr. Hester was responsible for, among other things, setting the architectural and product strategies and plans for AMD’s microprocessor business. He also chaired the AMD Technology Council. Mr. Hester was a co-founder of Newisys, which is now a Sanmina-SCI company. From July 2000 to September 2005, Mr. Hester was the Chief Executive Officer of Newisys. Prior to July 2000, Mr. Hester spent 23 years at IBM serving in a variety of key leadership and executive technical roles. While at IBM, Mr. Hester led a number of system technology development efforts, including the RS/6000, and served as one of 15 members of the IBM Corporate Technology Council. Mr. Hester has over 30 years of system design and enterprise computing experience.

 

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Mr. Hester has extensive experience in the semiconductor industry, including with technological issues, strategies, and design. He also has had management experience as a chief technology officer and as a chief executive officer.

Bernard L. Han, 48.    Mr. Han has served as a Director of the Company since March 2012. Since April 2009, Mr. Han has served as the Chief Operating Officer of DISH Network Corporation (“DISH Network”) and is in charge of all operations and information technology functions for DISH Network. Mr. Han served as DISH Network’s Executive Vice President and Chief Financial Officer from September 2006 until April 2009 and as Chief Information Officer from 2006 to 2007. Mr. Han also served as EchoStar Corporation’s (“EchoStar”) Executive Vice President and Chief Financial Officer from January 2008 to June 2010 pursuant to a management services agreement between DISH Network and EchoStar. From October 2002 to May 2005, Mr. Han served as Executive Vice President and Chief Financial Officer of Northwest Airlines, Inc. (“Northwest”). Mr. Han was the Executive Vice President and Chief Financial Officer of America West Airlines (“America West”) in 2002 before transitioning to Northwest in that same year. While at America West, he worked in other senior level sales and marketing and financial planning positions within the company from 1996 through 2001. Prior to joining America West, Mr. Han worked in various director and financial manager positions at Northwest between 1991 and 1995.

Mr. Han has a strong financial and operations background, through his experience as chief operations officer and chief financial officer of various publicly held companies. Mr. Han also has significant strategic planning and general management experience across a variety of corporate functions.

Proposal No. 2:

Advisory Resolution to Approve Executive Compensation

As required by Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are asking for stockholder approval of the compensation of our Named Executive Officers (defined below under “Compensation of Executive Officers”). The Board of Directors recommends that stockholders approve such compensation by approving the following advisory resolution:

RESOLVED, that the stockholders of ON Semiconductor Corporation approve, on an advisory basis, the compensation of the Company’s Named Executive Officers identified in the Summary Compensation Table included in this proxy statement as such compensation is described pursuant to Item 402 of Regulation S-K in this proxy statement (which disclosure includes the Compensation Discussion and Analysis and the compensation tables and accompanying footnotes and narratives under the heading “Compensation of Executive Officers” in this proxy statement).

The principal objective of our compensation programs is to attract, retain and motivate highly talented individuals who will deliver competitive financial returns to our stockholders in the short term while also accomplishing our long-term plans and goals. The Company seeks to accomplish this goal by rewarding performance, both individual and corporate, in a way that is aligned with the Company’s and stockholders’ short and long-term interests. Consistent with this philosophy, a significant portion of the total compensation opportunity for each of our Named Executive Officers is performance-based and dependent upon the Company’s achievement of specified financial goals. The Company believes that its executive compensation program satisfies the Company’s goals. We describe our compensation policies and programs in more detail below in this proxy statement, including in the Compensation Discussion & Analysis (“CD&A”).

As an advisory vote, this proposal is not binding upon the Company. However, the Compensation Committee, which is responsible for designing and administering the Company’s executive compensation

 

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program, values the opinions expressed by stockholders. If there are a significant number of negative votes, we will seek to understand the concerns that influenced the vote, and will consider whether any actions are necessary to address those concerns. The Board has adopted a policy providing for an annual advisory vote to approve executive compensation. Unless the Board otherwise modifies this policy, the next advisory vote will be at the 2013 annual meeting of stockholders.

Required Vote.   The affirmative vote of a majority of the votes duly cast on this item is required to approve this proposal. Abstentions and broker non-votes are not treated as votes cast and, therefore, will have no effect on this proposal.

The Board of Directors recommends a vote “for” the advisory (non-binding) resolution to approve executive compensation in Proposal No. 2.

 

Proposal No. 3:

Ratification of Appointment of Independent Registered Public Accounting Firm

The Audit Committee of the Board has appointed PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”) as the independent registered public accounting firm (i) to audit our consolidated financial statements for the year ending December 31, 2012 and (ii) to render other services as required of them, including to report on the effectiveness of our internal control over financial reporting as of December 31, 2012, and is seeking ratification by the stockholders of this appointment.

A representative of PricewaterhouseCoopers is expected to be present at the Annual Meeting. The representative will have an opportunity to make a statement if such representative desires to do so, and will be available to respond to appropriate questions by stockholders.

Stockholder ratification of the selection of PricewaterhouseCoopers as our independent registered public accounting firm is not required by our bylaws or otherwise. Nonetheless, the Audit Committee is submitting the selection of PricewaterhouseCoopers to the stockholders for ratification as a matter of good corporate practice and because the Audit Committee values stockholders’ views on our independent auditors.

If the stockholders fail to ratify the election, the Audit Committee will reconsider the appointment of PricewaterhouseCoopers. Even if the selection is ratified, the Audit Committee, in its discretion, may appoint a different independent registered public accounting firm at any time during the year if it determines that such an appointment would be in our best interest and the best interest of our stockholders.

Required Vote.   The affirmative vote of a majority of the votes duly cast on this item is required to approve this proposal. Abstentions are not treated as votes cast and, therefore, will have no effect on this proposal.

The Audit Committee and the Board of Directors recommend a vote “for”

approval of Proposal No. 3.

 

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Audit and Related Fees

The Audit Committee reviews and approves audit and permissible non-audit services performed by PricewaterhouseCoopers, our independent registered public accounting firm, as well as the fees charged by PricewaterhouseCoopers for such services. In its review of non-audit services and fees and its appointment of PricewaterhouseCoopers as our independent registered public accounting firm, the Audit Committee considered whether the provision of such services is compatible with maintaining PricewaterhouseCoopers’ independence.

Fees Billed by PricewaterhouseCoopers. The table below sets forth the aggregate fees for audit and other services provided by PricewaterhouseCoopers for 2011 and 2010.

 

    

 Fee Type

  2011
 (in millions) 
                               2010
 (in millions) 
   
 

 Audit Fees (1)

    $4.8                  $2.5  
 

 Audit-Related Fees

  $0.0                  $0.0  
 

 Tax Fees (2)

    $0.9                  $1.0  
 

 All Other Fees

  $0.0                  $0.0  
     

 

                

 

 
 

 Total Fees

  $5.7                  $3.5  
     

 

                

 

 

 

(1)

Includes fees billed or expected to be billed for each of 2011 and 2010 for professional services rendered in connection with the audit of our consolidated financial statements, limited reviews of our interim consolidated financial information, audits of the financial statements of certain of our subsidiaries and joint ventures, and assistance with securities offerings, including the review of related documents, preparation of comfort letters and issuance of consents. The $2.3 million increase in 2011 is primarily related to the services rendered in connection with our acquisition of SANYO Semiconductor Co., Ltd. (“SANYO Semiconductor”) in January 2011, which included, among other audit procedures, the audit of the transaction and audits of certain acquired subsidiaries.

 

(2)

Includes fees billed for each of 2011 and 2010 for professional services rendered in connection with the preparation of our federal and state income tax returns as well as the income tax returns of certain of our subsidiaries worldwide, tax planning, tax advice, assistance with mergers and acquisitions, consultations relating to transfer pricing, and expatriate tax preparation and consultation fees.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services.  Under the Audit Committee charter, the Audit Committee must pre-approve all audit services and permitted non-auditing services (including the fees and terms thereof) to be performed by our independent registered public accounting firm, subject to the de minimus exceptions for non-audit services prescribed in the federal securities laws and regulations which are approved by the Audit Committee prior to the completion of the audit. The Audit Committee may delegate to one or more members of the Audit Committee authority to grant pre-approvals of audit and permitted non-audit services, provided that such decisions shall be presented to the full Audit Committee at its next scheduled meeting. During 2011 and 2010, all audit and permissible non-audit services were pre-approved by the Audit Committee pursuant to its charter.

The Audit Committee has determined that the provision of services described above is compatible with maintaining PricewaterhouseCoopers’ independence.

 

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Proposal No. 4:

Amendment to the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan

General Information

The Board adopted the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan (the “Amended and Restated Plan”) on March 23, 2010. The Amended and Restated Plan was approved by the Company’s shareholders at the 2010 Annual Meeting of shareholders held on May 18, 2010. The Amended and Restated Plan will expire on March 23, 2020 unless the shareholders of the Company approve an extension to the Amended and Restated Plan.

As of March 6, 2012, a total of 11,409,781 shares remain available for grant under the Amended and Restated Plan. This number consists of the 26,100,000 shares approved by the Company’s shareholders at the 2010 Annual Meeting, plus 4,081,314 shares which were previously subject to awards granted under the ON Semiconductor Corporation 2000 Stock Incentive Plan (“2000 SIP”) that became available for grant after February 17, 2010 and were added to the share pool pursuant to Sections 5.1 and 5.2 of the Amended and Restated Plan, less 17,757,893 shares subject to outstanding awards made under the Amended and Restated Plan since March 23, 2010 that have not terminated, expired, lapsed or been paid in cash, less 1,013,640 shares issued in connection with option exercises or vesting of full value awards (restricted stock units, restricted stock, performance shares, performance share units and stock grant awards). Consistent with the Amended and Restated Plan, the preceding share numbers reflect a fungible design ratio of 1:1.58, whereby the share pool is charged 1.58 shares for each share subject to a full value award issued under the Amended and Restated Plan (the “Fungible Design”).

On March 21, 2012, the Board adopted, subject to shareholder approval, an amendment to the Amended and Restated Plan that would increase the number of shares available for grant under the Amended and Restated Plan by 33,000,000 shares.

The Board believes that the Company’s success is due to its talented workforce and that its future success depends on the Company’s continued ability to attract and retain talented people. The ability to grant equity awards is a critical tool in the Company’s efforts to achieve this objective.

Based on estimated usage, the Compensation Committee anticipates depleting the shares currently available for issuance under the Amended and Restated Plan by the end of fiscal 2013. In order to continue to have an appropriate supply of shares for equity incentives to recruit, hire and retain the talent required to successfully execute our business plans, our Board believes that the additional 33,000,000 shares requested will provide the Compensation Committee with sufficient shares for our equity compensation program through fiscal years 2014 to 2016, depending on various factors. While adding 33,000,000 shares to the Amended and Restated Plan will increase the potential dilution to our current shareholders, our Board of Directors believes that our equity compensation plan is well-managed. If the amendment to the Amended and Restated Plan is not approved by the shareholders, awards will continue to be made under the Amended and Restated Plan as currently in effect to the extent shares are available.

The Company has followed a responsible approach to equity-based compensation in the past. As shown in the following table, the Company’s three-year average annual burn rate is 2.80%, well below the ISS Corporate Services burn rate cap of 5.83% applied to our industry, and the Company’s three-year unadjusted average annual burn rate is 1.53%. Shares are stated in millions, rounded to conform with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, where applicable.

 

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Year       Options
Granted
 

Stock Grant

Awards &

RSUs/RSAs

Granted

 

PBRSUs
Earned

(1)

  Unadjusted
Total ((d) =
(a) + (b) +
(c))
  Adjusted
Total (2)
  Weighted
Average
Number of
Common
Shares
Outstanding
(3)
  Unadjusted
Burn Rate =
Unadjusted
Total /
Common
Shares
Outstanding
 

 

Adjusted
Burn Rate =
Adjusted
Total /
Common
Shares
Outstanding
(2)

     (a)   (b)   (c)   (d)                    

 

2011 (4)    

 

 

1.1

 

 

1.7

 

 

5.3

 

 

8.1

 

 

15.1

 

 

446.7

 

 

1.81%

 

 

3.38%

 

2010 (5)    

 

 

1.8

 

 

1.5

 

 

5.0

 

 

8.3

 

 

14.8

 

 

431.0

 

 

1.93%

 

 

3.43%

 

2009 (6)    

 

 

0.5

 

 

0.6

 

 

2.5

 

 

3.6

 

 

6.7

 

 

420.8

 

 

0.86%

 

 

1.59%

 

3 year average 

 

 

1.53%

 

 

2.80%

 

(1)

Performance metrics for the performance-based restricted stock units (“PBRSUs”) are described in this proxy statement under the heading “Compensation of Executive Officers — 2011, 2010 and 2009 Awards of PBRSUs.”

 

(2)

Adjusted total includes column (d) as adjusted to reflect that ISS Corporate Services considers full-value awards to be more valuable than stock options. The adjustment is made based on the Company’s annual stock price volatility, such that 1 full value award will count as 2.0 option shares.

 

(3)

Rounded to the nearest $0.1 million as disclosed in the Company’s Annual Report on Form 10-K for each of 2011, 2010 and 2009.

 

(4)

During 2011, (i) approximately 1.7 million of restricted stock units (“RSUs”) or stock grant awards were granted and (ii) approximately 5.3 million PBRSUs vested and the underlying common stock was issued. PBRSUs granted during 2011 totaling approximately 3.6 million are not included here.

 

(5)

During 2010, (i) approximately 1.5 million of RSUs or restricted stock awards (“RSAs”) were granted and (ii) approximately 5.0 million PBRSUs vested and the underlying common stock was issued. PBRSUs granted during 2010 totaling approximately 2.5 million are not included here. In 2010, outstanding equity awards covering 2.9 million shares were assumed pursuant to the acquisition of California Micro Devices Corporation. These awards are not included in the number of options granted and/or RSUs/RSAs granted in 2010.

 

(6)

During 2009, (i) approximately 0.6 million of RSUs or RSAs were granted and (ii) approximately 2.5 million PBRSUs vested and the underlying common stock was issued. PBRSUs granted during 2009 totaling 14.4 million are not included here, except to the extent they are part of the 2.5 million shares that vested during the year.

Set forth below is a summary of the principal provisions of the Amended and Restated Plan, as amended by the proposed amendment. The summary is qualified by reference to the full text of the Amended and Restated Plan, as amended by the proposed amendment, which is attached to this proxy statement as Appendix A and is marked to show the changes to be made pursuant to the amendment.

Summary of Plan Features

Purpose. The Board believes that the Amended and Restated Plan will promote the success and enhance the long-term growth of the Company by aligning the interests of participants in the Amended and Restated Plan with those of the Company’s stockholders and by providing those individuals with an incentive for outstanding performance to generate superior returns for the Company’s stockholders. The Board also believes that the flexible terms and conditions of the Amended and Restated Plan, which

 

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permit the grant of various forms of equity and non-equity awards with a variety of terms and conditions, allow the Company to attract, retain and motivate individuals upon whose judgment, interest and effort the successful conduct of the Company’s operation is largely dependent.

Administration.   The Amended and Restated Plan provides that it will be administered by the Compensation Committee (the “Committee”). The Board, in its discretion, has the authority to designate another committee comprised of at least three members of the Board to administer the Amended and Restated Plan. Each Committee member (or member of any applicable subcommittee of the Committee) must be (i) a “non-employee director” as defined in Rule 16b-3 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), if required to meet the conditions of exemption for awards under the Amended and Restated Plan from Section 16(b) of the Exchange Act, and (ii) an “outside director” as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (“Code”) and the regulations issued thereunder. The Committee, by majority action, is authorized to interpret the Amended and Restated Plan, to prescribe, amend, and rescind rules and regulations relating to the Amended and Restated Plan, to provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company, and to make all other determinations necessary for the administration of the Amended and Restated Plan, to the extent they are not contrary to express provisions of the Amended and Restated Plan.

The Committee has the authority, without limitation, to determine (i) the participants who are entitled to receive awards under the Amended and Restated Plan; (ii) the types of awards; (iii) the times when awards shall be granted; (iv) the number of awards; (v) the purchase price or exercise price, if any; (vi) the period(s) during which such awards shall be exercisable (whether in whole or in part); (vii) the restrictions applicable to awards; (viii) the form of each award agreement; (ix) the other terms and provisions of any award; and (x) the schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an award and accelerations or waivers thereof, based in each case on such considerations as the Committee in its sole discretion determines. The Committee also has the authority to modify existing awards to the extent permitted under the Amended and Restated Plan. The Committee does not have the authority to accelerate the vesting or waive the forfeiture of any awards that are intended to qualify for the performance-based compensation exception to the compensation deduction limitations of Section 162(m) of the Code. Neither the award agreement nor the other terms and provisions of any award must be identical for each participant.

Pursuant to specific written delegation promulgated from time to time by the Committee in accordance with applicable state law and subject to certain restrictions and limitations, the Company’s Chief Executive Officer (“CEO”) has the authority to grant awards to individuals to expedite the hiring process and retain talented employees. However, the CEO does not have the authority to grant awards to any of the Company’s executives who are “covered employees,” as defined in Section 162(m) of the Code and the regulations issued thereunder, or to executives who are subject to Section 16 of the Exchange Act.

Stock Subject to the Amended and Restated Plan. As described under “General Information” above, the total number of shares of common stock available for grant pursuant to the Amended and Restated Plan as of March 6, 2012 was 11,409,781, which includes shares that terminated, expired or lapsed for any reason after February 17, 2010 through March 6, 2012 under the 2000 SIP and which again became available for grant under the Amended and Restated Plan pursuant to its Fungible Design. Under the proposed amendment to the Amended and Restated Plan, the number of shares available for grant under the plan would be increased by 33,000,000 for a total of 44,409,781 shares authorized for grant under the Amended and Restated Plan. This 44,409,781 share award pool will be increased by one share for each share subject to an option or SAR award under the 2000 SIP that either terminates, expires or lapses for any reason after March 6, 2012. Pursuant to the Fungible Design, the award pool also will be supplemented by 1.58 shares for each share that is subject to any full value award (restricted stock unit,

 

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restricted stock, performance share, performance share unit and stock grant awards) made under the 2000 SIP that either terminates, expires or lapses for any reason after March 6, 2012. The exercise of a stock-settled SAR or broker-assisted “cashless” exercise of an option (or a portion thereof) will reduce the number of shares of stock available for issuance pursuant to the Amended and Restated Plan by the entire number of shares of stock subject to that SAR or option (or applicable portion thereof), even though a smaller number of shares of stock will be issued upon such an exercise. Also, shares of stock tendered to pay the exercise price of an option or tendered or withheld to satisfy a tax withholding obligation arising in connection with an award will not become available for an additional grant or sale under the Amended and Restated Plan.

The maximum number of shares of stock that may be issued as incentive stock options under the Plan shall be 6,000,000. Shares delivered pursuant to the Amended and Restated Plan may consist of authorized but unissued stock, treasury stock, or stock purchased on the open market. The amount of stock reserved for grants pursuant to the Amended and Restated Plan is subject to adjustment in the event of certain changes in capital structure as described below under “Adjustment Provisions.”

Subject to the adjustment provisions of the Amended and Restated Plan, the maximum number of shares of stock subject to any option or SAR that may be granted to any one participant who is a “covered employee,” as defined in Section 162(m) of the Code and the regulations issued thereunder, during any Company fiscal year is 2,500,000 shares.

Eligibility. All employees, officers, non-employee directors of, and certain consultants to, the Company or an affiliate are eligible to participate in the Amended and Restated Plan. As of approximately March 6, 2012, there were approximately 18,500 employees, including officers and non-employee directors eligible to participate in the Amended and Restated Plan, subject to limitations of local law, tax policy and custom in certain foreign countries. Subject to certain requirements, prospective members of the Board, employees or officers of, and consultants to, the Company or an affiliate to whom awards are granted in connection with written offers of an employment, consulting or advisory relationship with the Company or an affiliate, also may be granted awards by the Committee.

The Committee has the authority to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of non-U.S. jurisdictions, to allow for tax-favored treatment of awards granted to participants who reside outside of the United States, or to otherwise provide for participation by participants who reside outside of the United States. The Committee also may approve any sub-plans, supplements to, or amendments, restatements or alternate versions of the Amended and Restated Plan as the Committee deems necessary to accomplish these purposes without affecting the terms of the Amended and Restated Plan as in effect for any other purpose, provided that these documents do not increase the share limitations set forth in Section 5.1 of the Amended and Restated Plan.

Awards Available Under the Amended and Restated Plan. Each of the following types of awards may be granted pursuant to the Amended and Restated Plan:

Stock Options. An option entitles the participant to purchase shares of stock in the future at a specified price. The Committee may grant both incentive stock options and nonqualified stock options under the Amended and Restated Plan. Incentive stock options will be granted only to participants who are employees. The exercise price of all options granted under the Amended and Restated Plan will be at least 100% of the fair market value of the common stock on the grant date. The “grant date,” as determined by the Committee, will be the latest to occur of (i) the date as of which the Committee approves an award; (ii) the date on which an award to a prospective employee, officer, non-employee director or consultant first becomes effective pursuant to the Amended and Restated Plan; or (iii) such other date as may be specified by the Committee in the award agreement. Stock options may be exercised as determined by the

 

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Committee, but no option may be exercised more than seven years from the grant date. The Committee will determine the methods by which the exercise price of an option may be paid, the form of payment, including, without limitation, cash, promissory notes, shares of stock held for longer than six months (through actual tender or by attestation), any net-issuance arrangement or other property acceptable to the Committee (including broker-assisted “cashless exercise” arrangements), and the methods by which shares of stock will be delivered or deemed delivered to participants. Special rules will apply to incentive stock options as provided in the Amended and Restated Plan. Unless otherwise provided in the award agreement, an option will lapse immediately if a participant’s employment or services are terminated for Cause, as defined in the Amended and Restated Plan. A participant will have no rights as a stockholder with respect to options until the shares of stock are actually issued in connection with the award.

Restricted Stock Units. A restricted stock unit award gives the participant the right to receive common stock or a cash payment equal to the fair market value of the common stock (determined as of a specified date) in the future, subject to certain restrictions and to the risk of forfeiture. Participants holding restricted stock units have no rights as a stockholder with respect to the shares of stock subject to their restricted stock unit award prior to the issuance of such shares pursuant to the award.

Restricted Stock. A restricted stock award gives the participant the right to receive a specified number of shares of common stock at a purchase price determined by the Committee (including and typically zero). Restrictions limit the participant’s ability to transfer the stock and subject the stock to a substantial risk of forfeiture until specific conditions or goals are met. The restrictions will lapse in accordance with a schedule or other conditions as determined by the Committee. Unless otherwise specified in the award agreement, if the participant terminates employment during the restriction period, the unvested restricted stock is forfeited. An award of restricted stock may include the right to vote the stock during the restriction period.

Performance Shares. A performance share award gives the participant the right to receive common stock if the participant achieves the performance goals specified by the Committee during a performance period specified by the Committee.

Performance Share Units. A performance share unit award gives the participant the right to receive common stock, a cash payment or a combination of stock and cash, contingent on achievement of certain performance goals specified by the Committee during a performance period specified by the Committee.

Performance Cash Awards. A performance cash award gives the participant the right to receive a cash payment if certain performance goals specified by the Committee are satisfied during a performance period specified by the Committee.

Stock Appreciation Rights. A stock appreciation right (“SAR”) gives the participant the right to share in the appreciation in value of one share of common stock. Appreciation is calculated as the excess, if any, of (i) the fair market value of a share of common stock on the date of exercise over (ii) the price fixed by the Committee on the grant date, which may not be less than the fair market value of a share of common stock on the grant date. Payment for SARs shall be made in stock. SARs are exercisable at such times and subject to such restrictions and conditions as the Committee approves, provided that no SAR may be exercised more than seven years following the grant date.

Stock Grant Awards. A stock grant award gives the participant the right to receive, or the right to purchase at a predetermined price, shares of common stock free from vesting restrictions. A stock grant award may be granted or sold as consideration for past services, other consideration or in lieu of cash compensation due to any participant.

 

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Performance Compensation Awards. When the Committee grants restricted stock, restricted stock units, performance shares, performance share units, performance cash awards and stock grant awards, it may designate the award as a “performance compensation award.” Performance compensation awards are designed to qualify for the “performance-based compensation” exception to the limitations on the deduction of compensation imposed by Section 162(m) of the Code. Section 162(m) of the Code only applies to “covered employees,” as that term is defined in Section 162(m) of the Code and the regulations issued thereunder. Therefore, only covered employees are eligible to receive awards that are designated as performance compensation awards. The Committee has complete discretion regarding whether to grant awards to covered employees that qualify for the “performance-based compensation” exception to Section 162(m) of the Code. Options and SARs granted pursuant to the Amended and Restated Plan are intended, by their terms, to qualify for the “performance-based compensation” exception. If the Committee designates a particular award as a “performance compensation award,” the Committee will endeavor to design and administer the award in a manner that will allow the award to qualify for the “performance-based compensation” exception under Section 162(m) of the Code. Nevertheless, the requirements of this exception are complex and in some respects ill-defined. Consequently, we cannot guarantee that compensation that is intended to qualify for the “performance-based compensation” exception under Section 162(m) will in fact so qualify.

A covered employee is only entitled to receive payment for a performance compensation award for any given performance period to the extent that pre-established performance goals set by the Committee for the period are satisfied. These pre-established performance goals must be based on one or more of the performance criteria specified in Section 2.1(bb) of the Amended and Restated Plan, a copy of which is attached to this proxy statement as Appendix A. Refer to Section 2.1(bb) of the Amended and Restated Plan for a complete list of the performance criteria. Some of the more significant performance criteria that the Company may rely on include: earnings before interest (income or expense), taxes, depreciation and amortization (“EBITDA”), earnings before interest (income or expense) and taxes (“EBIT”), pre- or after-tax net income, revenue, operating income, cash flow, operating cash flow, return on net assets, return on shareholders’ equity, return on assets, return on capital, stock price growth, shareholder returns, gross or net profit margin, earnings per share, price per share of stock and market share. In connection with that certain lawsuit filed in the United States District Court for the District of Delaware on December 15, 2010 brought by Robert A. Lorber, a stockholder of the Company, and pursuant to the Stipulation of Settlement entered into between the Company and Robert A. Lorber, which remains subject to court approval, the Company has agreed that it will not issue performance compensation awards based on the following performance criteria: standard hours, dealer size, dealer performance, channel size, purchase price variance, manufacturing overhead variance, brand awareness and perception, diversity, employee satisfaction, current accrued liabilities, invoiced revenue, collected revenue, economic value added, employee turnover, headcount, overtime hours, employee productivity, employee performance, and total preferred equity. The performance criteria may, but need not, be calculated in accordance with generally accepted accounting principles (“GAAP”) or any successor method to GAAP, including International Financial Reporting Standards. The performance criteria may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group, indices, or any other basket of companies.

With respect to any performance compensation award granted to a covered employee that qualifies for the “performance-based compensation” exception to the Section 162(m) limitation, the Committee has the discretion to select the length of the performance period (which may be one or more periods of time of varying and overlapping durations, over which the attainment of one or more performance goals will be measured), the type of performance compensation award to be issued, the kind and/or level of performance goal or goals and whether the performance goal or goals apply to the Company, an affiliate or any division or business unit of any of them, or to the individual participant or any group of participants. The Committee also has the discretion to evaluate the achievement of the performance goals

 

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in a manner that includes or excludes certain events that may occur during the performance period, as described in the Amended and Restated Plan. The Committee has the discretion to decrease the amount of compensation payable pursuant to any performance compensation award but may not increase the compensation payable pursuant to any performance compensation award. The Committee must certify in writing prior to the payment of any performance compensation award that the performance goals and any other material terms and conditions precedent to such payment have been satisfied.

The maximum amount of any performance compensation award that may be granted to a covered employee during any performance period (regardless of the length of the performance period specified by the Committee) is 2,500,000 shares of common stock. In addition, the maximum amount of cash payable under a performance compensation award to a covered employee for a performance period (regardless of the length of the performance period specified by the Committee) is the dollar amount determined by multiplying two million five hundred thousand (2,500,000) by the fair market value of one share of the Company’s stock as of the first day of the performance period.

Minimum Vesting Periods; Waiver of Restrictions. Full value awards, such as restricted stock, restricted stock units, performance shares and performance share units, are subject to minimum vesting periods. Full value awards that are subject to time-based vesting must have a vesting period of at least three years, while awards that are subject to performance-based vesting must have a vesting period of at least one year. These awards may vest in increments during the applicable vesting period. The Committee, in its discretion, may provide in the award agreement for any full value award that the award vests, in whole or in part, on the participant’s termination of employment due to death, disability, retirement or the occurrence of a change in control. The Committee may grant full value awards that are not subject to the minimum vesting requirements, provided that the number of shares of stock subject to these awards plus the number of shares of stock subject to stock grant awards do not exceed 10% of the shares of stock available for the grant of awards pursuant to the Amended and Restated Plan.

Restrictions. Except as described above, the Compensation Committee may impose such restrictions on any awards under the Amended and Restated Plan as it may deem advisable, including restrictions under applicable federal securities law, under the requirements of any stock exchange upon which the common stock is then listed and under any blue sky or state securities law applicable to the awards.

Change in Control. Upon a Change in Control (as that term is defined in the Amended and Restated Plan), the Board has the discretion to provide that all or part of outstanding options, SARs, and other awards shall become fully exercisable and all or part of the restrictions on outstanding awards shall lapse. Upon, or in anticipation of, such an event, the Committee may cause every award outstanding under the Amended and Restated Plan to terminate at a specific time in the future and shall give each participant the right to exercise awards during a period of time as the Committee, in its sole and absolute discretion, shall determine. We discuss some of our existing change in control arrangements under “Compensation of Executive Officers — Employment, Severance, and Change in Control Agreements and Arrangements” below in this proxy statement.

Non-transferability. The Committee may, in it sole discretion, determine the right of a participant to transfer any award granted under the Amended and Restated Plan. Unless otherwise determined by the Committee, no award granted under the Amended and Restated Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution or pursuant to a domestic relations order in favor of a spouse (that would otherwise qualify as a qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act of 1974, but for the fact that the order pertains to an award), or, if applicable, until the termination of any restricted or performance period as determined by the Committee.

 

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A participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the participant and to receive any distribution with respect to any award upon the participant’s death. If no beneficiary has been designated or survives the participant, payment will be made to the person entitled thereto under the participant’s will or the laws of descent and distribution. Subject to the foregoing, a participant may change or revoke a beneficiary designation at any time provided the change or revocation is filed with the Committee.

Adjustment Provisions. If there is a change in the outstanding shares of common stock because of a stock dividend or split, recapitalization, merger, consolidation, combination, exchange of shares, or other similar corporate change, the aggregate number of shares of stock available under the Amended and Restated Plan and subject to each outstanding award, and its stated exercise price or the basis upon which the award is measured, will be adjusted by the Committee. Moreover, in the event of such transaction or event, the Committee, in its discretion, may provide in substitution for any or all outstanding awards under the Amended and Restated Plan such alternative consideration (including cash) as it, in good faith, may determine to be equitable under the circumstances and may require in connection therewith the surrender of all awards so replaced. Any adjustment to an incentive stock option shall be made consistent with the requirements of Section 424 of the Code. Further, with respect to any option or SAR that otherwise satisfies the requirements of the stock rights exception to Section 409A of the Code, any adjustment shall be made consistent with the requirements of the final regulations promulgated pursuant to Section 409A of the Code.

Amendment, Modification and Termination of Amended and Restated Plan. The effective date of the Amended and Restated Plan is March 23, 2010, the date it was approved by the Board. Subject to the Board’s right to amend or terminate the Amended and Restated Plan at any time, the Amended and Restated Plan will expire and no award may be granted under the Amended and Restated Plan after the tenth anniversary of the effective date, March 23, 2020, unless the shareholders of the Company approve an extension of the Amended and Restated Plan. Any awards outstanding on the tenth anniversary of the effective date (or later expiration date approved by the Company’s shareholders) will remain in effect according to the terms of the award agreement and the Amended and Restated Plan.

The Board has discretion to terminate, amend or modify the Amended and Restated Plan at any time. Any such action of the Board is subject to the approval of the shareholders to the extent required by law, regulation or the rules of any exchange on which the common stock is listed, quoted or traded. To the extent permitted by law, the Board may delegate to the Committee or the CEO the authority to approve non-substantive amendments to the Amended and Restated Plan. Except as otherwise provided in the Amended and Restated Plan, the Board, CEO and the Committee may not do any of the following without shareholder approval: (i) reduce the purchase price or exercise price of any outstanding award, including any option or SAR; (ii) increase the number of shares available under the Amended and Restated Plan (except in connection with any adjustment made pursuant to the adjustment provisions described above); (iii) grant options with an exercise price that is below fair market value of a share of common stock on the grant date; (iv) reprice previously granted options or SARs; or (v) cancel any option or SAR in exchange for cash or any other award or in exchange for any option or SAR with an exercise price that is less than the exercise price for the original option or SAR.

The Amended and Restated Plan or any award agreement can also be amended to comply with Section 409A of the Code or to exclude or exempt the Amended and Restated Plan or any award from the requirements of Section 409A of the Code.

Tax Withholding. The Company will have the power to withhold, or require a participant to remit to the Company, an amount sufficient to satisfy federal, state, and local withholding tax requirements on any

 

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award under the Amended and Restated Plan. To the extent that alternative methods of withholding are available under applicable laws, the Company will have the power to choose among such methods.

Federal Income Tax Information. The following is a brief summary of certain of the federal income tax consequences of certain transactions under the Amended and Restated Plan based on current federal income tax laws, which are subject to change. This summary is not intended to be exhaustive and does not describe state, local, or foreign income tax consequences which may also be applicable.

As a general rule, with the exception of a stock grant, a participant will not recognize taxable income with respect to any award at the time of grant. A participant will recognize income on a stock grant award at the time of grant. If a participant who receives a restricted stock grant makes the election permitted by Section 83(b) of the Code, the participant will recognize income on the award at the time of grant.

Upon exercise of a nonqualified stock option, the lapse of restrictions on restricted stock, or upon the payment of SARs, restricted stock units, performance shares, performance share units, performance cash awards, or stock grant awards, the participant will recognize ordinary taxable income in an amount equal to the difference between the amount paid for the award, if any, and the fair market value of the stock or amount received on the date of exercise, lapse of restriction or payment. The Company will be entitled to a concurrent income tax deduction equal to the ordinary income recognized by the participant.

A participant who is granted an incentive stock option will not recognize taxable income at the time of exercise. However, the excess of the stock’s fair market value over the option price could be subject to the alternative minimum tax in the year of exercise (assuming the stock received is not subject to a substantial risk of forfeiture or is transferable). If a participant sells or disposes of the stock acquired upon the exercise of an incentive stock option after the later of two years from the date of grant, or one year from the date of exercise, the gain or loss (in an amount equal to the difference between the sales price and the exercise price) upon disposition of the stock will be treated as a long-term capital gain or loss, and the Company will not be entitled to any income tax deduction. If the holding period requirements are not met, the incentive stock option will not meet the requirements for this tax favored treatment and the tax consequences described for nonqualified stock options will apply.

Section 409A of the Code, among other things, expanded the definition of deferred compensation arrangements to include, for example, below market option and SAR grants, as well as restricted stock units, performance shares, performance share units, and performance cash awards. If awards that are subject to Section 409A fail to comply with Section 409A, a participant must include in ordinary income all deferred compensation conferred by the award, pay interest from the date of the deferral and pay an additional 20% tax. The award agreement for any award that is subject to Section 409A may include provisions necessary for compliance as determined by the Committee. The Company intends (but cannot and does not guarantee) that awards granted under the Amended and Restated Plan will comply with the requirements of Section 409A or an exception thereto and intends to administer and interpret the Amended and Restated Plan in such a manner.

Special Rules Applicable to Officers. In limited circumstances where the sale of common stock that is received as the result of a grant of an award could subject an officer to suit under Section 16(b) of the Exchange Act, the tax consequences to the officer may differ from the tax consequences described above. In these circumstances, unless a special election has been made, the principal difference usually will be to postpone valuation and taxation of the stock received so long as the sale of the stock received could subject the officer or director to suit under Section 16(b) of the Exchange Act, but not longer than six months.

 

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Tax Consequences to the Company or Its Affiliates. To the extent that a grantee recognizes ordinary income in the circumstances described above, the Company or the affiliate for which the employee performs services may be entitled to a corresponding deduction, provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Section 280G of the Code and is not subject to the $1 million deduction limit for certain executive compensation under Section 162(m) of the Code.

New Plan Benefits.   Benefits under the Amended and Restated Plan will depend on the Committee’s actions and the fair market value of the Company’s stock at various future dates. Consequently, it is not possible to determine the future benefits that will be received by the Amended and Restated Plan participants.

Prior Grants under the Amended and Restated Plan.  As of March 6, 2012, 13,885,646 shares subject to awards have been granted under the Amended and Restated Plan, not inclusive of adjustments for shares subject to full value awards as described in the general information above.

The below table represents all equity awards granted from the Amended and Restated Plan from adoption through March 6, 2012 to the Company’s Named Executive Officers, current executive officers who are not Named Executive Officers, Non-Employee Directors, and all other employees. The below amounts do not include adjustments for the Fungible Design of the Amended and Restated Plan.

 

Name         Shares  
Underlying  
Options (#)  
   

Shares Underlying  

Performance Based  

Awards (#) (1)  

   

 

Shares  
Underlying Stock  

and Time-Based  
Awards (#)  

 

 

Named Executive Officers:

                            

 

Keith D. Jackson,

President and Chief Executive Officer

      

 

 

 

476,191

 

  

 

 

 

 

778,095

 

  

 

 

 

 

238,095

 

  

 

Donald A. Colvin,

Executive Vice President and Chief Financial Officer

      

 

 

 

190,477

 

  

 

 

 

 

265,238

 

  

 

 

 

 

95,238

 

  

 

Robert Charles Mahoney,

Executive Vice President, Sales and Marketing

      

 

 

 

0

 

  

 

 

 

 

149,761

 

  

 

 

 

 

29,762

 

  

 

W. John Nelson, Ph.D.,

Executive Vice President and Chief Operating Officer

      

 

 

 

190,477

 

  

 

 

 

 

285,238

 

  

 

 

 

 

95,238

 

  

 

George H. Cave,

Senior Vice President, General Counsel, Chief Compliance & Ethics Officer and Secretary

      

 

 

 

79,366

 

  

 

 

 

 

119,682

 

  

 

 

 

 

39,682

 

  

 

Current executive officers (not including Named Executive Officers), as a group:

      

 

 

 

166,669

 

  

 

 

 

 

235,332

 

  

 

 

 

 

83,332

 

  

 

Directors, including nominees (who are not current executive officers), as a group:

      

 

 

 

20,000

 

  

 

 

 

 

0

 

  

 

 

 

 

142,992

 

  

 

All Employees (including officers who are not current executive officers), as a group:

      

 

 

 

3,176,040

 

  

 

 

 

 

2,938,169

 

  

 

 

 

 

4,090,572

 

  

 

(1)

Amounts shown in this column represent the number of PBRSUs granted under the Amended and Restated Plan assuming that the maximum level of performance goals are achieved. These amounts do not necessarily represent the number of shares used for expensing purposes or the number of units which are expected to vest. For example, as of December 31, 2011, approximately one-third of the PBSRUs awarded on March 7, 2011 and discussed under “2011, 2010 and 2009 Awards of PBRSUs” were expected to vest. The estimated number of units which are expected to vest are evaluated and adjusted each reporting period, as necessary, in connection with the Company’s quarterly and annual financial statements.

 

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Required Vote.  The affirmative vote of a majority of the votes duly cast on this item is required to approve this proposal. Abstentions and broker non-votes are not treated as votes cast and, therefore, will have no effect on the approval of this proposal.

The Board recommends a vote “for” the amendment to the Amended and Restated Plan described in Proposal No. 4.

 

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth equity compensation plan information as of December 31, 2011:

 

     Number of securities to be
issued upon exercise of
outstanding options, warrants 
and rights
 

Weighted-average exercise

price of outstanding

options, warrants and

rights (5)

 

 

Number of securities

remaining available for

future issuance under

equity compensation plans

(excluding securities

reflected in column (a))

     (a)   (b)   (c)

 

Plan Category:

           

 

Equity compensation plans approved by security holders (1)

 

 

23,160,006 (3)

 

 

$7.17

 

 

21,468,486 (6)

 

Equity compensation plans not approved by security holders (2)

 

 

5,214,056 (4)

 

 

$9.24

 

 

0

 

Total 

 

 

28,374,062

     

 

21,468,486

 

(1)

Consists of the Amended and Restated Plan, the 2000 SIP and the ON Semiconductor Corporation 2000 Employee Stock Purchase Plan (“ESPP”).

 

(2)

ON Semiconductor has assumed awards in accordance with applicable NASDAQ listing standards under the AMIS Holdings, Inc. Amended and Restated 2000 Equity Incentive Plan, which has not been approved by the Company’s stockholders but which was approved by the AMIS Holdings, Inc. stockholders. The Company has also assumed awards in accordance with applicable NASDAQ listing standards under the following plans, which have not been approved by the Company’s stockholders but which were approved by the Catalyst Semiconductor, Inc. stockholders: the Catalyst Options Amended and Restated 2003 Stock Incentive Plan, the Catalyst 2003 Director Stock Option Plan, and the Catalyst 1998 Special Equity Incentive Plan. The Company has also assumed awards in accordance with applicable NASDAQ listing standards under the following plans, which have not been approved by the Company’s stockholders but which were approved by California Micro Devices Corporation stockholders: the California Micro Devices Corporation 2004 Omnibus Incentive Compensation Plan, the California Micro Devices Corporation 1995 Non-Employee Directors’ Stock Option Plan, the California Micro Devices Corporation 1995 Employee Stock Option Plan and options granted under agreements between California Micro Devices and certain employees. Also included are shares that were added to the 2000 SIP as a result of the assumption of the number of shares remaining available for grant under the AMIS Holdings, Inc. Employee Stock Purchase Plan and AMIS Holdings Inc. Amended and Restated 2000 Equity Incentive Plan.

 

(3)

Includes 9,233,153 shares of common stock subject to RSUs that will entitle each holder to one share of common stock for each unit that vests over the holder’s period of continued service or based on the achievement of certain performance criteria. This column excludes purchase rights accruing under the ESPP that has a shareholder approved reserve of 15,000,000 shares. Under the ESPP, each eligible employee may purchase up

 

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to the lesser of (a) 500 shares of common stock or (b) the number derived by dividing $6,250 by 100% of the fair market value of one share of common stock on the first day of the offering period, as defined in the ESPP, during each three-month period at a purchase price equal to 85% of the lesser of the fair market value of a share of stock on the first day of the period or the fair market value of a share of stock on the last day of the period.

 

(4)

Includes 413,301 shares of common stock subject to RSUs that will entitle each holder to one share of common stock for each unit that vests over the holder’s period of continued service. These RSUs include the RSUs assumed in connection with acquisitions and RSUs that were granted from the shares that were added to the 2000 SIP as a result of the assumption of the number of shares remaining available for grant under the AMIS Holdings, Inc. Employee Stock Purchase Plan and AMIS Holdings Inc. Amended and Restated 2000 Equity Incentive Plan.

 

(5)

Calculated without taking into account shares of common stock subject to outstanding RSUs that will become issuable as those units vest, without any cash consideration or other payment required for such shares.

 

(6)

Includes 4,050,854 shares of common stock reserved for future issuance under the ESPP and 17,417,632 shares of common stock available for issuance under the Amended and Restated Plan as adjusted to account for full value awards which reduce the shares of common stock available for future issuance at a fungible ratio of 1:1.58 for each full value award previously awarded pursuant to the plan document. The 2000 SIP terminated on February 17, 2010, thus there are no available shares for future grants under the 2000 SIP.

 

THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE

The Board met 5 times last year and the committees, including any special committees, of the Board held a total of 30 meetings. Each director serving during 2011 attended at least 75% of the aggregate of all Board and applicable committee meetings held during 2011. We do not currently have a policy with regard to Directors’ attendance at the Annual Meeting of Stockholders; however, two Directors, Messrs. McCranie and Jackson attended the annual meeting of stockholders on May  11, 2011.

Committees of the Board

Our current Board standing committees and membership is as follows:

 

   

 

Corporate

Governance and

Nominating

Committee

 

Audit

Committee**

 

Compensation
Committee**

 

Executive

Committee

 

Integration

Oversight

Committee

 

Science and

Technology

Committee

  Curtis J. Crawford*  

Emmanuel T.

Hernandez*

  Robert H. Smith*   J. Daniel McCranie*   Atsushi Abe*   Phillip D. Hester*
  Philip D. Hester   Curtis J. Crawford   Curtis J. Crawford   Curtis J. Crawford  

Emmanuel T.

Hernandez

  J. Daniel McCranie
  J. Daniel McCranie   Robert H. Smith   J. Daniel McCranie   Phillip D. Hester   Daryl A. Ostrander   Daryl A. Ostrander
  Daryl A. Ostrander   Atsushi Abe**   Atsushi Abe**   Keith D. Jackson    
    Teresa M. Ressel **        

 

*

Denotes the Chairman of such committee.

 

**

As described above, for personal reasons, Mr. Barton chose not to stand for re-election at the 2011 Annual Meeting. He remained a Director and Audit Committee member until the 2011 Annual Meeting. Due to his reaching the age of retirement, Mr. Smith will not stand for re-election at the 2012 Annual Meeting. He will remain a Director and Audit Committee and Compensation Committee member until the 2012 Annual Meeting. Mr. Abe joined the Audit Committee and Compensation Committee on March 21, 2012. Ms. Ressel was appointed to the Board on March 21, 2012 and joined the Audit Committee effective that same day.

 

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Audit Committee.   The Audit Committee, established pursuant to Section 3(a)(58)(A) of the Exchange Act, has a formal written charter, a copy of which is available on our website at www.onsemi.com. The adequacy of this charter is reviewed at least annually.

Our Audit Committee has the specific purpose under its charter to:

 

 

monitor the integrity of the corporate accounting and financial reporting processes of the Company and the audits of the financial statements;

 

 

provide to the Board the results of its monitoring and recommendations derived therefrom;

 

 

outline to the Board changes made, or to be made, in internal accounting controls noted by the Audit Committee;

 

 

appoint, determine funding for, and oversee our independent registered public accounting firm;

 

 

review the independence, qualifications and performance of our internal and independent auditors;

 

 

oversee that management has the processes in place to assure our compliance with applicable corporate policies, and legal and regulatory requirements that may have a material impact on our financial statements; and

 

 

inform the Board and appropriately provide information and materials on significant matters that require the Board’s attention.

Among other things, the Audit Committee has the specific authority and responsibility under its charter to:

 

 

pursuant to the Commission’s rules, establish procedures for (i) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters;

 

 

review and oversee related party transactions to the extent required under applicable federal securities laws and related rules and regulations or NASDAQ rules, unless such transactions are submitted to another comparable independent body of the Board;

 

 

discuss with management our major financial risk exposures and the steps we have taken to monitor and control such exposures, including related risk assessment and risk management policies as they relate to the Audit Committee’s responsibilities; and

 

 

review and discuss with management and the independent auditor the annual audited financial statements, including disclosures made in management’s discussion and analysis, and recommend to the Board whether the audited financial statements should be included in our annual report.

The Audit Committee has other specific responsibilities under its charter, including its policies and procedures for pre-approval of auditing services and permitted non-auditing services (including the fees and terms thereof) of our independent registered public accounting firm. The Audit Committee also has authority and responsibility, as provided in its charter, over various other financial statement and disclosure matters, other items associated with the Company’s independent registered public accounting

 

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firm, and additional events associated with the Company’s internal audit and compliance functions. To the extent it deems necessary or appropriate, the Audit Committee may retain independent legal, accounting or other advisors, with appropriate funding related thereto to be provided by the Company.

The Board has determined that each member of the Audit Committee during 2011 is independent within the meaning of applicable Commission rules and the listing standards of NASDAQ. The Board has also determined that each current member of the Audit Committee is financially competent under the current listing standards of NASDAQ. The Audit Committee includes at least one independent Director, Emmanuel T. Hernandez, who has been determined by the Board to meet the qualifications of an “audit committee financial expert” in accordance with Commission rules and similar financial sophistication rules under NASDAQ listing standards. See “Proposal No. 1: Election of Directors – Class II – Current Terms Expiring in 2013” above for more information regarding Mr. Hernandez’s experience. See also “Audit Committee Report” below for more information on this committee. The Audit Committee met eight times in 2011.

Compensation Committee.  The Compensation Committee has a formal written charter, a copy of which is available on our website at www.onsemi.com. The adequacy of this charter is reviewed at least annually.

Among other things, our Compensation Committee has the specific purpose under its charter to:

 

 

discharge the Board’s responsibilities relating to the application of compensation policies and all elements of compensation of the CEO, other executive officers and any other employees whose total compensation is substantially similar to such other officers, and non-employee Directors (“Outside Directors”); and

 

 

administer the Company’s stock option and other equity-based plans, all other short-term and long-term incentive plans, and any deferred compensation programs of the Company.

Among other things, our Compensation Committee has the specific authority and responsibility under its charter to:

 

 

annually review and approve corporate goals and objectives relevant to the compensation of each of our CEO and senior executives, evaluate each of our CEO and senior executive’s performance in light of those goals and objectives, establish the compensation level for each of our CEO and senior executives based on this evaluation, subject to any employment agreements that may be in effect (the CEO may not be present during deliberation or voting concerning the CEO’s compensation);

 

 

review and approve or recommend to the Board for approval any employment agreement with the CEO and any senior executive;

 

 

periodically review and establish compensation for Outside Directors for service on our Board and its committees;

 

 

review the competitive position of, and recommend changes to, the plans, systems and practices of the Company relating to compensation and benefits;

 

 

make recommendations to the Board with respect to equity-based plans and any equity compensation arrangements outside of such plans (pending stockholder approval where appropriate);

 

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administer the stock option and other equity-based plans, all other short-term and long-term incentive plans, and any deferred compensation programs of the Company, and approve or review the designation of participants in the plans and the principles and procedures used in determining grants and awards under the plans;

 

 

retain or terminate any compensation consultants or other advisors to assist the Compensation Committee in evaluating any aspect of CEO, senior executive or Outside Director compensation or on any other subject relevant to its responsibilities, including the authority to approve such consultant’s or advisor’s fees;

 

 

review insurance coverage for directors and officers and make recommendations to the Board with respect to such insurance;

 

 

obtain or perform an annual evaluation of the Compensation Committee’s performance; and

 

 

consider and discuss with management whether compensation arrangements for Company employees incentivize unnecessary and excessive risk taking.

Pursuant to its charter, the Compensation Committee also prepares an annual report required by the rules of the Commission for inclusion in our proxy statement. This report is included below immediately following the CD&A in this proxy statement.

The Amended and Restated Plan approved by our stockholders at our 2010 annual meeting of stockholders and contemplates that pursuant to a specific written delegation of authority by the Compensation Committee, the CEO may grant awards to individuals who are not “Covered Employees” or subject to Section 16 of the Exchange Act to expedite the hiring process and retain talented employees. We describe the role of executive officers in determining or recommending the amount or form of executive compensation in the CD&A under “Processes and Procedures for Considering and Determining Executive Compensation — Role of Senior Officers in Determining Executive Compensation.” The role that officers play in determining or recommending the amount or form of director compensation is generally consistent with that description.

The Compensation Committee has regularly and directly engaged a compensation consultant to assist in recommending the form and amount of executive and director compensation. In April 2010, the Compensation Committee engaged Frederic W. Cook & Co., Inc. (“Cook”) to assist in recommending the form and amount of executive and director compensation. In May 2011, the Compensation Committee retained Meyercord & Associates (“Meyercord”) as its primary compensation consultant. Additional information regarding the Compensation Committee’s retention and use of the consultants can be found in “Compensation of Directors — Discussion of Director Compensation” and in the CD&A in “Processes and Procedures for Considering and Determining Executive Compensation — Role of Compensation Consultants.”

The Board has determined that each current member of the Compensation Committee is independent within the meaning of applicable Commission rules and the listing standards of NASDAQ. The Compensation Committee met nine times in 2011.

Executive Committee.    The Executive Committee has a formal written charter, a copy of which is available on our website at www.onsemi.com.

Our Executive Committee has the specific purpose under its charter to:

 

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exercise between meetings of the Board all the delegable powers and authority of the Board regarding the management of the business affairs of the Company to the extent not expressly prohibited and not separately delegated to other committees of the Company, and subject to applicable restrictions and limitations.

As set forth in its charter, the Executive Committee does not have the power, among other things, to:

 

 

amend or repeal any resolution of the Board which by its express terms is not so amendable or repealable;

 

 

appoint or remove the Chairman of the Board, the President or the CEO; or

 

 

appoint other committees of the Board or the members of such committees or amend or revise their duties and responsibilities or their charters (the Executive Committee may, however, appoint and delegate to subcommittees as permitted under applicable law).

The Executive Committee met two times in 2011.

Corporate Governance and Nominating Committee.    The Corporate Governance and Nominating Committee has a formal written charter, a copy of which is available on our website at www.onsemi.com. The adequacy of this charter is reviewed at least annually.

Our Corporate Governance and Nominating Committee has the specific purpose under its charter to:

 

 

assist the Board in identifying qualified individuals to become Board members;

 

 

assist the Board in determining the composition of the Board and its committees;

 

 

assist the Board in monitoring the process to assess Board effectiveness;

 

 

assist the Board in developing and implementing the Company’s corporate governance principles; and

 

 

review and make recommendations to the Board regarding other matters of corporate governance as requested by the Board or otherwise determined to be appropriate by the Corporate Governance and Nominating Committee.

Among other things, our Corporate Governance and Nominating Committee has the specific responsibility under its charter to:

 

 

oversee the evaluations of the Board and its committees;

 

 

develop and periodically review criteria for director nominees, which may include without limitation specific skills, experience, other qualifications and diversity, and develop a process for the recommendation of director nominees by the Corporate Governance and Nominating Committee;

 

 

identify and recommend to the Board slates of director nominees for election or re-election at each annual meeting of the stockholders or for nomination to election to the Board when Board vacancies arise, consistent with the developed nomination criteria, including nominees’ qualifications, capability and availability to serve, conflicts of interest and other relevant factors;

 

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make recommendations to the Board regarding director retirement age and tenure;

 

 

make recommendations to the Board regarding the size and composition of the Board;

 

 

review and make recommendations to the Board regarding committee assignments;

 

 

retain and terminate any search firm to be used to identify director candidates and approve fees and retention terms of any such search firm;

 

 

subject to applicable law, consider stockholder nominations, if a stockholder complies with our director nomination procedures described in the bylaws and applicable law;

 

 

develop and recommend to the Board a set of corporate governance principles applicable to the Company and continue to monitor and update such principles;

 

 

review activities of directors with the Company or other entities that may diminish such director’s effectiveness or be inconsistent with the criteria established for Board membership;

 

 

encourage and facilitate directors’ continuing education;

 

 

develop policies and procedures for recommendation to the Board related to the succession of the CEO and other key executives, including succession planning, and review such succession planning on at least an annual basis;

 

 

review and oversee environmental, health and safety related matters; and

 

 

review the Company’s risk exposure relating to the foregoing functions and provide guidance to the Board regarding its risk oversight responsibilities.

As noted above, the Corporate Governance and Nominating Committee is required to develop and periodically review criteria for director nominees, which may include specific skills, experience, other qualifications and diversity. We have no formal policy on the consideration of diversity in identifying director nominees, but we endeavor to have a board representing diverse experiences and in areas that are relevant to the Company’s global activities. When the Committee considers diversity, it may consider diversity of experience, skills and viewpoints, as well as traditional diversity concepts such as race or gender, as it deems appropriate.

Among other matters, the Corporate Governance and Nominating Committee may consider the following nomination criteria regarding Board membership:

 

 

the appropriate size of the Board;

 

 

a nominee’s knowledge, skills and experience, including without limitation, experience in finance and accounting, general business management, the semiconductor industry and semiconductor technology, international business, sales and marketing, corporate governance and compliance and intellectual property;

 

 

the needs of the Company with respect to particular skills and experience;

 

 

a nominee’s independence as defined in NASDAQ and Commission rules and regulations;

 

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diversity;

 

 

a nominee’s age and tenure; and

 

 

the desire to balance the benefit of continuity with the periodic injection of the fresh perspectives provided by new Board members.

The Company’s goal is to assemble a Board that brings together a variety of perspectives and skills derived from high quality business and professional experiences. In doing so, the Corporate Governance and Nominating Committee will also consider candidates with appropriate non-business backgrounds. Directors must be willing to devote sufficient time to carrying out their duties and responsibilities effectively and should be committed to serve on the Board for an extended period of time. See also, “Corporate Governance Principles — Qualifications” for a further discussion about qualifications for our Board members. Other than the foregoing, there are no stated criteria for Director nominees, although the Corporate Governance and Nominating Committee may also consider such other factors as it may deem to be in the best interests of the Company and its stockholders. The Corporate Governance and Nominating Committee does believe it appropriate for at least one, and preferably, several, members of the Board to meet the criteria for an “audit committee financial expert,” as defined by Commission rules, and to have past employment experience in finance and accounting sufficient to meet the financial sophistication rules under NASDAQ listing standards. The Corporate Governance and Nominating Committee also believes it is appropriate for certain key members of the Company’s management to participate as members of the Board.

The Corporate Governance and Nominating Committee identifies nominees by first evaluating the willingness of current members of the Board to continue service on the Board. Current members of the Board with skills and experience that are relevant to the Company’s business and who are willing to continue in service are considered for re-nomination. If any member of the Board does not wish to continue in service or if the Corporate Governance and Nominating Committee decides not to re-nominate a member for re-election, the Board then identifies the desired skills and experience of a new nominee in light of the criteria above. Current members of the Board are polled for suggestions as to individuals meeting the criteria described above. The Corporate Governance and Nominating Committee may engage in research to identify qualified individuals, which may include engaging a professional search firm from time to time. The Company did not retain a professional search firm during fiscal 2011 to recommend director nominees. However, XCEO, as a third party, from time to time provides information to the Board free of charge to assist in identifying and evaluating potential candidates. Pursuant to its charter, if a shareholder complies with the director nomination procedures described in the bylaws, the Corporate Governance and Nominating Committee will consider that nomination and will evaluate the stockholder nomination in the same manner as it evaluates other nominees. For a description of the procedure for stockholder nominations, see “Miscellaneous Information — Stockholder Nominations and Proposals” below.

The Board has determined that each of the current members of the Corporate Governance and Nominating Committee is independent within the meaning of applicable Commission rules and the listing standards of NASDAQ. The Corporate Governance and Nominating Committee met five times in 2011.

Other Committees.    In February 2011, the Company established two new Board committees: the Integration Oversight Committee and the Science and Technology Committee. The Integration Oversight Committee oversees integration activities for certain designated acquisitions of the Company, including the SANYO Semiconductor transaction, as determined by the committee in its sole discretion. The Science and Technology Committee advises the Board as to the scope, health, direction, quality, investment levels and execution of the Company’s technology strategies.

 

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The Board, from time to time, has deemed it desirable and in the best interest of the Company to form various special committees and independent committees.

Compensation of Directors*

 

   

Name

(a)

  Fees
 Earned  or 
Paid
in Cash
($) (1)
(b)
    Stock
   Awards  
($) (2)
(c)
    Option
   Awards  
($) (3)
(d)
    Non-Equity
  Incentive Plan 
Compensation
($)
(e)
     Change in Pension 
Value and
Nonqualified
Deferred
Compensation
Earnings ($)
(f)
    All Other
 Compensation 
($)
(g)
      Total ($)  
(h)
 
  Atsushi Abe     58,439         206,662         80,000                       0            345,101    
  Francis P. Barton     25,022         48,913                              0            73,935    
  Curtis J. Crawford     84,500         208,912                              0            293,412    
  Emmanuel T. Hernandez     83,000         208,912                              0            291,912    
  Phillip D. Hester     71,000         208,912                              0            279,912    
  Keith D. Jackson (4)                                        0              
  J. Daniel McCranie     129,500         208,912                              0            338,412    
  Daryl A. Ostrander     71,000         208,912                              0            279,912    
  Robert H. Smith     84,000         208,912                              0            292,912    

 

*

This table includes compensation for 2011 for all persons who served as directors at any time during 2011.

 

(1)

This column includes annual retainer fees earned for 2011 regardless of when paid. For additional information about compensation paid to directors see “Compensation of Directors — Discussion of Director Compensation” and “Compensation of Directors — Retainers” below. As described above, Mr. Barton did not stand for re-election at the 2011 Annual Meeting. Amounts in this column for Mr. Barton reflect retainer fees earned for his service through the date of the 2011 Annual Meeting. Mr. Abe was elected to the Board in February 2011. Amounts in this column for Mr. Abe reflect retainer fees earned from the start date of his service on the Board.

 

(2)

This column includes the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 (formerly FAS 123R) with respect to the awards of fully vested stock made in 2011. The 2011 awards are described below under “Equity Compensation” and consisted of a stub period grant and an annual grant. Grant date fair value is the closing price ($10.71 for the stub period grant and $10.50 for the annual grant) on the date of grant (March 7, 2011 for the stub period grant and June 6, 2011 for the annual grant) for the stock. As Mr. Barton resigned effective as of the 2011 Annual Meeting, he only received the stub period grant. As of December 31, 2011, the directors (other than Mr. Jackson) did not hold unvested stock awards other than options described in footnote 3 below. With respect to Mr. Jackson, see footnote 4 below.

 

(3)

This column includes the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 (formerly FAS 123R) with respect to awards of options in 2011. The fair value of each option grant is estimated on the date of grant using a lattice-based option valuation model. The lattice based model uses: (i) a constant volatility; (ii) a participant exercise behavior model (based on an analysis of historical exercise behavior); and (iii) the treasury yield curve to calculate the fair value of each option. The Black-Scholes assumptions equivalent is included in the table below. We describe these options in more detail under “Equity Compensation” below. In 2011, there were no grants of stock options to directors other than Mr. Abe, who was granted 20,000 stock options on March 7, 2011 due to his appointment to the Board. The grant date fair value of Mr. Abe’s award computed in accordance with ASC Topic 718 (formerly FAS 123R) was $4.00 per option. With respect to Mr. Jackson, see footnote 4 below. As of December 31, 2011, the following directors held stock options (vested and non-vested) to purchase common stock in the following amounts: Mr. Abe — 20,000; Mr. Crawford — 26,983; Mr. Hernandez — 14,000; Mr. Ostrander — 20,000; and Mr. Smith — 20,000. The following table sets forth the assumptions in our calculations of grant date fair value for options granted in fiscal 2011 for the following Director:

 

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Name       Grant Date    

 Volatility 

%

 

Expected

 Life (years) 

 

Risk-Free

  Interest Rate  

(%)

 

 Dividend 

Yield ($)

 

Aggregate

 Grant Date Fair 

Value ($)

Atsushi Abe

  03/07/2011   41.04%   4.57   2.23%   0   80,000

 

(4)

Mr. Jackson is a Named Executive Officer and his compensation is set forth below in the Summary Compensation Table. Mr. Jackson did not receive any compensation in connection with his service as a Director.

Discussion of Director Compensation. The Compensation Committee regularly reviews the compensation payable to Outside Directors. See “The Board of Directors and Corporate Governance — Committees of the Board — Compensation Committee” for a description of the authority of the Compensation Committee. In reviewing Board compensation practices, the Compensation Committee is advised by its outside consultants from time to time. In December 2010, Cook provided the Board with an analysis of outside director compensation, including a review of director compensation of a peer group. Acting on this report and the recommendations therein, in early 2011, the Compensation Committee approved the compensation program for our directors as described below.

Retainers.   Under the Director compensation program in 2011, the annual cash retainers were:

 

 

to the Chairman of the Board, $114,000 per year;

 

 

to Outside Directors, $59,000 per year;

 

 

to the Chair of the Audit Committee, $20,000 per year;

 

 

to the non-Chair members of the Audit Committee, $10,000 per year;

 

 

to the Chair of the Compensation Committee, $15,000 per year;

 

 

to the non-Chair members of the Compensation Committee, $7,500 per year;

 

 

to the Chair of the Corporate Governance and Nominating Committee, $8,000 per year;

 

 

to the non-Chair members of the Corporate Governance and Nominating Committee, $4,000 per year;

 

 

to the Chair of the Science and Technology Committee, $8,000 per year;

 

 

to the non-Chair members of the Science and Technology Committee, $4,000 per year;

 

 

to the Chair of the Integration Oversight Committee, $8,000 per year; and

 

 

to the non-Chair members of the Integration Oversight Committee, $4,000 per year.

Annual cash retainers are paid quarterly in arrears and will be pro-rated based upon the period of time that a director has served on the Board or a committee of the Board, as applicable.

Equity Compensation.   Consistent with past practice, when an individual initially becomes a member of the Board, we grant him or her a stock option (or other comparable equity-based compensation) to purchase 20,000 shares of our common stock, with equal pro rata vesting over a three-year period

 

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beginning on the first anniversary of the grant date, at an exercise price equal to the fair market value of the stock on the grant date, and subject to the terms of the applicable stock incentive plan and a relevant stock option grant agreement. In connection with joining the Board on March 21, 2012, Ms. Ressel and Mr. Han received such an option on April 2, 2012.

In February 2011, the Compensation Committee adopted certain changes to the director compensation program. Under the new program, each Outside Director is to receive an annual award of fully-vested stock with a value equal to $160,000. In contrast to prior years where the annual grant was made early in the year, the annual grant for 2011 and subsequent years was to be made at or around the time of the annual meeting. In 2011 only, therefore, each Outside Director also received a stub period grant of fully-vested stock with a pro-rated value of approximately $48,912 ($46,663 for Mr. Abe) to cover the period from January 2011 through the end of the month for the 2011 Annual Meeting. For the stub period grant, based on the closing price of our stock on March 7, 2011 ($10.71), the effective date of the grant, this resulted in a grant of 4,567 shares to each Outside Director other than Mr. Abe, and of 4,357 shares to Mr. Abe. For the annual grant, based on the closing price of our stock on June 6, 2011 ($10.50), the effective date of the grant, this resulted in a grant of 15,238 shares to each Outside Director except Mr. Barton, who did not continue as a director after the 2011 Annual Meeting. The 2011 grants were made under the Amended and Restated Plan. Under our director compensation program, should a director be appointed after the date of the annual grant, the award amount would be prorated based on the period of the year during which the director serves. Based on the last market study conducted prior to the grant, this amount was determined to be an amount allowing total Director compensation to be at or about the mid-point of our peer group in effect at the time. As Ms. Ressel and Mr. Han joined the Board on March 21, 2012, each of their stock awards received on April 2, 2012 reflects the period of time they served on the Board.

Other.    We reimbursed Outside Directors for reasonable expenses incurred to attend Board and committee meetings and to perform other relevant Board duties. Employee Directors do not receive any additional compensation for their services as a member of the Board.

Majority Voting for Directors

On February 16, 2012, the Board adopted an amendment to our Bylaws and Corporate Governance Principles to change the way our Directors are elected. After such amendment, each director will be elected by the vote of the majority of the votes cast with respect to that director’s election at any meeting for the election of directors at which a quorum is present. However, if, as of the tenth day preceding the date we first mail the notice of such meeting to our stockholders, the number of nominees exceeds the number of directors to be elected (a “Contested Election”), the directors shall be elected by the vote of a plurality of the votes cast. A majority of votes cast means that the number of votes cast “for” a director’s election exceeds the number of votes cast “against” that director’s election (with “abstentions” and “broker non-votes” not counted as a vote cast either “for” or “against” that director’s election).

In the event an incumbent director fails to receive a majority of the votes cast in an election that is not a Contested Election, the incumbent director must promptly tender his or her resignation to the Board. The Corporate Governance and Nominating Committee, or such other committee designated by the Board for this purpose, shall make a recommendation to the Board as to whether to accept or reject the resignation of such incumbent director, or whether other action should be taken. The Board must act on the resignation, taking into account such committee’s recommendation, and publicly disclose (by a press release and filing an appropriate disclosure with the Securities and Exchange Commission) its decision regarding the resignation and, if such resignation is rejected, the rationale behind the decision, within ninety days following certification of the election results. The committee in making its recommendation and the Board in making its decision each may consider any factors and other information that they consider appropriate and relevant.

 

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If the Board accepts a director’s resignation pursuant to these provisions, or if a nominee for director is not elected and the nominee is not an incumbent director, then the resulting vacancy may be filled by vote of a majority of the Directors then in office pursuant to Article NINTH, Section 2 of our Amended and Restated Certificate of Incorporation.

Other Board Matters

Board Leadership Structure.  We currently separate the roles of CEO and Chairman of the Board to align the Chairman role with our independent Directors and to further enhance the independence of the Board from management. Our Chairman works closely with our CEO to set the agenda for meetings, facilitate information flow between the Board and management, and to gain the benefit of the CEO’s Company-specific experience, knowledge and expertise.

The Board’s Role in Risk Oversight.  While management is responsible for the day-to-day management of risk, the Board plays an ongoing and active role in the oversight of risk. The Board, both directly and through its committees, carries out its oversight responsibilities by regularly reviewing and discussing with management areas of material risk to the Company, which may include financial risks, legal and regulatory risks, operational risks and strategic risks, along with key risk areas within each of those risk categories. The Board also reviews with management, as appropriate, mitigation measures being taken to address such risks. While the Board has primary responsibility for risk oversight, the Board’s committees support the Board by regularly addressing risks in their respective areas of oversight. Specifically, the Audit Committee charter requires the Audit Committee to discuss with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies. In designing our compensation programs and structuring awards, the Compensation Committee considers the likelihood of undue risk taking and the impact that such compensation decisions may have on the Company’s risk profile. The Corporate Governance and Nominating Committee, Integration Oversight Committee, and the Science and Technology Committee charters also require each committee to review the Company’s risk exposure relating to their respective functions and, in the case of the Corporate Governance and Nominating Committee, to provide guidance to the Board regarding its overall risk oversight responsibilities. The Chairman of the relevant committee then reports on risk discussions to the full Board to the extent appropriate.

As part of its review of the Company’s material areas of risk, the Board has semiannual strategy and planning meetings at which business plans and proposals for the Company and various units or groups within the Company are presented and discussed. Comprehensive risk analysis is a significant part of such planning. At quarterly Board meetings, our business unit heads, and the heads of certain administrative function groups, report to the Board or the appropriate committee regarding status. These reports include risk evaluation and assessment as a matter of course. For example, internal audit presents quarterly reports to the Audit Committee that include analysis of financial and regulatory risk. Specific risks are addressed appropriately as and when they are identified. At least annually, the Board reviews how risk is being managed and reported to the Board and its committees, along with areas where the Board would like additional analysis or discussion.

For additional information regarding risk considerations in setting compensation for our Named Executive Officers, see “Compensation Discussion and Analysis — Processes and Procedures for Considering and Determining Executive Compensation — Risk Analysis” below.

 

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Corporate Governance Principles

The ON Semiconductor Corporation Corporate Governance Principles were originally adopted by the Board in 2003 and last amended on February 16, 2012 (“Principles”). These Principles provide guidance for all types of corporate governance matters and are available on our website at www.onsemi.com. Among other matters, the Principles include the following items:

The Role of Board and Management.  Our business is conducted by our employees, managers and officers, under the direction of the CEO and the oversight of the Board to enhance the long-term value of the Company for its stockholders. Both our Board and management recognize that the long-term interests of stockholders are advanced by responsibly addressing the concerns of other stakeholders and interested parties, including employees, recruits, customers, suppliers, creditors, ON Semiconductor communities, government officials and the public at large.

Functions of the Board.  The Board has at least four regularly scheduled meetings a year at which it reviews and discusses reports by management on our performance, plans and prospects and immediate issues facing the Company. The Board may choose to schedule additional meetings in accordance with our by-laws. In addition to general oversight of management, the Board, acting through its directors or members of its committees, also performs specific functions, including, among other things: (i) selection, evaluation and compensation of the CEO and other senior management and overseeing CEO succession planning; (ii) reviewing and monitoring and, where appropriate, approving fundamental financial and business strategies and major corporate actions; (iii) assessing major risks facing the Company and reviewing options for their mitigation; (iv) ensuring that processes are in place for maintaining the integrity of the Company, financial statements, compliance with law and ethics, relationships with customers and suppliers, and relationships with other stakeholders; and (v) performing such other functions as are prescribed by law.

Qualifications.  Directors should possess the highest personal and professional ethics, integrity and values, and be committed to serve on the Board for an extended period of time. They must also have an inquisitive and objective perspective, practical wisdom and mature judgment. We endeavor to have a board representing diverse experiences, and in areas that are relevant to the Company’s global activities. See “Management Proposals — Proposal No. 1: Election of Directors” above, regarding classification of Directors, and “The Board of Directors and Corporate Governance — Committees of the Board — Corporate Governance and Nominating Committee” above, regarding the qualifications we seek in our Directors. The Principles require that Directors shall limit the number of boards of public or private companies (excluding non-profits and subsidiaries) on which they serve to no more than four for Outside Directors and no more than two for Directors holding management positions at the Company, taking into account a Director’s attendance, participation and effectiveness on these boards. The number of audit committees on which the members of the Company’s Audit Committee may sit concurrently shall be reviewed annually by the Corporate Governance and Nominating Committee. In addition, after a Director reaches the age of 75, the Board shall not, under any circumstances, nominate such Director for re-election and such Director shall not stand for re-election.

Independence of Directors. We will seek to have, at a minimum, a sufficient number of independent Directors to comply at all times with relevant and applicable Commission, NASDAQ and other rules and regulations.

Board Committees.  See “The Board of Directors and Corporate Governance — Committees of the Board” above, for information regarding committees established by the Board.

Self-Evaluation.  The Board will perform an annual self-evaluation, in order to provide its assessment of

 

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the effectiveness of the Board. The Corporate Governance and Nominating Committee is charged with overseeing the evaluation of the Board and its committees.

Compensation of the Board. The Compensation Committee has the responsibility for recommending to the Board compensation and benefits for Outside Directors. The Board has delegated responsibility for determining Outside Director compensation to the Compensation Committee pursuant to its charter. In determining compensation and benefits, the Compensation Committee is guided by three goals: (i) compensation should fairly pay Directors for work required in a public company of our size and scope; (ii) compensation should align Directors’ interests with the long-term interests of stockholders; and (iii) the structure of the compensation should be simple, transparent and easy for stockholders to understand. Generally, the Compensation Committee believes that these goals will be served by compensating Outside Directors with cash and/or equity-based awards.

Directors’ and Officers’ Stock Ownership Guidelines. In order to align Directors’ and officers’ interests and objectives with those of stockholders and further promote the Company’s longstanding commitment to sound corporate governance, the Company has established guidelines for Company stock ownership which were amended on February 16, 2012. Directors who are not officers are required to hold Company stock in an amount equal to a minimum of five times the annual director retainer fee set for non-chair directors. Directors serving on the Board as of February 16, 2012 are expected to meet the ownership requirement within three years of such date. Directors who are elected or appointed following February 16, 2012 will be expected to meet the ownership requirement within five years of commencing service on the Board. For Directors serving on the Board as of February 16, 2012, their guideline is established using the annual director retainer fee on this date and the average closing price of the Company’s common stock as calculated under the guideline. New directors will have their individual guideline established based upon their annual retainer fee and the average closing price of the Company’s common stock as calculated under the guideline at the time they commence service on the Board. If a Director fails to attain this stock ownership guideline within the specified transition period, the Chairman of the Board will meet with the relevant Director to formulate an individualized and structured plan to ensure compliance. Notwithstanding the preceding, if the Director continues to fail to comply within the specified time period allotted within the individualized plan, the Director will not be eligible to stand for re-election at the next stockholder meeting at which that Director’s class is up for re-election. Once established, a Director’s guideline will generally not change as a result of changes in the annual retainer fee or fluctuations in the Company’s common stock price. Stock that qualifies towards satisfaction of these stock ownership guidelines for Directors includes:

 

 

Shares purchased on the open market;

 

 

Shares obtained through exercises of stock options granted by the Company;

 

 

Vested stock units from RSUs (whether time-based or performance-based) granted by the Company; and

 

 

Shares owned jointly with, or separately by, a spouse and/or minor children.

Officers of the Company and the Company’s subsidiary, Semiconductor Components Industries, LLC (“SCI”), are required to hold Company stock in an amount equal to a minimum of a multiple of base salary as follows: (i) CEO — five times annual base salary; (ii) Executive Vice Presidents — two times annual base salary; and (iii) Senior Vice Presidents — one times annual base salary. The CEO is expected to meet the ownership guideline within two years of February 16, 2012. The Executive Vice Presidents and Senior Vice Presidents subject to the guideline as of January 1, 2008 were expected to meet the ownership requirement within four years of such date and officers who become subject to the guidelines after that date (or February 16, 2012 in case of the CEO) will have four years after they become subject to the requirements to meet the ownership requirement. For current officers subject to the

 

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guideline as of January 1, 2008 (or February 16, 2012 in case of the CEO), their respective guideline is established using each person’s annual base salary on January 1, 2008 (or February 16, 2012 in case of the CEO) and the average closing price of the Company’s common stock as calculated under the guideline. For officers that become subject to the guideline after January 1, 2008, the individual guideline will be established based upon their annual base salary at the time they become subject to the guideline and the average closing price of the Company’s common stock as calculated under the guideline. Once established, an officer’s guideline will generally not change as a result of changes in the person’s annual base salary or fluctuations in the Company’s common stock price. Stock that qualifies towards satisfaction of these stock ownership guidelines for officers includes:

 

 

Shares purchased on the open market;

 

 

Shares obtained through exercises of stock options granted by the Company;

 

 

Vested stock units from RSUs (whether time-based or performance-based) granted by the Company;

 

 

Shares obtained through the ESPP; and

 

 

Shares owned jointly with, or separately by, a spouse and/or minor children.

If an officer fails to meet these stock ownership guidelines within the specified transition period, the CEO will meet with the relevant officer to formulate an individualized and structured plan to ensure compliance.

These guidelines may be waived for Directors and officers, at the discretion of the Corporate Governance and Nominating Committee, if compliance would create severe hardship or for other good reasons. It is expected that these instances will be rare.

Other Matters. The Principles include a discussion of Board size and selection, the determination of the Board agenda, the process available for reporting concerns to the Audit Committee relating to our accounting and auditing matters, access to senior management and independent advisors, and other matters typical of boards of directors of other publicly traded semiconductor or peer companies.

Code of Business Conduct

We have adopted a broad Code of Business Conduct (“Code of Conduct”) for Directors and employees. Within this Code of Conduct is a financial code of ethics that applies to our CEO, Chief Financial Officer (“CFO”), Principal Accounting Officer or Controller, and other persons performing similar functions, as well as to our Directors and each member of our Finance Department. We believe that the Code of Conduct satisfies the standards promulgated by the Commission and NASDAQ. The Code of Conduct is available free of charge on our website at www.onsemi.com. To receive a copy, you may also write to our Investor Relations Department, ON Semiconductor Corporation, 5005 E. McDowell Road, M/D-C302 Phoenix, Arizona 85008, call our Investor Relations at (602) 244-3437, or email your request to investor@onsemi.com.

 

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Compliance and Ethics Program

We have a Compliance and Ethics Program designed to prevent and detect violations of the Code of Conduct, other standards of conduct and the law. A major goal of the Compliance and Ethics Program is to promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law. In this regard, we have established avenues for parties external to the Company to raise compliance and ethics concerns to our Chief Compliance and Ethics Officer with respect to our employees, Directors and third parties doing business with the Company. If you have a concern of this nature, you may report it anonymously (or on a non-anonymous basis) by: (1) calling the Compliance and Ethics Hotline (subject to local legal requirements), telephone number at 800-243-0186 from the U.S., Bermuda or Puerto Rico or 00531-11-4799, 0066-33-801240, or 0034-800-900112 if you are calling from Japan (depending on the service provider), or, if you are outside of these areas, calling (i) AT&T country access code + (800) 243-0186 if you are dialing from an analog telephone or (ii) AT&T country access code + # #(800) 243-0186 if you are dialing from a digital telephone; (2) visiting the website at https://onsemi.alertline.com; (3) calling our Chief Compliance and Ethics Officer at (602) 244-5226; (4) mailing a note to the ON Semiconductor Chief Compliance and Ethics Officer at ON Semiconductor Law Department, M/D-A700, 5005 E. McDowell Road, Phoenix, Arizona 85008; or (5) emailing a note to our Chief Compliance and Ethics Officer at sonny.cave@onsemi.com.

COMPENSATION DISCUSSION AND ANALYSIS

Overview

The purpose of this CD&A is to provide material information about our compensation objectives and policies and to explain and put into context the material elements of the disclosure that is contained in this proxy statement with respect to the compensation of our Named Executive Officers, which (pursuant to SEC rules) are generally defined as our Chief Executive Officer, our Chief Financial Officer, and our other three most highly compensated executive officers. For 2011, our Named Executive Officers were:

 

   

Keith D. Jackson, President and Chief Executive Officer

 

   

Donald A. Colvin, Executive Vice President and Chief Financial Officer

 

   

Robert Charles Mahoney, Executive Vice President, Sales and Marketing

 

   

William John Nelson, Ph.D., Executive Vice President and Chief Operating Officer

 

   

George H. Cave, Senior Vice President, General Counsel, Chief Compliance and Ethics Officer and Corporate Secretary

Executive Summary

2011 Highlights.  Following our strong performance in 2010, 2011 was a challenging year for us.

 

   

On January 1, 2011, we closed on the purchase of SANYO Semiconductor. We believe that the acquisition of SANYO Semiconductor will allow us to expand into the Japanese market and broadens our product portfolio. On February 27, 2011, we also acquired the CMOS Image Sensor Business Unit from Cypress Semiconductor Corporation.

 

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Although we had record total revenues, our business was significantly impacted by two natural disasters – the earthquake and resulting tsunami in Japan in the first quarter of 2011 and the flooding in Thailand in the fourth quarter of 2011. In the fourth quarter of 2011, we committed to a plan to close our probe, assembly and test operations in Ayutthaya and Bang Pa In, Thailand as a result of damage caused by the flooding. We have incurred significant expense as a result of this closure and our efforts to move that production to other facilities.

 

   

The closing sales price of our common stock on NASDAQ at year end was $7.72, as compared to $9.88 at year end 2010, $8.82 at year end 2009 and $3.40 at December 31, 2008. As of March 21, 2012, the closing market price of our common stock was $9.11.

2009 and 2010 Compensation Matters that Influenced 2011 Compensation Decisions.  Certain of our decisions regarding 2011 compensation were significantly influenced by compensation actions taken in 2009 and 2010. In late 2008 and early 2009, when decisions were being made for the 2009 compensation programs, the general economic downturn affected our business. We undertook a series of dramatic cost reduction initiatives and significantly revised our typical compensation design to preserve the ability to motivate and retain our personnel in that environment. Among other things:

 

   

We cancelled our 2009 annual incentive bonus programs.

 

   

There were no salary increases for 2009. Instead, we initiated forced work furloughs for our employees, which resulted in a reduction of the base salaries of executives in 2009.

 

   

We adjusted our long-term equity awards program to grant only PBRSUs and made significant grants that were designed to motivate and retain our key employees.

Actual results for 2009 were better than expected due to an unforeseen revenue recovery and several one-time actions by the Company, including its significant cost reduction measures. Among other things, this has resulted in full vesting of eligible shares from the 2009 PBRSUs in each quarter since grant. For a detailed description of the 2009 PBRSUs, see “Compensation of Executive Officers – 2011, 2010, and 2009 Awards of PBRSUs – 2009 Awards of PBRSUs.”

We undertook the following general actions in 2010 relating to compensation for our Named Executive Officers:

 

   

We granted certain base salary increases, effective in July 2010.

 

   

We implemented a significantly redesigned and simplified semi-annual incentive bonus program. When our business resulted in performance levels that exceeded stretch levels under the plan in the first half of 2010, the Compensation Committee exercised negative discretion to limit the payments under the first half bonus plan.

 

   

We evaluated the form for delivery of annual long-term equity incentive awards and determined to continue to grant PBRSUs in lieu of options or other time-based awards. Due to the better than expected performance of the PBRSU awards made in 2009 and other considerations, the four highest paid of our executive officers from 2009 (Messrs. Jackson, Colvin, Mahoney, and Nelson) offered to forego any long-term equity awards in 2010 so that more shares could be available to other employees at the Company, which offers were accepted by the Compensation Committee.

 

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2011 Compensation Decisions.   As discussed in more detail below in this CD&A, we undertook the following general actions in 2011 relating to compensation for our Named Executive Officers:

 

   

We granted certain merit increases in base salary, effective in July 2011.

 

   

We carried over the general design of our semi-annual incentive bonus program from 2010.

 

   

Although we again evaluated the form for delivery of our annual long-term equity awards, we determined that we would continue our focus on performance and only make grants of PBRSUs.

As discussed in more detail below in this CD&A, highlights of our compensation practices for 2011 Named Executive Officers compensation include:

 

   

Total pay was heavily weighted to performance-based incentives.

 

   

All equity grants were 100% performance-based.

 

   

We managed our equity compensation program conservatively, with an average three year adjusted “burn” rate of 2.80% and an average three year unadjusted “burn” rate of 1.53%, calculated as described in the burn rate table included under “Proposal No. 4: Amendment to the ON Semiconductor Corporation Amended and Restated Stock Incentive Plan — General Information” above in this proxy statement.

 

   

Our executive officers have stock ownership requirements that are designed to align their interests with those of our stockholders.

 

   

Our long-term equity incentives vest over a period of three years to ensure that our executives maintain a long-term view of stockholder value.

 

   

Our compensation policies and practices are designed so that they do not pose a material risk to us.

 

   

We provide only limited perquisites to our executives.

 

   

We do not allow our executives to hedge their exposure to ownership of, or interest in, our stock or to engage in speculative transactions with respect to our stock.

 

   

Our change in control agreements do not contain single triggers or excessive benefits. There are no excise tax provisions in the employment agreements for our Named Executive Officers.

 

   

We eliminated tax gross-ups on financial planning so that there are now no tax gross-ups on any perquisites other than standard relocation benefits that are available to all employees.

Stockholder Approval of our Compensation Decisions.  At the 2011 annual meeting of shareholders, the Company’s shareholders approved the advisory (non-binding) vote on executive compensation by approximately 97% of the votes cast. The Compensation Committee considers this vote a validation of its

 

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approach to executive compensation and generally has continued its compensation processes and philosophy in making 2011 executive compensation decisions.

Compensation Philosophy and Guiding Principles

Our Compensation Committee is responsible for setting our compensation philosophy and guiding principles and for monitoring their effectiveness. The principal objective of our compensation programs is to attract, retain and motivate highly talented individuals who will deliver competitive financial returns to our stockholders in the short term while also accomplishing our long-term plans and goals. We believe that this philosophy should apply to all our employees, with a more significant level of variability and compensation generally at risk as an employee’s level of responsibility increases. Our compensation philosophy is focused on the following core principles:

Market or Peer Company Comparison.    Our Compensation Committee, with the assistance of independent consultants, analyzes market compensation data in the design and implementation of our compensation programs. Our compensation programs must be competitive with those of our peer companies in order to retain our senior executives. As a general rule, we target the market median (50th percentile) for compensation and above the median for exceptional performance. The Company considers other semiconductor and high-technology companies as its market and generally utilizes survey or peer company data in these sectors to analyze its competitiveness.

Pay for Performance.  A portion of compensation should be tied to an individual’s performance, both to incentivize goal-oriented performance and to reward individual contributions to our performance.

Alignment with Stockholder Interests.  In general, achieving acceptable and expected corporate results and performance are a necessary condition for our executives to realize targeted levels of compensation, particularly with respect to variable pay and long-term incentives. We believe that basing a component of employee compensation on corporate results and performance aligns employee interests with stockholder interests. In addition, as a general rule, the use of stock incentives further aligns executives’ interests with those of our stockholders.

Retention.  Our compensation program must be designed to attract and retain highly talented individuals critical to our success by providing competitive total compensation with retention features. For instance, we enter into employment agreements with our Named Executive Officers and other senior executives, which typically contain severance and change of control arrangements. In addition, our stock-based awards are designed to retain our officers and other employees, while also accomplishing our other compensation goals and objectives.

Purpose of Compensation

Generally, we believe that our compensation program should be designed to reward performance, both individual and corporate. We attempt to deliver a competitive rewards package comprised of base pay, variable pay, long-term incentives and other benefits. Even if a particular award is not performance-based per se, the Compensation Committee considers corporate and individual performance in making compensation decisions.

While our emphasis is normally on performance incentives, a competitive compensation program must also have elements that are not solely performance-based in order to be competitive in attracting and retaining talented executives. However, we generally attempt to set these elements at a level that is consistent with our performance objectives and peer group practices.

 

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Annual incentives in our compensation program are principally cash-based. Annual incentives are intended to promote superior operational performance, disciplined cost management, and increased productivity and efficiency that contribute significantly to positive results for our stockholders. Long-term incentives in our compensation program are principally stock-based. The aim of the long-term incentives is to motivate long-term performance while promoting key employee retention. The long-term incentive grants also afford the officer the opportunity to increase stock ownership, which aligns the officer’s interest with that of our stockholders and assists the officer in complying with our mandatory stock ownership guidelines. For a description of our stock ownership guidelines, see “Other Matters Relating to Executive Compensation – Stock Ownership Guidelines for Officers” below in this CD&A. Based on considerations that we describe below, in 2011 we generally delivered our long-term incentive awards in the form of PBRSUs.

Processes and Procedures for Considering and Determining Executive Compensation

Among other responsibilities, our Compensation Committee is primarily responsible for monitoring, annually reviewing and approving the goals and objectives relevant to our compensation programs for our Named Executive Officers, including the CEO, and for establishing compensation for these officers. In the material below, we describe the process used and principal factors considered by the Compensation Committee in setting 2011 executive compensation for the Named Executive Officers.

Role of Compensation Consultants.    In determining compensation, the Compensation Committee considers information provided by independent consultants. In 2010, the Compensation Committee conducted a review process to select a compensation consultant and in April 2010, the Compensation Committee hired Cook as its compensation consultant. Cook solely provided compensation consulting services to the Compensation Committee and had no other relationship to the Company. During 2010, Cook conducted an executive compensation study covering thirteen executives and addressing, among other things, compensation philosophy, peer group and survey selection, grant values, historical compensation levels and relation to performance, short and long-term mix and metric selection, stock ownership guidelines, carried interest ownership and wealth potential, executive benefits and perquisites, and emerging trends and best practices. Cook presented this report to the Compensation Committee in December 2010 (the “Cook Report”) to assist in setting levels of executive compensation for 2011. At the request of the Compensation Committee, from time to time in early 2011, Cook also participated in Compensation Committee meetings, made proposals for compensation adjustments, provided back-up information and analysis of compensation matters and discussed the same with the Compensation Committee.

If requested, the Compensation Committee consultant may also assist in preparing agendas for Compensation Committee meetings and provide input on management materials and recommendations in advance of Compensation Committee meetings to identify and resolve or minimize differences in advance of such meetings. While the Compensation Committee considers the advice and recommendations of its independent consultants, ultimately, the Compensation Committee’s decisions about the executive compensation program, including the specific amounts paid to executive officers, are its own.

In May of 2011, following an annual evaluation of the Compensation Committee’s consultant, the Compensation Committee determined to replace Cook with Meyercord, an independent consultant used by the Committee in past years.

The Company and the Compensation Committee may also use other consultants from time to time.

Role of Senior Officers in Determining Executive Compensation.  The Compensation Committee made all compensation decisions related to our Named Executive Officer compensation in 2011. However, our

 

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CEO and other senior officers regularly provide information and recommendations to the Compensation Committee on the performance of the executive officers, the design, structure and components of our compensation programs and of specific grants, appropriate levels of compensation, including equity grants, and the targets for corporate and business unit performance or other goals for our incentive programs and stock-based awards. The senior officers also assist the Compensation Committee in determining the level of achievement of the performance targets underlying performance-based awards and incentives and provide other information specifically requested by the Compensation Committee from time to time. The senior officers also provide information to the compensation consultants, as appropriate, at the request of the Compensation Committee or such consultants and work with such consultants to develop relevant information and proposals for executive compensation planning and implementation. Pursuant to our Corporate Governance Principles, the CEO works with the Chairman of the Board or committee chairs, as appropriate, to determine the nature and extent of information that is provided to the directors before each Board or committee meeting. With respect to the compensation of the CEO, the independent consultant works directly with the Compensation Committee. The Compensation Committee does not seek, nor does management provide, recommendations from or decisions by management concerning CEO compensation.

Use of Market Data.  In general, we target the market median based on peer group or other survey data for total compensation of our executive officers, recognizing that critical skill sets, above median performance or other considerations may justify pay levels above or below the median. We also consider comparison data, among other things, in determining the individual elements of our compensation programs and how to allocate between cash and non-cash compensation and between short-term and long-term incentive compensation. Although the peer company or other survey data is a starting point and a significant factor in the Compensation Committee’s compensation determinations, it is not the only factor. See “Other Factors” below in this CD&A.

In setting 2011 compensation for our Named Executive Officers, the Compensation Committee used data provided in the Cook Report to assist in structuring the compensation packages. From time to time, we also use compensation survey data specific to the semiconductor industry obtained from third-party survey companies (e.g., AON/Radford) and not prepared specifically for us.

In 2010, based on advice from Cook, the Compensation Committee approved changes to the peer group considering, among other things, the projected increased size of the Company that would follow the acquisition of SANYO Semiconductor. Fourteen of the sixteen companies in the peer group were chosen from among companies in the same global industry classification (“GICS”) code as the Company (semiconductor and semiconductor equipment companies) whose revenue and market cap would be within a range comparable to the Company’s after the acquisition of SANYO Semiconductor. Two members of the peer group (Sandisk Corporation and Vishay Intertechnology, Inc.) are in different GICS codes, but have revenue and market cap in the same comparable range. The range of peer revenues was anticipated to be approximately one-third to two times the Company’s post SANYO Semiconductor acquisition revenues, while the range of market cap value would be approximately one-third to six times.

Based on these standards, it was determined that the peer group would consist of Advanced Micro Devices, Inc., Altera Corporation, Analog Devices, Inc., Atmel Corporation, Broadcom Corporation, Fairchild Semiconductor International, Inc., Lam Research Corporation, LSI Corporation, Marvell Technology Group Ltd., Maxim Integrated Products, Inc., Micron Technology, Inc., National Semiconductor Corporation, Nvidia Corporation, SanDisk Corporation, Vishay Intertechnology, Inc., and Xilinx, Inc.

In the Cook Report, Cook compared the compensation of the top five executives, Messrs. Jackson, Colvin, Nelson, Mahoney and Cave, with matching positions in the compensation peer group.

 

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Compensation for these executives was also compared with survey data from Radford covering semiconductor and general industry technology companies with revenues either greater than $1 billion or between $1 billion and $3 billion, depending on availability. For both cuts, average revenue was approximately equal to $2 billion. Competitive cash data was updated to January 1, 2011 using an assumed 3% annual growth rate and in line with projected market movement from major salary planning surveys. Weightings between survey data and peer group data were assigned based on Cook’s judgment of the comparability of market benchmarks to positions at the Company, with preference given to the peer group data when available. In evaluating the competitiveness of compensation, the report compared senior executives to their functional matches (e.g., CFO is compared to comparator company CFOs), where available. Where functional matches were not available for an executive, pay-rank data was used.

The report included information on each executive’s competitive position for base salary, total cash at target (base pay and target bonus under the annual incentive program), as well as target bonus as a percentage of base salary, actual annual cash, equity grants and target and actual total direct compensation (base pay, bonus and equity grant value).

Among other things, the Cook Report summarized the following with respect to annual compensation for the specified officers (negative amounts mean that compensation is below the competitive median and positive amounts reflect that compensation is above the competitive median):

 

Officer

  Salary (Variance
    from Competitive    

Median)
      Total Target Cash    
(Variance from
Competitive

Median) (1)
  Total Actual Cash
(Variance from
    Competitive Median) (2)    

 

 Keith D. Jackson,

 President and Chief Executive Officer

 

   

 

 

 

-3.5

 

%

   

 

 

 

-3.5

 

%

   

 

 

 

-54.2

 

%

 

 Donald A. Colvin,

 Executive Vice President and Chief

 Financial Officer

   

 

 

 

-5.0

 

%

   

 

 

 

-6.1

 

%

   

 

 

 

-44.0

 

%

 

 Robert Mahoney,

 Executive Vice President, Sales and

 Marketing

   

 

 

 

-1.3

 

%

   

 

 

 

-3.3

 

%

   

 

 

 

-39.7

 

%

 

 W. John Nelson,

 Executive Vice President and Chief

 Operating Officer

   

 

 

 

-5.0

 

%

   

 

 

 

-11.2

 

%

   

 

 

 

-51.1

 

%

 

 George H. Cave,

 Senior Vice President, General

 Counsel, Chief Compliance and Ethics

 Officer and Secretary

 

   

 

 

 

2.5

 

%

   

 

 

 

-2.6

 

%

   

 

 

 

-37.5

 

%

 

(1)

Total target cash consists of base salary plus target bonus.

 

(2)

Total actual cash consists of salary and actual bonus paid.

With respect to total actual cash, the Cook Report noted that annual bonuses were paid at near target for 2007 and the first half of 2008, but at 0% for the second half of 2008. The bonus program was canceled for 2009. The 2010 bonus paid out at 128% for the first half of the year and, at the time of the Cook Report, was projected at 70-80% for the second half. The Named Executive Officers’ total actual cash

 

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compensation was lower than market because the Company did not pay bonuses during the downturn while many of its peers did.

The Cook Report summarized the following with respect to long-term incentive and total target direct compensation for the specified officers (negative amounts mean that compensation is below the competitive median and positive amounts reflect that compensation is above the competitive median):

 

Officer

          Three Year Average LTI         
Grant Value (Variance

from Competitive
Median)
  Total Target Direct
Compensation (Variance
         from Competitive Median)        

(1)

 

 Keith D. Jackson,

 President and Chief Executive Officer

 

   

 

 

 

-27.2

 

%

   

 

 

 

-24.1

 

%

 

 Donald A. Colvin,

 Executive Vice President and Chief Financial Officer

 

   

 

 

 

-5.0

 

%

   

 

 

 

-8.0

 

%

 

 Robert Mahoney,

 Executive Vice President, Sales and Marketing

   

 

 

 

39.0

 

%

   

 

 

 

14.0

 

%

 

 W. John Nelson,

 Executive Vice President and Chief Operating Officer

   

 

 

 

9.6

 

%

   

 

 

 

19.8

 

%

 

 George H. Cave,

 Senior Vice President, General Counsel, Chief

 Compliance and Ethics Officer and Secretary

 

   

 

 

 

1.3

 

%

   

 

 

 

-6.0

 

%

 

(1)

Total target direct compensation consists of latest year base salary, target annual bonus, and 3-year average grant value of long term incentive.

The Cook Report based its comparison of long-term incentive grants on 3-year average long-term incentive value noting that certain economic and other considerations made the grants in certain of these years atypical.

Additional comparison data following 2011 compensation decisions is contained below under the heading “Elements of our Compensation Program — Base Salary” and “Elements of our Compensation Program — Long-Term Incentives.”

Other Factors.    The Compensation Committee takes into account the data provided by its independent consultants and their recommendations as to competitiveness and the structure of compensation in determining compensation for the Named Executive Officers. For example, prior to approving awards, the Compensation Committee generally considers the implications of the awards in terms of variance from the 50th percentile in the comparison data. However, the Compensation Committee also focuses on the executive’s individual responsibilities, skills, expertise and value added through performance, prior award accumulation, and other factors, and applies these views in conjunction with the information provided by the consultant. The performance of each officer is formally reviewed by management and shared with the Compensation Committee prior to the Compensation Committee’s annual determinations with respect to salary and target bonus adjustments, and long-term incentive awards. Our CEO presents the Compensation Committee with an individual performance overview for each executive officer, describing the officer’s accomplishments for the prior year, his or her strengths, areas of improvement and development plans and potential for additional responsibility. The Compensation Committee separately reviews CEO performance based on, among other factors considered relevant, Company

 

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performance, primarily adjusted non-GAAP EBITDA, revenue growth, earnings growth, earnings per share, and total shareholder return.

The Compensation Committee considers each component of executive compensation in light of total compensation. In considering awards and other adjustments to the total compensation of each Named Executive Officer, the Compensation Committee also considers the value of previous compensation, including then-outstanding equity grants. The Compensation Committee receives data for each executive officer prior to its annual determinations with respect to salary and target bonus adjustments and long-term incentive awards. The data generally includes compensation information for the number of years the executive officer has been employed with the Company, with total cash compensation, total long-term incentive, and total compensation values, as well as gains from option exercises and RSU (including PBRSU) vesting and the value of outstanding award opportunity. In 2011, at the Compensation Committee’s request, management also provided the Compensation Committee with information concerning expectations regarding the vesting of outstanding long-term incentive awards and the potential value of these awards to the executive. The Cook Report also provided the Compensation Committee with wealth accumulation data for each senior officer. The Compensation Committee uses these tally sheets and other data to evaluate whether the officer’s compensation, existing incentive opportunities from prior awards and wealth accumulation from prior awards reflects Company operating performance and stockholder value, as well as the particular officer’s performance, the extent to which they continue to motivate the officer, and whether adjustments are required to the program or an individual officer’s compensation. The Compensation Committee will also consider other external factors that it considers relevant, such as the financial condition of the Company and other issues facing us at the time.

The Compensation Committee considers contractual commitments in determining or recommending executive pay. Each of the Named Executive Officers has entered into an employment agreement with us. The employment agreements generally provide for an initial level of annual salary, a target percentage of annual salary that can be earned pursuant to the annual incentive plans, and a certain level of perquisites. However, the employment agreements also provide for periodic review by the Board or Compensation Committee of the officer’s salary and target percentage for the annual incentive plans. They also generally provide for certain payments in the event of termination of employment of the Named Executive Officer. The employment agreement of each Named Executive Officer is described below under the heading “Compensation of Executive Officers — Employment, Severance, and Change in Control Agreements and Arrangements” in this proxy statement. The terms of these arrangements were approved by the Compensation Committee after considering the aggregate of these obligations in the context of the desirability of hiring or retaining the applicable officer. In each case, the initial level of salary and target percentage provided for in the employment agreements of the Named Executive Officers was less than or equal to the current salary and target percentage of the Named Executive Officers. Therefore, contractual commitments did not play a significant role in compensation decisions for 2011.

When considering equity awards to our officers, including the Named Executive Officers, the Compensation Committee considers our equity availability and usage, the potential voting power dilution to our stockholders (“overhang”), stockholder value transfers (“SVT”) (the cost or expense of long-term incentive shares granted divided by market capitalization) and the projected impact on our earnings for the relevant years. The Cook Report included peer company data for certain of these measures. The Company believes that its share usage, SVT and potential dilution have generally been conservative compared to peer group levels.

While the Compensation Committee considers internal pay equity in making compensation decisions, we do not have a policy requiring any set levels of internal pay differentiation. As previously discussed, we generally target the compensation levels among our executives to be competitive with the market. This accounts for most of the difference in compensation among our Named Executive Officers. Based on

 

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information from the Cook Report, which shows 2010 salary and target bonus and three-year average long-term incentive value, the ratio of Mr. Jackson’s total target direct compensation to that of the other Named Executive Officers is: Mr. Colvin: 2.1:1; Mr. Mahoney: 2.3:1; Mr. Nelson: 1.7:1; and Mr. Cave: 3.5:1. You can review the SEC rule-based total compensation of each of our Named Executive Officers in the Summary Compensation Table below in this proxy statement. The Compensation Committee believes that the differentiation between the pay of Mr. Jackson, our CEO, and that of the other Named Executive Officers is appropriate.

Risk Analysis.    The Compensation Committee considers the potential for unacceptable risk taking in its compensation design. As a part of this analysis, the Compensation Committee annually reviews a detailed report on compensation practice throughout the Company prepared by management, which report is also reviewed by the Compensation Committee’s consultant. We believe that the design of our executive compensation program does not unduly incentivize our executives to take actions that may conflict with our long-term best interests. Material risk in our compensation design is mitigated in several ways, including as follows:

 

   

We have an appropriate mix of pay elements, with compensation not overly weighted toward short-term incentives.

 

   

Base salaries are intended to constitute a sufficient component of total compensation to discourage undue risk taking in the meeting of incentive goals.

 

   

Performance-based pay opportunities are designed with goals that are intended to result in long-term value to the stockholders.

 

   

Earnings goals and opportunity in our performance-based incentive programs are at levels intended to be attainable without the need to take inappropriate risks.

 

   

Bonus and incentive opportunities are capped so that the upside potential is not so large as to encourage detrimental risk taking.

 

   

Our stock-based incentives vest or are earned over a multi-year period, which provides long-term upside potential, but also requires the executive to bear the economic risk of the award over the vesting period.

 

   

Assuming achievement of at least a minimum level of performance, payouts under certain of our performance-based plans generally result in some compensation at levels below full target achievement, rather than an “all-or-nothing” approach.

 

   

Provisions of our performance-based awards that allow carry forward of unvested units if performance measures are not satisfied on the first possible vesting date mitigate the incentive to take unnecessary risks to satisfy those performance measures.

 

   

Different performance metrics in different programs and awards lessen the opportunity to take undue risk in meeting a single goal.

 

   

The stock components inherent in our long-term incentive program, combined with our stock ownership guidelines, align the interests of our executives with a goal of long-term appreciation of stockholder value.

 

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The Compensation Committee considers information from comparator companies in compensation design, thereby avoiding unusually high pay opportunities relative to the Company’s peers.

Elements of our Compensation Program

Our compensation programs are designed to provide a competitive total compensation package consistent with our performance in the marketplace and our desire to retain talented management. The compensation program for each of our executives generally includes:

 

   

base salary

 

   

semi-annual cash incentive awards tied to specific, quantifiable and objective performance measures;

 

   

annual equity awards, based on corporate and individual performance;

 

   

severance and change of control agreements;

 

   

perquisites; and

 

   

other benefits plans and programs.

While executives have more of their total compensation at risk than other employees, the principles that serve as the basis for executive compensation practices generally apply to the compensation plans for all employees; namely, corporate and individual performance drive incentive compensation.

Base Salary.   The Compensation Committee approved base salary increases effective July 2011 for each of the Named Executive Officers as set forth below:

 

   

 

        2010 Base Salary        

          2011 Base Salary                    % Increase         

 

Keith D. Jackson

  $760,000   $798,000   5.00%

 

Donald A. Colvin

  $421,200   $449,842   6.80%

 

Robert Mahoney

  $374,400   $387,504   3.50%

 

W. John Nelson

  $425,100   $454,857   7.00%

 

George H. Cave

  $348,600   $359,058   3.00%

In making determinations regarding these salary increases, the Compensation Committee considered information derived by management from the Cook Report as described above under “Processes and Procedures for Considering and Determining Executive Compensation – Use of Market Data” in this CDA. Based on that data, the Cook Report noted that 2010 base salaries were generally positioned at the competitive median consistent with the Company’s compensation philosophy and recommended only normal merit adjustments, with target 3-5% increases for covered employees. However, the Compensation Committee also considered the following information regarding the variances in the Named Executive Officers’ base salaries and total target cash compensation (as reported above under “Processes and Procedures for Considering and Determining Executive Compensation — Market Data”):

 

   

Prior to any adjustment, base salary for the Named Executive Officers varied from the 50th percentile in the following amounts: Mr. Jackson: -3.5%; Mr. Colvin: -5.0%; Mr. Mahoney: -1.4%; Mr. Nelson: -6.8%; and Mr. Cave: -1.1%.

 

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Prior to any adjustment, total cash compensation (including salary and annual incentive opportunity at target) for the Named Executive Officers varied from the 50th percentile as follows: Mr. Jackson: -3%; Mr. Colvin: -6%; Mr. Mahoney: 2%; Mr. Nelson: -12%; and Mr. Cave: -5%.

As a result, the Compensation Committee increased both base salaries, as shown in the chart above, and the bonus opportunities of certain officers, as described below under “Elements of our Compensation Program — Semi-Annual Cash Incentive Programs.” Following the 2011 salary increases and the increase in bonus opportunity in 2011, total target cash compensation variance from the 50th percentile for each of the Named Executive Officers was as follows: Mr. Jackson: +10%; Mr. Colvin: 0%; Mr. Mahoney: 6%; Mr. Nelson: -4%; and Mr. Cave: +1%. The salary increase for Mr. Jackson, Mr. Mahoney and Mr. Cave were within the merit adjustment range suggested by the independent consultant. The slightly higher increase for Mr. Colvin and Mr. Nelson was designed to bring the salary of these officers closer to the median.

Semi-Annual Cash Incentive Programs.    Our compensation program generally includes a semi-annual cash incentive award program for our executive officers under our 2007 Executive Incentive Plan (“Executive Incentive Plan”). We have used a semi-annual program to allow us to plan for the future while adjusting to the rapidly changing semiconductor market. The purpose of this program is to increase stockholder value by providing an incentive for key executives to achieve our strategic and financial goals and to perform to the best of their abilities. We paid no bonuses in 2009 for the second half of our 2008 annual incentive plan since the threshold performance target for payout was not achieved. The program was cancelled for 2009 due primarily to the economic downturn and other special considerations in effect at the time.

In 2010, we put in place a revised program after detailed analysis and study. Prior to 2010, the metrics for the bonus plan included revenue, gross margin, adjusted non-GAAP EBITDA and individual factors. For 2010, the Compensation Committee revised the metrics for the bonus plan to two metrics: non-GAAP earnings per share (“Adjusted EPS”) and organic revenue growth. The 2011 program also uses these metrics. The Compensation Committee believes that these metrics are easier for our various constituencies to understand and more closely relate to and approximate return to stockholders.

The 2011 program was based on the following principles:

 

   

Return to stockholders is the overriding objective.

 

   

The plan and performance metrics should be simple to apply and clearly understood.

 

   

The sum of the individual targets must be affordable. A corporate bonus program award pool was established for higher-level employees (grades 12 and higher) at 10% of non-GAAP net income after taxes, or approximately $40 million, at target, with approximately half allocated to the more senior level employees in the program and the other half to the other employees in the program. In 2011, the amount actually paid to the Company’s executive officers described in its Form 10-K Report for the year ended December 31, 2011 under the heading “Executive Officers of the Registrant,” including the Named Executive Officers, equaled approximately 9.78% of net income after tax.

 

   

The same metrics apply to both our executive officers and other employees in the program.

 

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The program continues to utilize targets based on Adjusted EPS and organic revenue growth with weighting of 80% Adjusted EPS and 20% organic revenue growth.

 

   

A bonus would be paid on each metric, with Adjusted EPS as the primary gate. There is no payout unless a threshold Adjusted EPS is achieved.

 

   

The program caps the bonus at 200% attainment factor and caps the amount that can be paid above target at 11% of non-GAAP net income.

 

   

The 2011 program excludes SANYO Semiconductor completely (i.e., revenue, earnings, employees, etc.).

For the 2011 bonus program, non-GAAP net income and Adjusted EPS will be consistent with the calculation of those measures in our earnings releases, which also contain a reconciliation of such measures to their most directly comparable GAAP measures. The calculation of Adjusted EPS in our earnings releases is based on our non-GAAP net income and includes stock compensation expense. Adjusted EPS generally excludes items such as gain (loss) on debt pre-payment; restructuring, asset impairment and other charges, net; inventory step up from purchase accounting; in process research and development; intangibles amortization; implied interest on convertible securities; non-cash portion of taxes; goodwill and intangible impairment; and other similar infrequent items.

The Compensation Committee believed that Adjusted EPS should be used as a measure for the bonus plan rather than EPS to prevent payments under the plan from being significantly impacted (positively or negatively) by extraordinary or unusual events or non-cash items. For example, an executive should not be deterred in taking necessary actions, such as restructuring or plant closures, due to the potential impact on his compensation, nor should he be influenced by incentive compensation to take actions that may result in one-time benefits to the Company. The Compensation Committee also considered adjustments eliminating the effect of certain non-cash items to be appropriate believing that the adjusted numbers are a better indicator of current actual Company operating performance.

For the 2011 bonus program, organic revenues are based upon our business as of January 1, 2011, excluding SANYO Semiconductor and other acquisition activity after that date. The Compensation Committee believed that these exclusions were appropriate for the same reasons stated above for Adjusted EPS. Organic revenues include the revenues of PulseCore Holdings (Cayman) Inc., which was acquired in November 2009, Sound Design Technologies, Ltd. (“SDT”), which was acquired in June 2010, and California Micro Devices Corporation (“CMD”) which was acquired in January 2010.

At its meeting on February 16, 2011, the Compensation Committee considered the award opportunity for each of the Named Executive Officers. The following table sets forth the award opportunity, expressed as a percentage of base salary, for 2010 and 2011 for each Named Executive Officer. The 2011 target % increase applied to the second half bonus program.

 

   

            Officer            

 

        2010 and First Half 2011         

Target % of Base Salary

 

        Second Half 2011 Target %         

of Base Salary

 

Keith D. Jackson

   130%    150%
 

Donald A. Colvin

  80%   80%
 

Robert Mahoney

  80%   80%
 

W. John Nelson

  80%   85%
 

George H. Cave

  65%   70%

 

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See “Elements of our Compensation Program — Base Salary” above for a description of certain survey data considered by the Compensation Committee in its consideration of these target percentages. The award opportunity increases for Mr. Jackson and Mr. Cave were generally designed to move them to the median for total target cash compensation or closer to median based on the survey data.

Cash Incentive Awards for the First Half of 2011.  On February 2, 2011, the Compensation Committee determined specific bonus plan parameters for our semi-annual cash incentive program for the first half of 2011 (“1H Bonus Program”). Consistent with past practice and as provided in the Executive Incentive Plan, the Compensation Committee has discretion with respect to the amount and payment of actual bonuses, including the right to pay such lesser amount as it determines.

As structured, cash bonuses under the 1H Bonus Program were to be paid only if the Company first achieved a minimum Adjusted EPS of $0.30 (including stock compensation expense) in the first half of 2011. Thereafter, actual bonuses under the 1H Bonus Program were based on achievement related to Adjusted EPS (weighted 80%) and organic revenue growth (weighted 20%). Payouts were adjusted on a linear basis from the 0% payout level to the 100% payout level and from the 100% payout level to the 200% payout level, in each case, including stock compensation expense, as follows:

 

                0% Payout                            100% Payout                            200% Payout             

  Adjusted EPS (1)

  $0.30   $0.45   $0.64

  Organic Revenue Growth

  0%   3%   10%

 

(1)

The amounts of Adjusted EPS for the 0% payout level, the 100% payout level and the 200% payout level excluding stock compensation expense were $0.36, $0.51 and $0.70, respectively.

If organic revenue growth was negative, there would be no bonus paid for the revenue growth portion of the plan, but a bonus could still be paid for Adjusted EPS.

Goals were set with the general guideline that the measurement points should be better than those in the previous year, although the state of the economy and the Company’s business generally were taken into account. As a general rule, amounts were set after considering impact on stockholder value. For the first half program, the targets were set such that projected total shareholder return would be approximately 22% at target and greater than 70% at maximum, based on an assumed price-to-earnings ratio of 10 and other information available at the time the targets were set. Because stock price performance is not always rationally based on Company performance, the Compensation Committee prefers to establish metrics for our programs that use a standard assumption of logic in the stock market and we use models that project TSR based on our program parameters. However, the Compensation Committee believes that focusing the executive on business functions within his or her control is a more effective motivational and retention tool than using stock price performance alone. In addition, the targets were set such that target performance was higher than budgeted performance.

Actual Adjusted EPS for the first half of 2011 was $0.412, versus a target of $0.45 (including stock compensation expense) and actual organic revenue growth for the first half of 2011 was 5.7% (versus a target of 3%), equaling an approximate 85.89% attainment factor. This resulted in the following cash incentive awards to our Named Executive Officers:

 

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                    Officer                 

 

                1H 2011 Salary                 

 

                Amount of Bonus Paid                 

 

        Keith D. Jackson

  $380,000   $424,297

 

        Donald A. Colvin

  $210,600   $144,707

 

        Robert Mahoney

  $187,200   $128,629

 

        W. John Nelson

  $212,550   $146,047

 

        George H. Cave

  $174,300   $97,309

Cash Incentive Awards for the Second Half of 2011.    On August 3, 2011, the Compensation Committee determined specific bonus plan parameters for the Corporation’s semi-annual cash incentive program for the second half of 2011 (“2H Bonus Program”). The 2H Bonus Program was substantially similar to the 1H Bonus Program except as described below.

As structured, cash bonuses under the 2H Bonus Program were to be paid only if the Company first achieved a minimum Adjusted EPS of $0.41 (including stock compensation expense) in the second half of 2011. The targets were set consistent with the methodology described with respect to the 1H Bonus Program. The 2H Bonus Program targets were the following, in each case including stock compensation expense, with Adjusted EPS weighted 80% and organic revenue growth weighted 20%, as with the first half program:

 

                0% Payout                            100% Payout                            200% Payout             

  Adjusted EPS (1)

  $0.41   $0.57   $0.76

  Organic Revenue Growth

  0%   5%   12%

 

(1)

The amounts of Adjusted EPS for the 0% payout level, the 100% payout level and the 200% payout level excluding stock compensation expense were $0.46, $0.62 and $0.81, respectively.

For the second half program, the targets were set such that projected total shareholder return would be approximately 26% at target and greater than 70% at maximum, based on an assumed price-to-earnings ratio of 10 and other information available at the time the targets were set. In addition, the targets were set such that target performance was higher than budgeted performance.

We did not achieve the minimum threshold levels for the second half 2011 program. This resulted in no payout to our Named Executive Officers for the second half of 2011.

We disclose the cash incentive awards for 2011 for the Named Executive Officers in the Summary Compensation Table and the Grant of Plan-Based Awards in 2010 table in this proxy statement.

2012 Program Revisions.    In February of 2012, the Compensation Committee revised the annual bonus program for our most senior executives, including our Named Executive Officers and certain other designated employees, due to the challenges facing the Company after the 2011 SANYO Semiconductor acquisition as a result of economic conditions in Japan and the natural disasters in 2011 affecting that business. The 2012 program will be an annual rather than semi-annual plan. For the senior executives, award opportunity for the program will be based on two performance metrics: second half 2012 revenue and fourth quarter 2012 exiting velocity cost savings, after achievement of a minimum non-GAAP EPS for the fourth quarter of 2012 of $.20, calculated consistent with the non-GAAP measures in our earnings releases. Exiting velocity cost savings is based on three categories of savings: operational, manufacturing restructuring, and SANYO Semiconductor head count restructuring. The two performance metrics are equally weighted and measured separately. A bonus can be earned on each metric even if the other is not achieved. Each executive participating in the program is granted an award opportunity based on a threshold (0%), target (100%), and stretch (300%) amount of eligible target bonus based on earned base

 

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salary compensation paid during the bonus period. The program is designed to pay at 100% at target in the 2012 budget. The 2012 program continues the Compensation Committee’s practice of using goals that can focus the executive on basic business metrics within his or her area of control. For the senior executive program, we include Company-wide revenue and cost saving goals, but recognize the importance of SANYO Semiconductor to Company performance by including specific cost saving goals related to SANYO Semiconductor. The Compensation Committee believes that these new measures will focus the executives on the fundamental steps needed to improve Company performance and will also assist with retention of key talent.

Other Information Regarding Cash Incentives.    The Compensation Committee annually reviews the bonus component of executive incentive compensation and, in addition to bonuses paid under the Executive Incentive Plan, the Compensation Committee may approve payment of discretionary bonuses to the Named Executive Officers for performance or other reasons. During fiscal 2011, we did not pay any discretionary bonuses to our Named Executive Officers.

Long-Term Incentives.  Long-term incentives for executives are entirely equity-based and are designed to reinforce the alignment of executive and stockholder interests. These rewards provide each individual with a significant incentive to manage from the perspective of an owner. Our long-term incentive grants in 2011 took the form of PBRSUs. The Compensation Committee granted those awards to our Named Executive Officers pursuant to our Amended and Restated Plan.

Statement of Financial Accounting Standards No. 123R altered the accounting treatment for stock options effective in 2006. Starting in 2006, our Company and many other public companies began issuing RSUs. While the value of the RSUs will fluctuate with changes in our stock price, RSUs will generally have some value in the long run, encouraging retention. To that extent, RSUs can provide greater compensation value than options, which can lose all value based on stock price decreases. Therefore, when using restricted stock or RSUs, we can issue fewer shares than in stock option grants, which may be less dilutive to our stockholders.

Starting in 2007, based in part upon advice from our independent consultants, we also granted certain PBRSUs. We determined that it was desirable to add PBRSUs to the portfolio of long-term incentives we offered executives because, unlike time-based RSUs, the payout of PBRSUs requires achievement of performance objectives, which increase the alignment between executive compensation and stockholder value enhancement.

In 2009, we adjusted our traditional annual grants practice of issuing a variety of equity forms (options, RSUs and PBRSUs) and issued only PBRSUs to our Named Executive Officers to reflect above-market practice and to drive stockholder value. In 2010 and 2011, the Compensation Committee made additional awards of PBRSUs under our annual equity grant program. Prior to making such grants, the Compensation Committee further considered the form in which we would deliver our equity awards, including comparative data from certain other companies, and determined to again use PBRSUs only, wanting to continue a pay for performance culture with respect to compensation to drive stockholder return and believing that, in certain countries, such awards have fewer legal, tax and accounting issues than options.

For 2011, the Compensation Committee considered a variety of metrics and chose adjusted non-GAAP EBIT (“Adjusted EBIT”) as the basis for the 2011 PBRSU awards. For 2010, the Compensation Committee had used adjusted non-GAAP EBITDA (“Adjusted EBITDA”) and total revenue as performance metrics. As a risk mitigation tool, the Compensation Committee chose a performance measure for 2011 that is different from the measures used in 2010 and the measures used for the semi-annual incentive plan, believing it advisable to have multiple measures applicable to different award

 

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opportunities. Given the challenges facing us at the time, particularly with respect to significant costs expected to result from the integration of SANYO Semiconductor, the Compensation Committee eliminated total revenue as a separate measure to focus the executive on the bottom line. The Compensation Committee also believes that EBIT is particularly relevant in our industry and in the challenging economic environment in which we operate and that it drives stockholder value. In addition, as with Adjusted EBITDA, the Company considers Adjusted EBIT to be an important tool in measuring the liquidity of the Company. Generally, it is intended that the calculation of Adjusted EBIT will be consistent with the calculation of adjusted non-GAAP EBITDA in our earnings releases, which also contain a reconciliation of adjusted non-GAAP EBITDA to the most directly comparable GAAP measure. As with Adjusted EPS, as applicable to the semiannual incentive plan, the Compensation Committee believed that the adjustments to EBIT were appropriate to avoid the impact (positive or negative) on achievement of the vesting parameters as a result of extraordinary or unusual items or non-cash items.

The following table sets out the 2011 PBRSUs granted to each Named Executive Officer:

 

 Keith D. Jackson

  

540,000

 Donald A. Colvin

  

170,000

 Robert Mahoney

  

120,000

 W. John Nelson

  

190,000

 George H. Cave

  

80,000

Vesting parameters for the 2011 PBRSU awards are as follows:

 

Performance

Measurement Period

 

Portion of Units

Eligible for Vesting

 

Adjusted

Non-GAAP EBIT

FY2011

  1/3 of grant   $529M

1H FY 2012

  1/6 of grant   $288M

2H FY 2012

  1/6 of grant   $331M

1H FY 2013

  1/6 of grant   $302M

2H FY 2013

  1/6 of grant   $365M

For any period in which the performance goal is not achieved, the applicable PBRSUs and performance goal will carryover and be available for vesting in the next relevant performance measurement period until the performance goal is achieved or the grant has expired. For the first performance measurement period, the carryover provision applies to any four consecutive quarters.

The Company projected an increase in total shareholder return of approximately 58% with full achievement of this award, based on an assumed price-to-earnings ratio of 12 and other information available at the time the targets were set. In keeping with the long-term focus that these awards are intended to engender in our executives, the awards have a three year performance period, generally with semi-annual vesting opportunities.

In determining these grants, the Compensation Committee considered certain data on final grant levels and on total direct compensation after subsequent compensation decisions showing that:

 

   

The annual grant value of the 2011 PBRSU awards (based on a stock price of $11.00 per share) varied from the 50th percentile for each of the Named Executive Officers as follows: Mr. Jackson: +49%; Mr. Colvin: +21%; Mr. Mahoney: +42%;

 

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Mr. Nelson: +19%; and Mr. Cave: +3% and varied from the 75th percentile for each Named Executive Officer as follows: Mr. Jackson: 0%; Mr. Colvin: -3%; Mr. Mahoney: -8%; Mr. Nelson: -2%; and Mr. Cave: -22%.

 

   

Following the salary increases and increase in bonus opportunity described above and taking into account the 2011 PBRSU awards, target total direct compensation variance from the 50th percentile for each of the Named Executive Officers would be as follows: Mr. Jackson: +30%; Mr. Colvin: +11%; Mr. Mahoney: +25%; Mr. Nelson: +12%; and Mr. Cave: +13% and varied from the 75 percentile for each Named Executive Officer as follows: Mr. Jackson: 0%; Mr. Colvin: -11%; Mr. Mahoney: -10%; Mr. Nelson: -11%; and Mr. Cave: -16%.

Award amounts for each individual were based on the comparative data and other factors and processes discussed above, as well as on the individual considerations described below. Generally, for these officers, amounts were set to be slightly less than the 75th percentile based on the applicable benchmarking data. The Compensation Committee considered that benchmarking to the 75th percentile for equity amounts in 2011 for Mr. Jackson, Mr. Colvin, Mr. Mahoney and Mr. Nelson was appropriate due to the decision of these officers to forego any long-term equity awards in 2010.

In setting the amount of equity awards and other compensation for 2011, the Compensation Committee also considered major achievements for each Named Executive Officer other than Mr. Jackson, including the following:

Mr. Colvin:

      •    Negotiation and consummation of the SANYO Semiconductor acquisition

      •    Strong cash management skills in an expanding sales and capital environment

      •    Exceeding of financial plans on key metrics

Mr. Mahoney:

      •    Grew customer relationships in a capacity-constrained market

      •    Strengthened sales team and integrated customer service function

      •    Exceeding of sales plans and cost metrics

Mr. Nelson:

      •    Executed on factory ramps and capital equipment installations

      •    Improved performance of certain key manufacturing facilities

      •    Exceeding of operations plans on key metrics

Mr. Cave:

      •    Legal advice regarding SANYO Semiconductor and other acquisitions

      •    Leadership of the Company’s Compliance and Ethics Program

      •    Demonstrated strong legal expertise and judgment

See “Compensation of Executive Officers — 2011, 2010, and 2009 Awards of PBRSUs — 2011 Awards of PBRSUs” below in this proxy statement for further description of the 2011 PBRSU awards. We also disclose these awards in the Summary Compensation Table in this proxy statement. The Grant of Plan-

 

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Based Awards table, the Outstanding Equity Awards at Fiscal Year-End 2011 table and the 2011 Option Exercises and Stock Vested table also contain information about our long-term incentive awards to Named Executive Officers.

In February 2012, the Compensation Committee made annual long-term incentive grants to the Named Executive Officers. In a change from prior years and based upon the recommendation of the Compensation Committee’s consultant at the time and studies of peer company practice, the Compensation Committee made awards to each Named Executive Officer, except Mr. Mahoney, consisting of one-third PBRSUs, one-third time-based RSUs, and one-third options. Mr. Mahoney’s award consisted of one-half PBRSUs and one-half time-based RSUs. The performance goals for the PBRSUs are based on adjusted non-GAAP EBITDA, including SANYO Semiconductor and any merger and acquisition activity. Based upon performance, vesting can occur over a period of three years in increments of up to one-third during 2012 and up to one-twelfth in each fiscal quarter thereafter. There is both a threshold and target performance goal with equal weighting for each period. For any period in which the performance goal is not achieved, the applicable PBRSUs and related performance goal for such period will carryover and be available for vesting in the next relevant performance measurement period until the performance goal is achieved or the grant has expired. For the first performance measurement period, the carryover provision applies to any four consecutive quarters. For each of the Named Executive Officers, except Mr. Mahoney, the RSUs will vest annually in equal one-third increments on each anniversary of the grant date over a three year period, subject to the award agreement. Mr. Mahoney’s RSUs will vest in full on the first anniversary of the grant date, subject to the award agreement. One quarter of the options will vest on the first anniversary of the grant date and the remainder will vest quarterly in one-sixteenth increments thereafter on each three-month anniversary for the next three years, subject to the award agreement.

Other Elements Affecting Compensation

Severance and Change in Control Agreements.   Under the 2000 SIP and the Amended and Restated Plan, the Board of Directors has discretion to accelerate equity-based vesting upon a “change of control.” In addition, with respect to our Named Executive Officers, our outstanding option agreements, RSU agreements, and PBRSU agreements generally contain provisions causing the unvested portion of the awards to vest either upon a termination of employment without cause (including, if applicable, a deemed termination for good reason) within a two year period after a change of control. For a description of the severance and change of control provisions of the employment agreements for our Named Executive Officers, see “Compensation of Executive Officers — Employment, Severance, and Change In Control Agreements and Arrangements” and “Compensation of Executive Officers — Potential Payments Upon Termination of Employment or Change of Control” below in this proxy statement.

We believe that our severance benefits and change of control arrangements are consistent with the principal objectives of our compensation programs. To the extent a Named Executive Officer’s agreement contains severance benefits or a change of control provision, such benefit is predicated upon the Named Executive Officer being terminated “without cause” or resigning “for good reason,” as such terms are defined in their agreements. In addition, our severance benefits are subject to the Named Executive Officer signing a general release and waiver and complying with certain restrictive covenants, including non-solicitation, confidentiality and non-disparagement agreements, as well as non-competition or non-interference agreements, which serves the best interests of the Company and its stockholders.

We believe that our management has played a crucial role in making us a successful company and it sends an important signal to the market and potential employees that we are willing to protect our management with some guaranteed compensation in the event of a termination after a change of control. In addition,

 

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management may be less reluctant to resist change of control transactions that are in the best interests of our stockholders if they have the added security that comes with such change of control arrangements.

Our change of control provisions do not include excise tax gross-ups.

Generally Available Benefits and Retirement Plan.   We do not offer executive retirement plans, pension benefits, or non-qualified deferred compensation plans. Instead, we provide our Named Executive Officers with opportunities to accumulate retirement income primarily through appreciation of their equity awards.

Consistent with our pay-for-performance compensation philosophy, we do not provide our executive officers with significant perquisites, other than those offered to our employees generally. Executives are eligible to participate in benefit programs designed for all of the Company’s full-time employees. These programs include a tax qualified stock purchase plan, a 401(k) savings plan, and medical, dental, disability and life insurance programs. We also have a relocation program and provide a tax gross up for certain benefits under this program that is available to all employees who enjoy the benefits of the relocation policy. All employees receive mileage reimbursement if driving their own cars for business. An auto allowance of $800.00 per month is provided to outside sales and field engineering positions and $1,200 per month is provided to Senior Vice Presidents and above.

In addition to benefits that provide for broad-based employee participation, we provide our executives limited perquisites that we believe help to maintain the competitiveness of our compensation package vis-à-vis our peer companies and provide value at a reasonable cost to the Company. These include enhanced coverage for life insurance (each executive receives life insurance coverage of $1,000,000, which is $500,000 above the maximum allowed standard coverage of two-times base salary that is afforded to all employees) and financial planning services (up to $10,000.00 per year). Executives do not receive a tax gross-up on benefits and are taxed accordingly.

We describe the perquisites paid in 2011 to each of the Named Executive Officers in the Summary Compensation Table of this proxy statement.

Impact of Taxation and Accounting Considerations on Executive Compensation

Our Compensation Committee attempts to establish executive officer compensation programs that will maximize our related income tax deductions to the extent it determines that such actions are consistent with our compensation philosophy and in the best interests of our stockholders.

Section 162(m) of the Code places a $1 million limit on the amount of compensation the Company can deduct in any one year for compensation paid to our CEO and the three other most highly compensated executive officers (excluding the chief financial officer). This $1 million limit does not apply to compensation that qualifies for the “performance-based compensation” exception to Section 162(m). While the Compensation Committee considers the deductibility of awards as a factor in determining executive compensation, the Compensation Committee reserves the right to make compensation payments and awards that do not qualify for the performance-based compensation exception to Section 162(m) when it believes such payments are appropriate and in the best interests of the Company.

The semi-annual cash bonus awards made pursuant to the Company’s Executive Incentive Plan are intended to qualify for the “performance-based compensation” exception to the limitation on deducibility imposed by Section 162(m). The full amount of compensation resulting from the exercise of options and the vesting of PBRSUs granted under our 2000 SIP and the Amended and Restated Plan is also intended to qualify for the “performance-based compensation” exception. The amount of compensation resulting

 

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from the vesting of time-based RSUs granted pursuant to our 2000 SIP and the Amended and Restated Plan does not qualify for the “performance-based compensation” exception.

The determination of whether compensation qualifies for the “performance-based compensation” exception under Section 162(m) is complex and is based on the facts and circumstances of each case. Consequently, we cannot guarantee that compensation that is intended to qualify for the “performance-based compensation” exception under Section 162(m) will in fact so qualify.

Section 409A of the Code imposes an additional 20% federal income tax and penalties on “non-qualified deferred compensation” that is not paid in compliance with Section 409A. The Compensation Committee takes the impact of Section 409A into account in designing our executive plans and programs that provide for “non-qualified deferred compensation.” As a general rule, these plans and programs are designed either to comply with the requirements of Section 409A or to qualify for an applicable exception so as to avoid possible adverse tax consequences that may result from failure to comply with Section 409A.

The Compensation Committee also takes into account other tax and accounting consequences of its total compensation program and weighs these factors when setting total compensation and determining the individual elements of an officer’s compensation package.

Other Matters Relating to Executive Compensation

Hedging Transactions.   We have a comprehensive Insider Trading Policy, which, among other things, provides that insiders shall not engage in short sales of, purchase on margin, or buy or sell puts, calls or other derivatives of our securities because of the potential conflict of interest or the perceptions created and the resulting possible impact on the market.

Equity Award Policy.   In August 2006, we adopted an equity award grant date policy statement. Under the policy, equity grants under our stock incentive plans generally become effective on the first Monday (or next following trading day if the first Monday is not a trading day) of the next month following the date of Board, Compensation Committee or CEO approval of the grant. Options granted are priced at the closing market value on the date of grant. We generally make our annual equity awards to executives in the first quarter of each year. The Company does not have a practice of timing grants of stock-based awards to coordinate with the release of material information to the market.

Stock Ownership Guidelines for Officers.   Under our Corporate Governance Guidelines, our officers are required to hold our common stock in an amount equal to one to five times base salary. There is a transition period to achieve the required ownership. The required holdings and transition period are described under “The Board of Directors and Corporate Governance — Corporate Governance Principles — Directors’ and Officers’ Stock Ownership Guidelines” above. All of our Named Executive Officers have achieved the required ownership levels.

 

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COMPENSATION COMMITTEE REPORT2

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in the proxy statement for the 2012 Annual Meeting of Stockholders. Based on such review and discussion, the Compensation Committee recommended to the Board of Directors of the Company that the Compensation Discussion and Analysis be included in the Company’s 2011 Annual Report on Form 10-K and the proxy statement for the 2012 Annual Meeting.

This report is submitted by the Compensation Committee.3

Robert H. Smith, Chairman

Curtis J. Crawford

J. Daniel McCranie

 

 

 

 

 

 

 

 

 

 

 

 

 

2 Pursuant to Instruction 1 to Item 407(e)(5) of Regulation S-K, the information set forth under “Compensation Committee Report” shall not be deemed to be “soliciting material” or to be “filed” with the Commission or subject to Regulation 14A or 14C, other than as provided in Item 407 of Regulation S-K, or to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically request that the information be treated as soliciting material or specifically incorporate it by reference into a document filed under the Securities Act of 1933, as amended (“Securities Act”), or the Exchange Act. Such information will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent we specifically incorporate it by reference.

3 Mr. Abe joined the Compensation Committee on March 21, 2012 and therefore did not participate in the review and discussion with management regarding the Compensation Discussion and Analysis included in the proxy statement for the 2012 Annual Meeting of Stockholders and the related recommendation to the Board.

 

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COMPENSATION OF EXECUTIVE OFFICERS

The following tables set forth information concerning compensation earned by, or paid for services provided to us and our subsidiaries for the periods indicated to: (i) all persons serving as our principal executive officer or as principal financial officer during 2011; (ii) the three most highly paid executive officers who were serving as executive officers at the end of 2011 other than the principal executive officer and the principal financial officer; and (iii) up to two additional individuals who would have been included except that the individual was not serving as an executive officer at the end of 2011 (“Named Executive Officers”).

Summary Compensation Table

 

Name and

Principal

Position

  Year     Salary
($) (1)
    Bonus ($)     Stock
Awards
($) (2)
    Option
Awards
($) (3)
    Non-Equity
Incentive Plan
Compensation
($) (4)
   

Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings

($) (5)

    All Other
Compensation
($) (6)
    Total ($)  
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)  

 Keith D. Jackson,

 President and

 Chief

 Executive Officer

   

 

 

2011

2010

2009

  

  

  

   

 

 

777,539

726,394

609,654

  

  

  

   

 

 

0

0

0

  

  

  

   

 

 

4,819,500

0

5,633,274

  

  

  

   

 

 

0

0

0

  

  

  

   

 

 

424,297

1,068,127

0

  

  

  

   

 

 

0

0

0

  

  

  

   

 

 

30,092

30,172

27,892

  

  

  

   

 

 

6,051,428

1,824,693

6,270,820

  

  

  

 Donald A. Colvin,

 Executive Vice

 President and

 Chief Financial

 Officer

   

 

 

2011

2010

2009

  

  

  

   

 

 

434,419

397,523

350,481

  

  

  

   

 

 

0

0

0

  

  

  

   

 

 

1,517,254

0

3,008,361

  

  

  

   

 

 

0

0

0

  

  

  

   

 

 

144,707

367,345

0

  

  

  

   

 

 

0

0

0

  

  

  

   

 

 

30,477

29,992

29,684

  

  

  

   

 

 

2,126,857

794,860

3,388,526

  

  

  

           

 Robert Charles

 Mahoney,

 Executive Vice

 President, Sales

 and Marketing

   

 

 

2011

2010

2009

  

  

  

   

 

 

380,448

360,277

304,615

  

  

  

   

 

 

0

0

0

  

  

  

   

 

 

1,071,000

0

2,343,812

  

  

  

   

 

 

0

0

0

  

  

  

   

 

 

128,629

326,529

0

  

  

  

   

 

 

0

0

0

  

  

  

   

 

 

32,276

38,902

34,816

  

  

  

   

 

 

1,612,353

725,708

2,683,243

  

  

  

                   

 W. John Nelson,

 Ph.D., Executive

 Vice President and

 Chief Operating

 Officer

   

 

 

2011

2010

2009

  

  

  

   

 

 

438,834

407,550

315,000

  

  

  

   

 

 

0

0

0

  

  

  

   

 

 

1,695,757

0

4,263,119

  

  

  

   

 

 

0

0

0

  

  

  

   

 

 

146,047

360,674

0

  

  

  

   

 

 

0

0

0

  

  

  

   

 

 

30,486

29,963

29,963

  

  

  

   

 

 

2,311,124

798,187

4,608,082

  

  

  

 George H. Cave,

 Senior Vice

 President, General

 Counsel, Chief

 Compliance &

 Ethics Officer and

 Secretary(7)

   

 

 

2011

2010

2009

  

  

  

   

 

 

353,427

340,300

280,923

  

  

  

   

 

 

0

0

0

  

  

  

   

 

 

714,004

571,200

1,263,265

  

  

  

   

 

 

0

0

0

  

  

  

   

 

 

97,309

245,629

0

  

  

  

   

 

 

0

0

0

  

  

  

   

 

 

30,035

29,471

48,343

  

  

  

   

 

 

1,194,775

1,186,600

1,592,531

  

  

  

 

(1)

Salary amounts in this column take into account reductions resulting from work furloughs.

 

(2)

Amounts in this column represent the aggregate grant date fair value of awards of PBRSUs computed in accordance with FASB ASC Topic 718 (formerly FAS 123R) for 2011, 2010 and 2009. For PBRSUs, the grant date fair value is calculated by multiplying the probable number of units to vest as of the grant date by the closing price of a share of common stock on the grant date. The valuation is based upon the probable outcome of the performance conditions underlying the PBRSUs, consistent with the estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under FASB ASC Topic 718

 

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(formerly FAS 123R), excluding the effect of estimated forfeitures. We describe the 2011, 2010 and 2009 awards of PBRSUs below under “2011, 2010 and 2009 Awards of PBRSUs” and in the CD&A under “Elements of our Compensation Program — Long-Term Incentives.”

The amounts in this column do not necessarily represent the fair value for expensing purposes or the fair value of awards which were expected to vest as of December 31, 2011. For example, as of December 31, 2011, approximately one-third of the PBSRUs awarded on March 7, 2011 were expected to vest. The estimated number of units which are expected to vest are evaluated and adjusted each reporting period, as necessary, in connection with the Company’s quarterly and annual financial statements. We describe the 2011, 2010 and 2009 awards of PBRSUs below under “2011, 2010 and 2009 Awards of PBRSUs” and in the CD&A under “Elements of our Compensation Program — Long-Term Incentives.”

With respect to awards of PBRSUs made in 2011, 2010 and 2009 and included in the table, the chart below sets forth the maximum number of PBRSUs that could vest or could have vested if all performance conditions are or were met as well as the aggregate grant date fair value of the award on the date of grant assuming that the highest level of performance conditions will be or would have been achieved:

 

   

    Name

    Grant Date     Total
  Number of  
Units
    Fair Value 
per Share
($)
    Aggregate Grant 
Date Fair Value
($)
   
 

 Keith D. Jackson

      

 

03/07/2011 

03/02/2009 

 

 

      

 

540,000   

1,686,609   

 

 

   10.71

3.34

      

 

5,783,400       

5,633,274       

 

 

 
 

 Donald A. Colvin

      

 

03/07/2011 

03/02/2009 

 

 

      

 

170,000   

900,707   

 

 

   10.71

3.34

      

 

1,820,700       

3,008,361       

 

 

 
 

 Robert Charles Mahoney

      

 

03/07/2011 

03/02/2009 

 

 

      

 

120,000   

701,740   

 

 

   10.71

3.34

      

 

1,285,200       

2,343,812       

 

 

 
 

 W. John Nelson

      

 

03/07/2011 

03/02/2009 

 

 

      

 

190,000   

1,276,383   

 

 

   10.71

3.34

      

 

2,034,900       

4,263,119       

 

 

 
 

 George H. Cave

      

 

 

03/07/2011 

02/16/2010 

03/02/2009 

 

 

 

      

 

 

80,000   

70,000   

378,223   

 

 

 

   10.71

8.16

3.34

      

 

 

856,800       

571,200       

1,263,265       

 

 

 

 

 

 

(3)

The Company did not award options to our Named Executive Officers in 2011, 2010 or 2009.

 

(4)

The amount in this column consists of earnings by each Named Executive Officer under our semi-annual cash incentive programs in 2011 and 2010. The Company canceled the semi-annual cash incentive program for 2009.

 

(5)

The deferred compensation plan was terminated effective in 2005. There are no defined benefit or actuarial pension plans with respect to our Named Executive Officers.

 

(6)

Amounts in this column for 2011 consist of: (i) our contributions under our 401(k) plan of $9,800 for each Named Executive Officer; (ii) Executive Group Term Life Insurance imputed income as follows: Mr. Jackson — $4,902, Mr. Colvin — $4,902, Mr. Mahoney — $7,524, Mr. Nelson — $4,902, and Mr. Cave — $2,622 (the actual cost to the Company for medicare tax associated with the Executive Group Term Life Insurance imputed income is $37 for Messrs. Jackson, Colvin, Nelson, and Cave and $57 for Mr. Mahoney); (iii) premiums paid for Executive Group Term Life, excluding coverage for basic policies awarded to all eligible employees, was $432 for each Named Executive Officer; (iv) premiums for Executive Accidental Death and Dismemberment of $120 for each Named Executive Officer; (v) car allowance for each Named Executive Officer of $14,400; (vi) financial planning services for Mr. Cave of $1,990; and (vi) imputed income for post-tax long-term disability insurance benefit payments to Mr. Jackson — $438, Mr. Colvin — $823, Mr. Nelson — $832, and Mr. Cave — $671 (the actual cost to the Company for medicare tax associated with the imputed income for post-tax long term disability insurance benefits is: Mr. Jackson — $6, Mr. Colvin — $12, Mr. Nelson — $12, and Mr. Cave — $10). A tax gross-up for financial planning services was cancelled by the Compensation Committee in early 2011.

 

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Grants of Plan-Based Awards in 2011

 

                  

Estimated Possible Payouts

Under Non-Equity Incentive

Plan Awards (2)

   

Estimated Future Payouts

Under Equity Incentive

Awards (3)

   

All

Other

Stock

Awards:

   

All

Other

          

Grant

Date

 
Name  

Grant

Date

   

Approval

Date

(1)

   

Threshold

($)

   

Target

($)

   

Maximum

($)

   

Threshold

(#)

   

Target

(#)

   

Maximum

(#)

   

Number

Of

Shares

Of

Stock

Of

Units

(#)(4)

   

Options

Awards:

Number

Of

Securities

Underlying

Options

(#)(4)

   

Exercise

Of

Base Price

Of

Option
Awards

($/Sh)

   

Fair

Value

Of

Stock

And

Option

Awards

($)(5)

 
(a)   (b)           (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)     (k)     (l)  

Keith D.

Jackson

 

    03/07/2011        02/16/2011        0        1,090,308        2,180,615        90,000        --        540,000        --        --        --        4,819,500   

Donald A.

Colvin

 

    03/07/2011        02/16/2011        0        347,535        695,071        28,333        --        170,000        --        --        --        1,517,254   

Robert Charles

Mahoney

 

    03/07/2011        02/16/2011        0        304,358        608,717        20,000        --        120,000        --        --        --        1,071,000   

W. John Nelson

 

    03/07/2011        02/16/2011        0        362,381        724,763        31,666        --        190,000        --        --        --        1,695,757   

George H. Cave

 

    03/07/2011        02/16/2011        0        238,684        477,367        13,333        --        80,000        --        --        --        714,004   

 

(1)

Pursuant to the Company’s Equity Award Grant Date Policy Statement, the date of grant is the first Monday (or the next following trading day if that Monday is not a trading day) of the month following the month in which the grant was approved by either the Board or the Compensation Committee. For additional information regarding our Equity Award Grant Date Policy Statement, see “Other Matters Relating to Executive Compensation — Equity Award Policy” in the CD&A.

 

(2)

Amounts in this column represent the possible payouts under the Company’s semi-annual cash incentive program which is described in the CD&A under “Elements of our Compensation Program — Semi-Annual Cash Incentive Programs.” Possible payouts were calculated based on target and maximum bonus percentages (expressed as a percentage of eligible earnings) set for each officer multiplied by the officer’s eligible earnings in effect for the particular semi-annual period. The incentive programs for the first and second half of 2011 were established by the Compensation Committee on February 2, 2011 and August 3, 2011, respectively.

 

(3)

This column represents PBRSU awards made in 2011. The amounts in the “Threshold” column (f) represent the minimum number of units that would vest, if any, under the award agreements for the 2011 PBRSUs assuming that certain performance measure(s) are achieved. If no performance measures are achieved, then no units will vest. The amounts in the “Maximum” column (h) represent the total number of units granted assuming that all performance goals are achieved and therefore all units would vest. These awards are described below under “2011, 2010, and 2009 Awards of PBRSUs.”

The amounts in these columns do not necessarily represent the number of shares used for expensing purposes or the number of units which were expected to vest as of December 31, 2011. For example, as of December 31, 2011, approximately one-third of the PBSRUs awarded on March 7, 2011 and discussed under “2011, 2010 and 2009 Awards of PBRSUs” were expected to vest. The estimated number of units which are expected to vest are evaluated and adjusted each reporting period, as necessary, in connection with the Company’s quarterly and annual financial statements.

 

(4)

The Company did not award options or time-based RSUs to any of its Named Executive Officers in 2011.

 

(5)

This amount represents the grant date fair value of the award calculated in accordance with FASB ASC Topic 718 (formerly FAS 123R). The grant date fair value is the closing price on the date of grant. The valuation is based upon the probable outcome of the performance conditions underlying the PBRSUs, consistent with the

 

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estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under FASB ASC Topic 718 (formerly FAS 123R), excluding the effect of estimated forfeitures. We describe the maximum number of PBRSUs that could vest if all performance conditions are met as well as the aggregate grant date fair value of the award on the date of grant in footnote 2 to the Summary Compensation Table.

2011, 2010, and 2009 Awards of PBRSUs

Below is a summary of the 2011, 2010 and 2009 awards of PBRSUs. For additional information regarding awards of PBRSUs see the CD&A under “Elements of Our Compensation Program — Long-Term Incentives” in this Proxy Statement.

2011 Awards of PBRSUs. Effective February 16, 2011, the Compensation Committee awarded PBRSUs to certain Named Executive Officers pursuant to the Amended and Restated Plan. The general objective of the 2011 PBRSU awards was to drive employee and Company performance using adjusted non-GAAP EBIT as the key performance metric of the Company for the applicable fiscal year and quarters. The Compensation Committee granted Mr. Jackson 540,000 PBRSUs, Mr. Colvin 170,000 PBRSUs, Mr. Mahoney 120,000 PBRSUs, Mr. Nelson 190,000 PBRSUs, and Mr. Cave 80,000 PBRSUs.

Each PBRSU represents the right to receive one share of the Company’s common stock, subject to the terms and conditions of the award. The performance period for the 2011 PBRSU awards begins on January 1, 2011 and ends on December 31, 2013. These awards will vest (if at all) in possible increments described below (subject to the carry forward of unvested units described below) on the date the Company files its Annual Report on Form 10-K for each of the 2011, 2012 and 2013 fiscal years and the date the Company files its Quarterly Report on Form 10-Q for the second quarter of each of the 2012 and 2013 fiscal years, provided the applicable performance measures are achieved.

If the performance measures for adjusted non-GAAP EBIT are met for the fiscal year or quarter, as applicable, one-third of the eligible units will vest on the date the Company files its Annual Report on Form 10-K for fiscal year 2011 and one-sixth of the eligible units will vest on each relevant vesting date thereafter. If the performance measures for non-GAAP EBIT are not met for the relevant measurement period, no portion of the units will vest on the relevant vesting date. Any unvested units will carryover to subsequent performance measurement periods until either the performance measure is met or the grant has expired. For example, if the performance goal is not met on the date the Company files its Annual Report on Form 10-K for fiscal year 2011, the unvested units and the adjusted non-GAAP EBIT performance goal will carry over and the units will vest if the adjusted non-GAAP EBIT performance goal for fiscal year 2011 is satisfied during any four consecutive calendar quarters, provided that the cumulative non-GAAP EBIT for those four consecutive quarters is at least $529 million. Any unvested units for the first performance measurement period will not expire until all unvested units expire on the date that the Company files its Form 10-K for fiscal year 2013. To take another example, if the performance goal for the first half of fiscal 2012 is not met on the date the Company files its Quarterly Report on Form 10-Q for the second quarter of fiscal year 2012, the unvested units and the adjusted non-GAAP EBIT performance goal will carry over and the units will vest if the adjusted non-GAAP EBIT performance goal for first half of 2012 is satisfied during the second half of fiscal 2012 or any subsequent quarterly period, provided that the cumulative non-GAAP EBIT for the second half of 2012 or such other period is at least $288 million. Any unvested units for the second performance measurement period will not expire until all unvested units expire on the date that the Company files its Form 10-K for fiscal year 2013.

All units carried forward related to the applicable adjusted non-GAAP EBIT performance goal shall vest on the relevant vesting date and any then remaining unvested units as of the performance measurement period ending date shall expire on the earlier of (i) the date on which the Company files its Form 10-K for

 

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fiscal year 2013, or (ii) the last day of the first quarter of fiscal year 2014 provided that the Company has determined the attainment of the performance goals.

The applicable performance measures are as follows:

 

Performance

   Measurement Period   

    Measurement 
Period #
    Portion of Units  
Eligible for
Vesting
  Performance Goals
(dollars in  millions)
  Vesting Date
       Adjusted Non-GAAP  
EBIT  
 

FY 2011

  1   1/3   $529  

Date on which Company files its Form 10-K for FY 2011

1H FY 2012

  2   1/6   $288  

Date on which Company files its Form 10-Q for 2nd quarter of FY 2012

2H FY 2012

  3   1/6   $331  

Date on which Company files its Form 10-K for FY 2012

1H FY 2013

  4   1/6   $302  

Date on which Company files its Form 10-Q for 2nd quarter of FY 2013

2H FY 2013

  5   1/6   $365  

Date on which Company files its Form 10-K for FY 2013

Under the 2011 PBRSU award agreements, adjusted non-GAAP EBIT means the Company’s consolidated earnings, which includes merger and acquisition activities such as the 2011 SANYO Semiconductor acquisition, before interest (income or expense) and taxes (or “EBIT”) for the applicable performance measurement period, adjusted to exclude the following: (i) goodwill and intangible impairment and amortization; (ii) restructuring, asset and other, net; (iii) inventory step up from purchase accounting and (iv) in-process research and development expense, but shall specifically include merger and acquisition activity of the Company, including the SANYO Semiconductor acquisition. Subject to certain limitations, the Committee has the express authority under the 2011 PBRSU award agreement to adjust the performance measures for adjusted non-GAAP EBIT, as it deems appropriate in its sole discretion, to exclude the effect (whether positive or negative) of any of the following occurring after the grant date of the award: other unusual or infrequent matters or events, or special items similar to the items that the Company excludes or includes (as applicable) when calculating adjusted non-GAAP EBIT. Each such adjustment, if any, shall be made solely for the purpose of providing a consistent basis from period-to-period for the calculation of the performance goals in order to prevent the dilution or enlargement of the grantee’s rights with respect to the award. Subject to certain limitations, the Committee also has the authority to determine that an alternate method to determine adjusted non-GAAP EBIT would be more appropriate to achieve the objectives of the award.

Generally, it is intended that the calculation of adjusted non-GAAP EBIT will be consistent with the calculation of non-GAAP EBITDA in our earnings releases, which also contain a reconciliation of non-GAAP EBITDA to the nearest GAAP measure.

If the Named Executive Officer’s employment is terminated without Cause (including a deemed termination for Good Reason), as such terms are defined in the grantee’s employment agreement, within two years following a Change in Control (as such term is defined in the Amended and Restated Plan) of the Company, any previously unvested PBRSUs will become vested.

As of March 6, 2012, none of the 2011 PBRSUs for Messrs. Jackson, Colvin, Mahoney, Nelson and Cave had vested.

The Company has filed a form of award agreement for the 2011 PBRSUs as an exhibit to its reports filed under the Exchange Act.

 

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2010 Awards of PBRSUs. Effective February 16, 2010, the Compensation Committee awarded PBRSUs to certain Named Executive Officers pursuant to the 2000 SIP. The general objective of the 2010 PBRSU awards was to drive employee and Company performance using two key performance metrics, adjusted non-GAAP EBITDA and total revenue of the Company for the applicable fiscal year. Messrs. Jackson, Colvin, Mahoney and Nelson volunteered to not receive any 2010 PBRSU awards so that their grants could be redirected to other employees at the Company. The Compensation Committee considered each officer’s awards from prior years, particularly the 2009 grants, and other compensation data and information as described in the CD&A, and agreed to forego making 2010 PBRSU awards to these officers. Mr. Cave was awarded 70,000 2010 PBRSUs.

Each PBRSU represents the right to receive one share of the Company’s common stock, subject to the terms and conditions of the award. The performance period for the 2010 PBRSU awards begins on January 1, 2010 and ends on December 31, 2012. These awards will vest (if at all) in possible increments described below (subject to the carry forward of unvested units described below) on the date the Company files its Annual Report on Form 10-K for each of the 2010, 2011 and 2012 fiscal years, provided the applicable performance measures are achieved.

If the minimum performance measures for both revenue and adjusted non-GAAP EBITDA are met for the fiscal year, 50% of the eligible units will vest on the relevant vesting date. If the applicable maximum performance measures with respect to both revenue and adjusted non-GAAP EBITDA are met for the fiscal year, the other 50% of the eligible units will vest on the relevant vesting date. If the minimum performance measures for both revenue and adjusted non-GAAP EBITDA are not met for the fiscal year, no portion of the units will vest on the relevant vesting date. Any unvested units will carry forward to subsequent fiscal years until the cumulative minimum performance measures for both revenue and adjusted non-GAAP EBITDA for the fiscal years or the cumulative maximum performance measures for both revenue and adjusted non-GAAP EBITDA for the fiscal years are met, and then all units carried forward related to these measures will vest at the appropriate level (50% or 100%) on the relevant vesting date. If the minimum performance measures are met with respect to both revenue and adjusted non-GAAP EBITDA on the relevant vesting date, but the maximum performance measures are not met, 50% of the eligible units shall vest on the relevant vesting date and the remaining 50% of units shall carry forward to subsequent fiscal years until the cumulative maximum performance measures for both revenue and adjusted non-GAAP EBITDA are met for the relevant fiscal years, and then all units carried forward related to these measures shall vest at the appropriate level (50% or 100%) on the relevant vesting date.

The applicable performance measures are as follows:

 

            Performance Measures4
(dollars in millions)
   

Year of Performance

      Portion of Units Eligible for    
Vesting
                       Revenue                         Adjusted Non-GAAP EBITDA  
 

 FY 2010 (possible vesting in Q1 2011):

     
       
    1/3   Minimum: $2,000

 

Maximum: $2,060

  Minimum: $400

 

Maximum: $440

       
       
 

 FY 2011 (possible vesting in Q1 2012):

     
       
    1/3   Minimum: $2,000

 

Maximum: $2,140

  Minimum: $400

 

Maximum: $480

 

 

4 The “minimum” represents the performance measures the grantee must meet to vest in 50% of the units for a given fiscal year and the “maximum” represents the performance measures the grantee must meet to vest in 100% of the units for a given fiscal year.

 

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            Performance Measures4
(dollars in millions)
   

Year of Performance

      Portion of Units Eligible for    
Vesting
                       Revenue                         Adjusted Non-GAAP EBITDA  
 

 FY 2012 (possible vesting in Q1 2013):

     
       
    1/3   Minimum: $2,000

 

Maximum: $2,200

  Minimum: $400

 

Maximum: $520

       
       

Under the 2010 PBRSU award agreements, adjusted non-GAAP EBITDA means the Company’s earnings before interest (income or expense), taxes, depreciation, and amoritization (or “EBITDA”) for the applicable year, adjusted to exclude the following: (i) in-process research and development expense; (ii) restructuring, asset and goodwill impairment and other, net; (iii) gain (loss) on debt prepayment; (iv) inventory step-up from purchase accounting; (v) net income attributable to minority interest; and (vi) any other extraordinary or unusual item as approved by the Compensation Committee, but shall specifically include merger and acquisition activity of the Company. Subject to certain limitations, the Compensation Committee has the express authority under the 2010 PBRSU award agreement to adjust either the minimum or maximum performance measure for adjusted non-GAAP EBITDA, as it deems appropriate in its sole discretion, to exclude the effect (whether positive or negative) of any of the following occurring after the grant date of the award: other unusual or infrequent matters or events, or special items similar to the items that the Company excludes or includes (as applicable) when calculating adjusted non-GAAP EBITDA. Each such adjustment, if any, shall be made solely for the purpose of providing a consistent basis from period to period for the calculation of the minimum and maximum performance measures in order to prevent the dilution or enlargement of the grantee’s rights with respect to the award. Subject to certain limitations, the Committee also has the authority to determine that an alternate method to determine adjusted non-GAAP EBITDA would be more appropriate to achieve the objectives of the award.

Generally, it is intended that the calculation of adjusted non-GAAP EBITDA will be consistent with the calculation of non-GAAP EBITDA in our earnings releases, which also contain a reconciliation of non-GAAP EBITDA to the nearest GAAP measure.

If the Named Executive Officer’s employment is terminated without Cause (including a deemed termination for Good Reason), as such terms are defined in the grantee’s employment agreement, within two years following a Change in Control (as such term is defined in the 2000 SIP) of the Company, any previously unvested PBRSUs will become vested.

As of March 6, 2012, 46,667 of the 2010 PBRSUs for Mr. Cave had vested.

The Company has filed a form of award agreement for the 2010 PBRSUs as an exhibit to its reports filed under the Exchange Act.

2009 Awards of PBRSUs. Effective March 2, 2009, the Compensation Committee awarded PBRSUs to Named Executive Officers pursuant to the 2000 SIP. The objective of the awards was to drive employee and Company performance using a key performance metric, adjusted non-GAAP EBITDA. The Compensation Committee granted Mr. Jackson 1,686,609 PBRSUs, Mr. Colvin 900,707 PBRSUs, Mr. Mahoney 701,740 PBRSUs, Mr. Nelson 1,276,383 PBRSUs and Mr. Cave 378,223 PBRSUs.

Each PBRSU represents the right to receive one share of the Company’s common stock, subject to the terms and conditions of the award. The 2009 PBRSU awards may vest quarterly over a three year (twelve quarter) period upon the achievement of a baseline adjusted non-GAAP EBITDA (“Baseline Non-GAAP EBITDA”) goal and certain percentage improvements over the Baseline Non-GAAP EBITDA goal.

 

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The Baseline Non-GAAP EBITDA amount of $25 million is the initial base target and the minimum threshold to trigger vesting in a quarter. This target will incrementally increase by 15% over the Baseline Non-GAAP EBITDA each quarter (“Quarterly Target”), so that the Company’s non-GAAP EBITDA would have to increase to approximately 280% of Baseline Non-GAAP EBITDA in order for 100% of the eligible grant to vest over time. If Baseline Non-GAAP EBITDA is not met in a quarter, then 0% of the eligible grant will vest for that quarter. If the Baseline Non-GAAP EBITDA is met in a quarter but the Quarterly Target is not met for that quarter, then 50% of the eligible grant will vest for that quarter. If the Quarterly Target is met or exceeded for a quarter, then 100% of the eligible grant will vest for that quarter. Unvested PBRSUs remain eligible for vesting until the expiration of the grant, one day past the filing with the Commission of the twelfth quarter’s Form 10-Q following the first performance measurement period. PBRSUs that do not vest in a quarter because the Quarterly Target or Baseline Non-GAAP EBITDA is not met for the quarter carry forward and will fully vest in any quarter in which the original Quarterly Target or Baseline Non-GAAP EBITDA is met.

Under the 2009 PBRSU agreements, “non-GAAP EBITDA” means the Company’s EBITDA for the applicable quarter, adjusted to exclude the following: (i) amortization of purchased intangible assets; (ii) in-process research and development expense; (iii) stock-based compensation expense from acquisitions; (iv) stock-based compensation expense determined in accordance with FASB ASC Topic 718 (formerly FAS 123R); (v) restructuring, asset impairments and other, net; (vi) gain (loss) on debt prepayment; (vii) goodwill impairment charge; (viii) cumulative effect of accounting change required by GAAP; (ix) extraordinary items; (x) expensing of the step up to fair market value of inventory from acquisitions; and (xi) divestiture related items. Non-GAAP EBITBA, as adjusted, shall specifically include merger and acquisition activity of the Company.

Subject to certain limitations, the Compensation Committee has the express authority under the 2009 PBRSU award agreements to adjust either the minimum or maximum performance measure for adjusted non-GAAP EBITDA, as it deems appropriate in its sole discretion, to exclude the effect (whether positive or negative) of any of the following occurring after the grant date of the award: other unusual or infrequent matters or events, or special items similar to the items that the Company excludes or includes (as applicable) when calculating its non-GAAP EBITDA. Each such adjustment, if any, shall be made solely for the purpose of providing a consistent basis from period to period for the calculation of the minimum and maximum performance measures in order to prevent the dilution or enlargement of the grantee’s rights with respect to the award. Subject to certain limitations, the Committee also has the authority to determine that an alternate method to determine adjusted non-GAAP EBITDA would be more appropriate to achieve the objectives of the award.

Generally, it is intended that the calculation of adjusted non-GAAP EBITDA will be consistent with the calculation of non-GAAP EBITDA in our earnings releases, which also contain a reconciliation of non-GAAP EBITDA to the nearest GAAP measure.

If the Named Executive Officer’s employment is terminated without Cause (including a deemed termination for Good Reason), as such terms are defined in the grantee’s employment agreement, within two years following a Change in Control (as such term is defined in the 2000 SIP) of the Company, any unvested PBRSUs will become immediately vested.

As of March 6, 2012, 1,546,059 of the 2009 PBRSUs for Mr. Jackson had vested, 825,649 of the 2009 PBRSUs for Mr. Colvin had vested, 643,262 of the 2009 PBRSUs for Mr. Mahoney had vested, 1,170,017 of the 2009 PBRSUs for Mr. Nelson had vested, and 346,705 of the 2009 PBRSUs for Mr. Cave had vested.

The Company has filed a form of award agreement for the 2009 PBRSUs as an exhibit to its reports filed under the Exchange Act.

 

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Outstanding Equity Awards At Fiscal Year-End 2011

 

          Options   Stock Awards
Name   Grant Date    Number Of
Securities
Underlying
 Unexercised 
Options (#)
Exercisable
  Number Of
Securities
Underlying
Unexercised
Options (#)
 Unexercisable 
(1)
 

Equity

Incentive

Plan
Awards:

Number Of

Securities

Underlying

 Unexercised 

Unearned

Options (#)

 

Option

 Exercise 

Price ($)

 

Option

 Expiration 

Date

 

Number

 Of Shares 

Or Units

Of Stock

That

Have Not

Vested (#)

 

Market

Value Of

 Shares Or 

Units Of

Stock

That

Have Not
Vested ($)

 

Equity

Incentive

Plan

Awards:

Number Of

Unearned

Shares,

Units Or

Other

 Rights That 

Have Not

Vested

(#)(2)

 

Equity

Incentive

Plan

Awards:
Market Or

Payout

Value Of

Unearned

Shares,

Units Or

Other

Rights

That Have

 Not Vested 
($)(3)

(a)       (b)   (c)   (d)   (e)   (f)   (g)   (h)   (i)   (j)

Keith D.

Jackson

  02/17/2005    10,000          4.80     02/17/2015                 
  03/05/2007    414,800          9.21     03/05/2017                 
  03/03/2008    250,000    250,000        5.93     03/03/2018                 
  03/02/2009                                281,100    2,170,092
  03/07/2011                                540,000    4,168,800

Donald A.

Colvin

  03/23/2006    113,000          6.83     03/23/2016                 
  03/05/2007    120,000          9.21     03/05/2017                 
  03/03/2008    150,000    50,000        5.93     03/03/2018                 
  03/02/2009                                150,117    1,158,903
  03/07/2011                                170,000    1,312,400

Robert

Charles

Mahoney

  03/23/2006    20,424          6.83     03/23/2016                 
  03/05/2007    90,000          9.21     03/05/2017                 
  03/03/2008      22,500        5.93     03/03/2018                 
  03/02/2009                                116,956    902,900
  03/07/2011                                120,000    926,400

W. John

Nelson

  06/04/2007    400,000          $10.85     06/04/2017                 
  03/03/2008    30,000    30,000        $5.93     03/03/2018                 
  03/02/2009                                212,732    1,642,291
  03/07/2011                                190,000    1,466,800

George H.  

Cave

  02/05/2004    35,000          7.02     02/05/2014                 
  03/05/2007    70,000          9.21     03/05/2017                 
  03/03/2008      15,000        5.93     03/03/2018                 
  03/02/2009                                63,036    486,638
  02/16/2010                                46,666    360,262
  03/07/2011                                80,000    617,600

 

(1)

Options vest pro rata over a four-year period beginning on the first anniversary of the date of grant, subject to the 2000 SIP and relevant grant agreement.

 

(2)

This column represents outstanding awards of PBRSUs and includes the maximum number of PBRSUs that would vest assuming that all performance goals are achieved. These awards are subject to the Amended and Restated Plan or the 2000 SIP, as applicable, and relevant grant agreements. We describe these PBRSUs, including the vesting of the PBRSUs, above under “2011, 2010, and 2009 Awards of PBRSUs.”

 

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The amounts in this column do not necessarily represent the number of shares used for expensing purposes or the number of units which were expected to vest as of December 31, 2011. For example, as of December 31, 2011, approximately one-third of the PBSRUs awarded on March 7, 2011 and discussed under “2011, 2010 and 2009 Awards of PBRSUs” were expected to vest. The estimated number of units which are expected to vest are evaluated and adjusted each reporting period, as necessary, in connection with the Company’s quarterly and annual financial statements.

 

(3)

The amount in this column is calculated by multiplying the closing market price of our common stock at the end of 2011 ($7.72 per share as of December 31, 2011) by the number of PBRSUs listed for the specified officer.

2011 Option Exercises and Stock Vested

 

              Option Awards      Stock Awards  
   

Name

(a)

       

Number Of Shares
Acquired On Exercise
(#)(1)

(b)

    

Value Realized On
Exercise ($)(2)

(c)

     Number Of Shares
Acquired on Vesting (#)(3)
(d)
   

Value Realized On   

Vesting ($)(4)

(e)

 
   Keith D. Jackson         792,000          3,969,940         562,203          5,250,978     
   Donald A. Colvin         195,000          880,350         316,902          2,988,864     
   Robert Charles Mahoney         45,000          174,781         247,245          2,332,468     
   W. John Nelson         60,000          337,500         463,794          4,384,284     
   George H. Cave         90,000          447,148         160,073          1,553,950     

 

(1)

This column represents the maximum number of shares underlying options that were exercised by the Named Executive Officer in 2011.

 

(2)

If the officer executed a same-day-sale transaction, the value realized equals the difference between the per share exercise price of the option and the per share sales price upon sale, multiplied by the number of shares for which the option was exercised. If the officer executed an exercise and hold transaction, the value realized equals the difference between the per share exercise price of the option and the fair market value of a share of our common stock on such date of exercise, multiplied by the number of shares for which the option was exercised.

 

(3)

This column represents the total number of shares underlying RSUs that vested in 2011, including PBRSUs.

 

(4)

The value realized equals the number of shares of stock vested multiplied by the market value of a share of our common stock on the date of vesting or the next prior trading date if the vesting date is not a trading date.

Employment, Severance, and

Change in Control Agreements and Arrangements

We currently have employment agreements with each of our Named Executive Officers. Each of the employment agreements described entitles the officer to a specified base salary and to a target percentage of base salary for purposes of our semi-annual cash incentive plans, subject to Board review from time to time or additional Board action. The employment agreements also generally provide for certain payments or benefits in the event of the termination of employment of the executive in various circumstances, including after a “Change of Control.” Unless otherwise specified in the description of the particular employment agreement, “Change of Control” has the meaning given in the 2000 SIP. Generally, the 2000 SIP defines “Change of Control” to mean the occurrence of any of the following events:

(i) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all of our assets or those of SCI to any person or group of related persons for purposes of Section 13(d) of the Exchange Act (a “Group”), together with any affiliates thereof;

 

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(ii) the approval by the holders of our stock and the consummation of any plan or proposal for our liquidation or dissolution;

(iii) any person or Group shall become the beneficial owner, directly or indirectly, of shares representing more than 25% of the aggregate voting power of the issued and outstanding stock entitled to vote in the election of directors (the “Voting Stock”) of us and such person or Group has the power and authority to vote such shares;

(iv) the actual replacement of a majority of the Board over a two-year period from the individual directors who constituted the Board at the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of the Board then still in office who either were members of such Board at the beginning of such period or whose election as a member of such Board was previously so approved;

(v) any person or Group shall have acquired shares of Voting Stock such that such person or Group has the power and authority to elect a majority of the members of our Board of Directors; or

(vi) the consummation of a merger or consolidation of us with another entity in which holders of our stock immediately prior to the consummation of the transaction hold, directly or indirectly, immediately following the consummation of the transaction, 50% or less of the common equity interest in the surviving corporation in such transaction.

Mr. Jackson

We entered into an employment agreement with Keith Jackson, our President and Chief Executive Officer, effective on November 19, 2002, and amended from time to time, most recently on March 24, 2010. We agreed to employ Mr. Jackson in those capacities for three years, beginning January 1, 2003. Although the initial three year employment period has expired, the agreement is automatically extended for additional one-year periods, unless either party gives notice of non-renewal at least 60 days before the end of any such period. The agreement also requires us to cause Mr. Jackson to be elected to our Board of Directors.

The employment agreement entitled Mr. Jackson to an initial base salary of $500,000, subject to Board review from time to time, and sets a target percentage of base salary for purposes of our cash incentive plans, subject to Board action and review from time to time. The employment agreement also provides Mr. Jackson with a monthly car allowance of up to $1,200.

Under the employment agreement, when he was first hired Mr. Jackson also received options to purchase 1,000,000 shares of our common stock under our 2000 SIP and 200,000 shares of our common stock under our 1999 Founders Stock Option Plan as amended (“Founders Plan”), at an exercise price of $1.80 per share. These options vested in equal installments over a four year period beginning on the first anniversary of the date of grant. Those options will expire at the first to occur of: (i) 90 days after termination for any other reason other than Cause, death or disability; (ii) two years after Mr. Jackson’s death, disability, or termination by us without Cause; (iii) the termination date if he is terminated for Cause; or (iv) ten years after the grant date.

The employment agreement also requires us to make specified payments to Mr. Jackson if his employment is terminated under various circumstances, including a termination without “Cause” or if he resigns for “Good Reason.” “Cause” is defined to mean:

 

 

a material breach by Mr. Jackson of the employment agreement after notice and a reasonable

 

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period of time (not to exceed 30 days) to cure the breach;

 

 

the failure by Mr. Jackson to reasonably and substantially perform his duties under the employment agreement, other than as a result of physical or mental illness or injury, after notice and a reasonable period of time (not to exceed 30 days) to cure the failure;

 

 

willful misconduct or gross negligence which is materially injurious to us; or

 

 

the commission of a felony or other serious crime involving moral turpitude.

“Good Reason” means:

 

 

a material breach of the employment agreement by us; or

 

 

a material diminution of Mr. Jackson’s duties and responsibilities under the employment agreement;

in each case after providing us with notice and a reasonable period of time (not to exceed 30 days) to cure the breach or diminution. The employment agreement treats Mr. Jackson’s resignation for Good Reason as a termination by us without Cause.

Under the employment agreement, if Mr. Jackson’s employment is terminated without Cause or if he resigns for Good Reason, he will be entitled to receive accrued and unused vacation and base salary to the date of termination and additional payments of base salary at the rate in effect immediately prior to the termination date for a period of two years. We will pay the additional base salary in accordance with our normal payroll practices, provided that the amount of payments during the six-month period following Mr. Jackson’s date of termination does not exceed the separation pay exception amount set forth in Treasury Regulation Section 1.409A-1(b)(9)(iii)(A) (“409A”). Any amount subject to the separation pay exception in 409A will be paid in a lump sum on the six-month anniversary of the date of termination. If the Company determines in good faith that the separation pay exception in 409A does not apply as of Mr. Jackson’s date of termination, then this amount will be paid (i) in an initial lump sum equal to six months’ base salary (net of applicable taxes and withholdings) on the six-month anniversary of the date of termination and (ii) thereafter in installments consistent with the Company’s normal payroll practices. To receive these payments, Mr. Jackson must execute a general release and waiver, waiving all claims he may have against us, and comply with the non-solicitation, confidentiality, non-compete, non-disclosure and non-disparagement covenants in the employment agreement. The non-solicitation and non-compete covenants are effective for a period of two years following Mr. Jackson’s termination. The confidentiality, non-disclosure, and non-disparagement covenants do not provide for a specific termination date. The agreement requires Mr. Jackson to seek comparable employment upon such termination, and the termination amount that we must pay will be offset by any amounts he earns from other comparable employment during the two-year payment period.

In the event of Mr. Jackson’s death or disability, the employment agreement requires us to pay him accrued but unused vacation, accrued but unpaid base salary, any bonus earned with respect to prior performance cycles under our incentive plans and an amount equal to the cash bonus he earned in the previous year times the percentage of the fiscal year that has passed prior to his termination.

If Mr. Jackson’s employment is terminated without “Cause” or he resigns for “Good Reason” within two years following a “Change in Control,” in addition to the other benefits provided in his employment agreement, we will provide continuation of medical benefits for the greater of two years after the date of termination or the remainder of Mr. Jackson’s employment period.

 

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Mr. Colvin

We entered into an employment agreement with Donald Colvin, our Executive Vice President and Chief Financial Officer, effective on May 26, 2005 and amended from time to time, most recently on March 24, 2010. The agreement does not have a specified termination date. The employment agreement entitled Mr. Colvin to an initial base salary of $350,000, subject to Board review from time to time, and sets a target percentage of base salary for purposes of our cash incentive plans, subject to Board action and review from time to time. In addition, the employment agreement provides Mr. Colvin with a monthly car allowance of $1,200.

The employment agreement also requires us to make specified payments to Mr. Colvin if his employment is terminated under various circumstances, including a termination without “Cause” or if he resigns for “Good Reason.” Mr. Colvin’s employment agreement has the same definition of “Cause” as is in Mr. Jackson’s agreement described above. “Good Reason” means:

 

 

a material breach of the employment agreement by us;

 

 

a reduction of Mr. Colvin’s salary while at the same time not proportionately reducing the salaries of our other executive officers; or

 

 

a material and continued diminution of his duties and responsibilities;

in each case, after providing us with notice and a reasonable period of time (not to exceed 30 days) to cure.

If we terminate Mr. Colvin’s employment without “Cause,” or he resigns for “Good Reason,” we are required to pay him: (i) accrued and unused vacation; (ii) base salary through Mr. Colvin’s date of termination (to the extent not paid); (iii) continued payments of base salary for twelve months after the date of termination, subject to the restrictions set forth below, in accordance with our normal payroll practice; (iv) any earned but unpaid bonus for any prior performance cycle; and (v) a pro-rata portion of his bonus, if any, for the performance cycle in which the date of termination occurs based on achievement of the applicable performance criteria. The amount of payment set forth in (iii) above during the six-month period following Mr. Colvin’s date of termination shall not exceed the severance pay exception limitation amount set forth in 409A and any amount that is subject to the separation pay exception limitation shall be paid in a lump sum on the six-month anniversary of the date of termination. If the Company determines in good faith that the separation pay exception in 409A does not apply then this amount shall be paid (a) in an initial lump sum equal to six months base salary, net of applicable taxes and withholdings, on the six-month anniversary of Mr. Colvin’s date of termination and (b) thereafter in installments in accordance with ordinary payroll practices. The amounts set forth in (iv) and (v) above shall be paid as soon as reasonably practicable after the close of the accounting books and records for the Company for the relevant performance cycle at the same time bonuses are paid to other active employees, but in no event will payment be made for any performance cycle ending on December 31st before January 1st or after March 15th of the year following the year in which the performance cycle ends; provided, however, that if payment by such date is administratively impracticable, payment may be made at a later date as permitted under Treasury Regulation Section 1.409A-1(b)(4)(ii). We must also pay Mr. Colvin’s health plan continuation premiums for up to one year following termination, and he would be entitled to up to six months of outplacement assistance at a cost of up to $5,000. To receive these payments, Mr. Colvin must execute a general release and waiver, waiving all claims he may have against us, and comply with the non-solicitation, confidentiality, non-compete, non-disclosure and non-disparagement covenants in his employment agreement. The non-solicitation and non-compete covenants are effective for a period

 

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of one year following Mr. Colvin’s termination. The confidentiality, non-disclosure, and non-disparagement covenants do not provide for a specific termination date.

If Mr. Colvin’s employment is terminated (without “Cause” or for “Good Reason”) within 24 months after a “Change in Control,” in addition to the other benefits provided in his employment agreement, any outstanding but unvested stock options that were granted on or before the date he signed his employment agreement will vest and all such options (vested or unvested) will remain exercisable until the first to occur of one year after the date of termination and the tenth anniversary of the grant date of the options.

Mr. Mahoney

We entered into an employment agreement with Robert Mahoney, our Executive Vice President, Sales and Marketing, effective on July 11, 2006 and amended from time to time, most recently on March 24, 2010. The agreement does not have a specified termination date. The employment agreement entitled Mr. Mahoney to an initial base salary of $320,000, subject to Board review from time to time, and establishes a target percentage of 80% of base salary for purposes of our cash incentive plans, subject to Board action and review from time to time. In addition, the employment agreement entitles Mr. Mahoney to a monthly car allowance of $1,200 and up to $10,000 annually for financial planning expenses.

The employment agreement also requires us to make specified payments to Mr. Mahoney if his employment is terminated under various circumstances, including a termination without “Cause” or if he resigns for “Good Reason.” Mr. Mahoney’s employment agreement has the same definition of “Cause” as is in Mr. Jackson’s agreement described above and the same definition of “Good Reason” as in Mr. Colvin’s employment agreement described above.

If we terminate Mr. Mahoney’s employment without “Cause,” or he resigns for “Good Reason,” we are required to pay him: (i) accrued and unused vacation; (ii) base salary through Mr. Mahoney’s date of termination (to the extent not paid); (iii) continued payments of base salary for twelve months after the date of termination, subject to the restrictions set forth below, in accordance with our normal payroll practice; (iv) any earned but unpaid bonus for any prior performance cycle; and (v) a pro-rata portion of his bonus, if any, for the performance cycle in which the date of termination occurs based on achievement of the applicable performance criteria. The amount of payment set forth in (iii) above during the six-month period following Mr. Mahoney’s date of termination shall not exceed the severance pay exception limitation amount set forth in 409A and any amount that is subject to the separation pay exception limitation shall be paid in a lump sum on the six-month anniversary of the date of termination. If the Company determines in good faith that the separation pay exception in 409A does not apply then this amount shall be paid (a) in an initial lump sum equal to six months base salary, net of applicable taxes and withholdings, on the six-month anniversary of Mr. Mahoney’s date of termination and (b) thereafter in installments in accordance with ordinary payroll practices. The amounts set forth in (iv) and (v) above shall be paid as soon as reasonably practicable after the close of the accounting books and records for the Company for the relevant performance cycle at the same time bonuses are paid to other active employees, but in no event will payment be made for any performance cycle ending on December 31st before January 1st or after March 15th of the year following the year in which the performance cycle ends; provided, however, that if payment by such date is administratively impracticable, payment may be made at a later date as permitted under Treasury Regulation Section 1.409A-1(b)(4)(iii). We must also pay Mr. Mahoney’s health plan continuation premiums for up to one year following termination, and he would be entitled to up to six months of outplacement assistance at a cost of up to $5,000. To receive these payments, Mr. Mahoney must execute a general release and waiver, waiving all claims he may have against us, and comply with the non-solicitation, confidentiality, non-compete, non-disclosure and non-disparagement covenants in his employment agreement. The non-solicitation and non-compete covenants are effective for a period of one year following Mr. Mahoney’s termination. The confidentiality, non-disclosure, and non-disparagement covenants do not provide for a specific termination date.

 

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If Mr. Mahoney’s employment is terminated (without “Cause” or for “Good Reason”) within 24 months after a “Change in Control,” in addition to the other benefits provided in his employment agreement, any outstanding but unvested stock options that were granted on or before the date he signed his employment agreement will vest and all such options (vested and unvested) will remain exercisable until the first to occur of one year after the date of termination and the tenth anniversary of the grant date of the options.

Mr. Nelson

We entered into an employment agreement with W. John Nelson, our Executive Vice President and Chief Operating Officer, effective May 1, 2007 and amended from time to time, most recently on March 24, 2010. The agreement does not have a specified termination date. The employment agreement entitled Mr. Nelson to an initial base salary of $350,000, subject to Board review from time to time, and establishes a target percentage of 80% of base salary for purposes of our cash incentive plans, subject to Board action and review from time to time. In addition, the employment agreement entitles Mr. Nelson to a monthly car allowance of $1,200 and up to $10,000 annually for financial planning expenses.

The employment agreement also requires us to make specified payments to Mr. Nelson if his employment is terminated under various circumstances, including a termination without “Cause” or if he resigns for “Good Reason.” Mr. Nelson’s employment agreement has the same definition of “Cause” as is in Mr. Jackson’s agreement described above, but also includes the failure by Mr. Nelson to take any and all measures to maintain legal work authorization with respect to his immigrant or non-immigrant status in the United States unless cured within a reasonable period of time (not to exceed 30 days). Mr. Nelson’s employment agreement has the same definition of “Good Reason” as in Mr. Colvin’s employment described above.

If we terminate Mr. Nelson’s employment without “Cause,” or he resigns for “Good Reason,” we are required to pay him: (i) accrued and unused vacation; (ii) base salary through Mr. Nelson’s date of termination (to the extent not paid); (iii) continued payments of base salary for twelve months after the date of termination, subject to the restrictions set forth below, in accordance with our normal payroll practice; (iv) any earned but unpaid bonus for any prior performance cycle; and (v) a pro-rata portion of his bonus, if any, for the performance cycle in which the date of termination occurs based on achievement of the applicable performance criteria. The amount of payment set forth in (iii) above during the six-month period following Mr. Nelson’s date of termination shall not exceed the severance pay exception limitation amount set forth in 409A and any amount that is subject to the separation pay exception limitation shall be paid in a lump sum on the six-month anniversary of the date of termination. If the Company determines in good faith that the separation pay exception in 409A does not apply then this amount shall be paid (a) in an initial lump sum equal to six months base salary, net of applicable taxes and withholdings, on the six-month anniversary of Mr. Nelson’s date of termination and (b) thereafter in installments in accordance with ordinary payroll practices. The amounts set forth in (iv) and (v) above shall be paid as soon as reasonably practicable after the close of the accounting books and records for the Company for the relevant performance cycle at the same time bonuses are paid to other active employees, but in no event will payment be made for any performance cycle ending on December 31st before January 1st or after March 15th of the year following the year in which the performance cycle ends; provided, however, that if payment by such date is administratively impracticable, payment may be made at a later date as permitted under Treasury Regulation Section 1.409A-1(b)(4)(iii). We must also pay Mr. Nelson’s health plan continuation premiums for up to one year following termination, and he would be entitled to up to six months of outplacement assistance at a cost of up to $5,000. To receive these payments, Mr. Nelson must execute a general release and waiver, waiving all claims he may have against us, and comply with the non-solicitation, confidentiality, non-compete, non-disclosure and non-disparagement covenants in his employment agreement. The non-solicitation and non-compete covenants are effective

 

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for a period of one year following Mr. Nelson’s termination. The confidentiality, non-disclosure, and non-disparagement covenants do not provide for a specific termination date.

If Mr. Nelson’s employment is terminated (without “Cause” or for “Good Reason”) within 24 months after a “Change in Control,” in addition to the other benefits provided in his employment agreement, any outstanding but unvested stock options that were granted on or before the date he signed his employment agreement will vest and all such options will remain exercisable until the first to occur of one year after the date of termination and the tenth anniversary of the grant date of the options.

Mr. Cave

We entered into an employment agreement with George H. Cave, our Senior Vice President, General Counsel, Chief Compliance and Ethics Officer and Secretary, effective on May 26, 2005 and amended from time to time, most recently on March 24, 2010. The agreement does not have a specified termination date. The employment agreement entitled Mr. Cave to an initial base salary of $300,000, subject to Board review from time to time, and sets a target percentage of base salary for purposes of our cash incentive plans, subject to Board action and review from time to time. In addition, the employment agreement entitles Mr. Cave to a monthly car allowance of $1,200.

The employment agreement also requires us to make specified payments to Mr. Cave if his employment is terminated under various circumstances, including a termination without “Cause” or if he resigns for “Good Reason.” Mr. Cave’s employment agreement has the same definition of “Cause” as is in Mr. Jackson’s agreement described above and the same definition of “Good Reason” as in Mr. Colvin’s employment agreement described above.

If we terminate Mr. Cave’s employment without “Cause,” or he resigns for “Good Reason,” we are required to pay him: (i) accrued and unused vacation; (ii) base salary through Mr. Cave’s date of termination (to the extent not paid); (iii) continued payments of base salary for twelve months after the date of termination, subject to the restrictions set forth below, in accordance with our normal payroll practice; (iv) any earned but unpaid bonus for any prior performance cycle; and (v) a pro-rata portion of his bonus, if any, for the performance cycle in which the date of termination occurs based on achievement of the applicable performance criteria. The amount of payment set forth in (iii) above during the six-month period following Mr. Cave’s date of termination shall not exceed the severance pay exception limitation amount set forth in 409A and any amount that is subject to the separation pay exception limitation shall be paid in a lump sum on the six-month anniversary of the date of termination. If the Company determines in good faith that the separation pay exception in 409A does not apply then this amount shall be paid (a) in an initial lump sum equal to six months base salary, net of applicable taxes and withholdings, on the six-month anniversary of Mr. Cave’s date of termination and (b) thereafter in installments in accordance with ordinary payroll practices. The amounts set forth in (iv) and (v) above shall be paid as soon as reasonably practicable after the close of the accounting books and records for the Company for the relevant performance cycle at the same time bonuses are paid to other active employees, but in no event will payment be made for any performance cycle ending on December 31st before January 1st or after March 15th of the year following the year in which the performance cycle ends; provided, however, that if payment by such date is administratively impracticable, payment may be made at a later date as permitted under Treasury Regulation Section 1.409A-1(b)(4)(ii). We must also pay Mr. Cave’s health plan continuation premiums for up to one year following termination, and he would be entitled to up to six months of outplacement assistance at a cost of up to $5,000. To receive these payments, Mr. Cave must execute a general release and waiver, waiving all claims he may have against us, and comply with the non-solicitation, confidentiality, non-compete, non-disclosure and non-disparagement covenants in his employment agreement. The non-solicitation and non-compete covenants are effective for a period of one year following Mr. Cave’s termination. The confidentiality, non-disclosure, and non-

 

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disparagement covenants do not provide for a specific termination date.

If Mr. Cave’s employment is terminated (without “Cause” or for “Good Reason”) within 24 months after a “Change in Control,” in addition to the other benefits provided in his employment agreement, any outstanding but unvested stock options that were granted on or before the date he signed his employment agreement will vest and all such options (vested and unvested) will remain exercisable until the first to occur of one year after the date of termination and the tenth anniversary of the grant date of the options.

Potential Payments Upon Termination of Employment or Change of Control

In the tables below, we summarize the estimated payments that will be made to each of our Named Executive Officers upon a termination of employment in the various circumstances listed. The table for each Named Executive Officer should be read together with the description of that officer’s employment agreement above. Unless we note otherwise in the individual table, the major assumptions that we used in creating the tables are set forth directly below.

Date of Termination. The tables assume that any triggering event (i.e., termination, resignation, Change in Control, death or disability) took place on December 31, 2011, with base salaries in effect at the end of the 2011 fiscal year being used for purposes of any severance payout calculation.

Off-Setting Employment. For purposes of the table, we have assumed that each Named Executive Officer was not able to obtain comparable employment during the applicable period, which would off-set the Company’s severance payment obligations if such term was set forth in his employment agreement.

Price Per Share of Common Stock. Calculations requiring a per share stock price are made on the basis of the closing price of $7.72 per share of our common stock on the NASDAQ Global Select Market on December 31, 2011.

Cash Payment upon a Change of Control. No cash payment will be made solely because of a Change of Control. For each Named Executive Officer, the cash payments described under the heading “Termination Following a Change of Control” would be triggered upon a termination without Cause or resignation for Good Reason within two years following a Change of Control.

Equity Acceleration upon a Change of Control. The terms and provisions of the 2000 SIP as in effect prior to the adoption of the Amended and Restated Plan, will continue to govern prior awards until all stock awards granted prior to the adoption of the Amended and Restated Plan have been exercised, forfeited, canceled, expired, or otherwise terminated in accordance with the terms of such grants. Under both the 2000 SIP and the Amended and Restated Plan, the Board of Directors of the Company, in its discretion, can provide for acceleration of the vesting and the lapse of restrictions on all outstanding options or other awards upon a Change of Control (as defined in the 2000 SIP or the Amended and Restated Plan, as the case may be). Generally, under the award agreements for awards granted under the 2000 SIP and the Amended and Restated Plan, outstanding options, RSUs and PBRSUs, as each may have been granted under the applicable plan, vest automatically if the Company terminates the officer’s employment with the Company without Cause (including a deemed termination for Good Reason) (as these terms are defined in the applicable award agreement) within two years following a Change of Control.

Medical and Other Benefits. The tables below do not include certain medical, disability or outplacement services benefits that may be payable on termination as set forth in the Named Executive Officers’ employment agreements. We also do not include any amounts payable on termination that are generally

 

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available to all employees on a non-discriminatory basis. As described in their employment agreements, Messrs. Colvin, Mahoney, Nelson and Cave are generally entitled to Company-paid continuation of healthcare benefits under COBRA regulations for a period of one year following termination without Cause or resignation for Good Reason (including circumstances involving a Change of Control). Mr. Jackson is entitled to Company paid continuation of healthcare benefits under COBRA regulations for a period of two years upon a termination without Cause or resignation for Good Reason within two years following a Change of Control. As of December 31, 2011, the monthly cost of such benefits for such officers ranged between approximately $986 to $1,597 depending on medical plan and dependent enrollment. Finally, the tables do not include premium amounts (see footnote (6) to the Summary Compensation Table) payable by the Company on behalf of each Named Executive Officer to cover the cost of an additional $500,000 of life insurance, which insurance benefit is not generally available to all employees on a non-discriminatory basis and would be realized in the event of the death of the Named Executive Officer. Messrs. Colvin, Mahoney, Nelson and Cave are also entitled to outplacement services following a termination without Cause or resignation for Good Reason in an amount not to exceed $5,000.

Retirement. A normal retirement is treated as a resignation other than for Good Reason in the tables. Upon retirement, Named Executive Officers would receive earned but unpaid salary and accrued but unused vacation time.

Cash Incentive Program. We describe our cash incentive programs in the CD&A under “Elements of our Compensation Program — Semi-Annual Cash Incentive Programs.”

The following table describes the potential payments upon termination or a change in control of the Company for Keith D. Jackson, our President and Chief Executive Officer.

 

   

Executive

Benefits and

Payments Upon

Termination

     

Termination
Without Cause

or Resignation
for Good Reason

($)

     

  Termination  

Following a

Change of

Control ($)

     

Change of

  Control ($)  

       

Death or

  Disability  

($)

        Termination
  for Cause ($)  
       

Resignation
  other than for  

Good Reason

($)

 
                         
  Cash Compensation:                        
 

Base Salary

    1,596,000(1)      1,596,000 (1)        0                0                  0                  0       
 

Cash Incentive

    0           0              0               0 (2)            0                  0       
 

Long-term Incentives:

                       
 

Acceleration of Unvested Stock Options and Restricted Stock Units

                  0           6,786,392(3)                     0 (4)                      0                              0                              0       
 

Total:

    1,596,000           8,382,392                          0 (4)                      0                              0                               0       

 

(1)

Mr. Jackson’s severance payment following a termination without Cause or a resignation for Good Reason is equal to two years of annual base salary. Mr. Jackson’s base salary at the end of fiscal 2011 was $798,000.

 

(2)

In the event Mr. Jackson is terminated due to death or disability, Mr. Jackson or his estate is entitled to any bonus earned with respect to prior performance cycles and an amount equal to the cash bonus he earned in the previous year times the percentage of the fiscal year that has passed prior to his termination. For purposes of this column, we have assumed that Mr. Jackson’s death or disability was as of December 31, 2011, that his cash incentive bonus for the first half of 2011 was already paid and that as of December 31, 2011, the second half of the 2011 cash bonus was not earned and payable.

 

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(3)

Assumes that the vesting of outstanding awards has occurred due to a termination of employment upon or following a Change of Control as described above under “Equity Acceleration upon a Change of Control.” This amount denotes the incremental difference between the market value and the exercise price (if any) of unvested options or RSUs for which vesting might be accelerated.

 

(4)

The Board has the discretion to accelerate the vesting of outstanding awards upon a Change of Control as described above under “Equity Acceleration upon a Change of Control.” If the vesting of all outstanding awards were to be accelerated, the amount would be as set forth in the column titled “Termination Following a Change of Control” and described in footnote (3).

The following table describes the potential payments upon termination or a change of control of the Company for Donald A. Colvin, our Executive Vice President and Chief Financial Officer.

 

   

Executive

Benefits and

Payments Upon

Termination

     

Termination
Without Cause

or Resignation

for Good Reason

($)

       

  Termination  

Following a

Change of

Control ($)

        Change of
  Control ($)  
       

Death or

  Disability  

($)

       

Termination

  for Cause ($)  

       

Resignation

  other than for  

Good Reason

($)

 
                         
  Cash Compensation:                        
 

Base Salary

      449,842 (1)           449,842 (1)                  0               0              0              0       
 

Cash Incentive

      0 (2)           0 (2)          0               0              0              0       
  Long-term Incentives:                        
 

Acceleration of Unvested Stock Options and Restricted Stock Units

                 0                 2,560,803(3)                       0 (4)                       0                          0                          0       
 

Total:

      449,842                 3,010,645                            0 (4)                       0                          0                          0       

 

(1)

Mr. Colvin’s severance payment following a termination without Cause or a resignation for Good Reason is equal to one year of annual base salary. Mr. Colvin’s base salary at the end of fiscal 2011 was $449,842.

 

(2)

This amount anticipates that Mr. Colvin is entitled to any bonus earned but unpaid in previous cycles and a pro rata portion of his bonus, if any, for the then current performance cycle based on achievement of the applicable performance criteria. For purposes of this column, we have assumed that Mr. Colvin’s date of termination was as of December 31, 2011 and that his cash incentive bonus for the first half of 2011 was already paid but, as of December 31, 2011, the second half of the 2011 cash bonus was not earned and payable.

 

(3)

Assumes that the vesting of outstanding awards has occurred due to a termination of employment upon or following a Change of Control as described above under “Equity Acceleration upon a Change of Control.” This amount denotes the incremental difference between the market value and the exercise price (if any) of unvested options or RSUs for which vesting might be accelerated.

 

(4)

The Board has the discretion to accelerate the vesting of outstanding awards upon a Change of Control as described above under “Equity Acceleration upon a Change of Control.” If the vesting of all outstanding awards were to be accelerated, the amount would be as set forth in the column titled “Termination Following a Change of Control” and described in footnote (3).

 

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The following table describes the potential payments upon termination or a change of control of the Company for Robert Charles Mahoney, Executive Vice President, Sales and Marketing.

 

   

Executive

Benefits and

Payments Upon

Termination

      

Termination

Without Cause

or Resignation

for Good

Reason ($)

        

  Termination  

Following a

Change of

Control ($)

        

Change of

  Control ($)  

        

Death or

  Disability  

($)

        

Termination

  for Cause ($)  

        

  Resignation  

other than

for Good

Reason ($)

 
                               
  Cash Compensation:                              
 

Base Salary

       387,504 (1)               387,504 (1)             0                 0              0             0     
 

Cash Incentive

       0 (2)               0 (2)             0                 0              0             0     
  Long-term Incentives: