UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:

þ		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

INTERDIGITAL, INC.

 

Payment of Filing Fee (Check the appropriate box):

þ		Fee not required.
o		Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1)

Title of each class of securities to which transaction applies:

(2)

Aggregate number of securities to which transaction applies:

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

(4)

Proposed maximum aggregate value of transaction:

(5)

Total fee paid:

o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

(1)

Amount Previously Paid:

(2)

Form, Schedule or Registration Statement No.:

(3)

Filing Party:

(4)

Date Filed:

 

InterDigital, Inc.

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 3, 2010

 

TO THE SHAREHOLDERS OF INTERDIGITAL, INC.:

 

Our 2010 annual meeting of shareholders will be held on Thursday, June 3, 2010, at 11:00 a.m. Eastern Time, at the Dolce Valley Forge Hotel, 301 West DeKalb Pike, King of Prussia, Pennsylvania. At the meeting, the holders of our outstanding common stock will act on the following matters:

 

 

4. Such other business as may properly come before the meeting.

 

All holders of record of shares of our common stock (NASDAQ: IDCC) at the close of business on April 6, 2010 are entitled to vote at the meeting and at any postponements or adjournments of the meeting. To ensure that your vote is recorded promptly, please vote as soon as possible, even if you plan to attend the meeting in person. If you have Internet access, we encourage you to record your vote via the Internet. It is convenient, and it saves us postage and processing costs. In addition, when you vote via the Internet, your vote is recorded immediately, and there is no risk that postal delays will cause your vote to arrive late and therefore not be counted. If you do not vote via the Internet, please vote by telephone or by completing, signing, dating and returning the accompanying proxy card in the enclosed return envelope. Submitting your proxy by Internet, telephone or mail will not affect your right to vote in person if you decide to attend the annual meeting. Shareholders holding stock in brokerage accounts (“street name” holders) will receive instructions from the holder of record that you must follow in order for your shares to be voted. Certain of these institutions offer Internet and telephone voting.

 

IF YOU PLAN TO ATTEND THE MEETING:

 

Registration will begin at 9:30 a.m., and seating will begin at 10:30 a.m. Each shareholder will need to bring an admission ticket and valid picture identification, such as a driver’s license or passport, for admission to the meeting. Street name holders will need to bring a copy of a brokerage statement reflecting stock ownership as of the record date. Cameras, recording devices and other electronic devices will not be permitted at the meeting, and all cellular phones must be silenced during the meeting. We realize that many cellular phones have built-in digital cameras, and, while these phones may be brought into the meeting, the camera function may not be used at any time.

 

By Order of the Board of Directors,

 

STEVEN W. SPRECHER

General Counsel and Secretary

 

April [  ], 2010

King of Prussia, Pennsylvania

 

 

 

TABLE OF CONTENTS

 

INTERDIGITAL, INC.
781 Third Avenue
King of Prussia, Pennsylvania 19406-1409

 

PROXY STATEMENT

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to Be Held on June 3, 2010: The proxy statement and annual report to shareholders are available at
http://ir.interdigital.com/annuals.cfm

 

This proxy statement contains information relating to our annual meeting of shareholders to be held on Thursday, June 3, 2010, beginning at 11:00 a.m. Eastern Time, at the Dolce Valley Forge Hotel, 301 West DeKalb Pike, King of Prussia, Pennsylvania, and at any postponements or adjournments of the meeting. Your proxy for the meeting is being solicited by our board of directors. This proxy statement and our annual report are being mailed to shareholders beginning on or about April 30, 2010.

 

What is the purpose of the annual meeting?

 

At our annual meeting, shareholders will act upon the matters outlined in the notice of meeting provided with this proxy statement, including: the election of directors, the amendment of the articles of incorporation and bylaws to provide for the annual election of directors and adopt certain immaterial changes to the articles of incorporation, the ratification of the appointment of our independent registered public accounting firm, and such other business as may properly come before the meeting. In addition, management will report on the performance of our company and respond to questions from shareholders.

 

Who may attend the meeting?

 

Subject to space availability, all shareholders as of April 6, 2010, the record date, or their duly appointed proxies, may attend the meeting. Registration will begin at 9:30 a.m., and seating will begin at 10:30 a.m. If you plan to attend the meeting, please note that you will need to bring your admission ticket and valid picture identification, such as a driver’s license or passport. Cameras, recording devices and other electronic devices will not be permitted at the meeting, and all cellular phones must be silenced during the meeting. We realize that many cellular phones have built-in digital cameras, and, while these phones may be brought into the meeting, the camera function may not be used at any time.

 

Please also note that if you hold your shares in street name (that is, through a broker or other nominee), you will need to bring a copy of a brokerage statement reflecting your stock ownership as of the record date.

 

Who is entitled to vote at the meeting?

 

Only shareholders at the close of business on April 6, 2010, the record date, are entitled to receive notice of and to participate in the annual meeting. If you were a shareholder on that date, you will be entitled to vote all of the shares that you held on that date at the meeting, or any postponements or adjournments of the meeting. There were 43,910,576 shares of our common stock outstanding on the record date.

 

What are the voting rights of the holders of the company’s common stock?

 

Each share of our common stock outstanding on the record date will be entitled to one vote on each matter considered at the meeting.

 

What is a quorum?

 

A quorum is the minimum number of our shares of common stock that must be represented at a duly called meeting in person or by proxy in order to conduct business legally at the meeting. For the annual meeting, the presence, in person or by proxy, of the holders of a majority of the shares entitled to vote will be

considered a quorum. If you are a registered shareholder, you must deliver your proxy by Internet, telephone or mail, or attend the annual meeting in person and vote, in order to be counted in the determination of a quorum. If you are a street name shareholder, your broker or other nominee will vote your shares pursuant to your proxy directions, and such shares will count in the determination of a quorum. If you do not provide any directions to your broker or other nominee, your shares will still count for purposes of attaining a quorum.

 

How do I vote?

 

If you are a registered shareholder, you may submit your proxy by Internet, telephone or mail by following the instructions included with your proxy card. The deadline for submitting your proxy by Internet or telephone is 11:59 p.m. Eastern Time on June 2, 2010. The designated proxy will vote according to your instructions. You may also attend the meeting and deliver a proxy card to be voted in the same manner, or you may personally vote by ballot.

 

If you are a street name shareholder, you may submit your voting instruction card to your broker or other nominee, who will vote your shares according to your instructions. Please check your voting instruction card or contact your broker or other nominee to determine whether you will be able to deliver your voting instructions by Internet or telephone. If you are a street name shareholder and you want to vote at the meeting, you will need to obtain a signed proxy from the broker or nominee that holds your shares, because the broker or nominee is the legal, registered owner of the shares.

 

If you are a participant in a retirement or savings plan or other similar plan, you may submit your voting instructions by Internet, telephone or mail by following the instructions included with your voting instruction card. The deadline for submitting your voting instructions by Internet or telephone is 11:59 p.m. Eastern Time on June 1, 2010. The trustee or administrator of the plan will vote according to your instructions and the rules of the plan.

 

Can I change my vote after I return my proxy or voting instruction card?

 

If you are a registered shareholder, you may revoke or change your vote at any time before the proxy card is voted by filing with our Secretary either a written notice of revocation or a duly executed proxy bearing a later date. If you attend the meeting in person, you may ask the judge of elections to suspend your proxy holder’s power to vote, and you may submit another proxy or vote by ballot. Your attendance at the meeting will not by itself revoke a previously granted proxy.

 

If your shares are held in street name or you are a participant in a retirement or savings plan or other similar plan, please check your voting instruction card or contact your broker, nominee, trustee or administrator to determine whether you will be able to revoke or change your vote.

 

Will my vote be confidential?

 

It is our policy to maintain the confidentiality of proxy cards, ballots and voting tabulations that identify individual shareholders except as might be necessary to meet any applicable legal requirements and, in the case of any contested proxy solicitation, as might be necessary to allow proper parties to verify proxies presented by any person and the results of the voting.

 

What are the board’s recommendations?

 

The board recommends that you vote:

 

 

What vote is required to approve each proposal?

 

Election of directors.  Directors are elected by a plurality of votes cast. This means that the directors receiving the most votes cast at the meeting will be elected to serve for the next three years. Only votes cast “for” are counted in determining whether a plurality has been cast in favor of a director. A properly executed proxy marked “withhold authority” with respect to the election of a director will not be voted with respect to the director. Votes to withhold authority, while included for purposes of attaining a quorum, will have no effect on the vote on this matter.

 

Amendment of the articles of incorporation and bylaws.  The affirmative vote of the holders of at least eighty percent (80%) of the combined voting power of our common stock outstanding and entitled to vote generally in the election of directors is required for approval. Abstentions are included for purposes of attaining a quorum and will have the same effect as a vote “against” the proposal.

 

Ratification of the appointment of PricewaterhouseCoopers LLP.  The affirmative vote of a majority of the votes cast is required for ratification. Abstentions, while included for purposes of attaining a quorum, will have no effect on the outcome of the proposal.

 

Street name shares and broker non-votes.  If you hold your shares in street name through a broker or other nominee, your broker or nominee may not be permitted to exercise voting discretion with respect to some proposals if you do not provide voting instructions. “Broker non-votes” are shares that a broker or nominee does not vote because it has not received voting instructions and does not have discretionary authority to vote. For this meeting, if you do not give specific instructions, your broker or nominee may cast your vote in its discretion for proposal 2, the amendment of the articles of incorporation and bylaws, and for proposal 3, the ratification of the appointment of the company’s independent registered public accounting firm. Broker non-votes, if any, are included for purposes of attaining a quorum. Broker non-votes will have the same effect as a vote “against” proposal 2 but will have no effect on the outcome of proposal 3. Under recent amendments to the rules of the New York Stock Exchange, brokers and other nominees can no longer exercise voting discretion with respect to the election of directors if you do not provide voting instructions.

 

Where can I find information about the governance of the company?

 

The company has adopted corporate governance principles that, along with the charters of the board committees, provide the framework for the governance of the company. The nominating and corporate governance committee is responsible for annually reviewing the principles and recommending any proposed changes to the board for approval. A copy of our corporate governance principles is posted on our website at http://ir.interdigital.com under the heading “Corporate Governance,” along with the charters of our board committees and other information about our governance practices. We will provide to any person without charge a copy of any of these documents upon written request to our Secretary at InterDigital, Inc., 781 Third Avenue, King of Prussia, Pennsylvania 19406-1409.

 

Does the company have a code of ethics?

 

We have adopted a Code of Ethics that applies to all directors, officers, employees and consultants. In the event that we make any amendment to, or grant any waiver of, a provision of the Code of Ethics, we will disclose the amendment or waiver as required by applicable rules. The Code of Ethics is available on the company’s website at http://ir.interdigital.com under the heading “Corporate Governance.” We will provide to any person without charge a copy of our Code of Ethics upon written request to our Secretary at InterDigital, Inc., 781 Third Avenue, King of Prussia, Pennsylvania 19406-1409.

 

How does the board determine which directors are considered independent?

 

Each year, prior to the annual meeting, the board reviews and assesses the independence of its directors and makes a determination as to the independence of each director based on the recommendation of the nominating and corporate governance committee. During this review, the board considers transactions and relationships between each director or any member of his or her immediate family and our company and its subsidiaries and affiliates. The board measures these transactions and relationships against the independence requirements of The NASDAQ Stock Market, LLC. As a result of this review, the board affirmatively determined that Messrs. Jeffrey K. Belk, Steven T. Clontz, Edward B. Kamins and John A. Kritzmacher are “independent” in accordance with applicable NASDAQ listing standards. In addition, in early 2009, the board affirmatively determined that Mr. Harry G. Campagna, who passed away in December 2009, was “independent” in accordance with applicable NASDAQ listing standards. To our knowledge, none of the independent directors has any direct or indirect relationships with our company or its subsidiaries and affiliates, other than serving as a director.

 

Who is the Chairman of the Board, and are the positions of Chairman of the Board and Chief Executive Officer separated?

 

Mr. Clontz, who is an independent director, has served as Chairman of the Board since January 2010. The board has a general policy that the positions of Chairman of the Board and Chief Executive officer should be held by separate persons as an aid in the board’s oversight of management. This policy is affirmed in the board’s published corporate governance principles, which state that the Chairman of the Board shall be an independent director. The board believes that this leadership structure is appropriate for the company at this time because there are advantages to having an independent chairman for matters such as communications and relations between the board, the Chief Executive Officer and other senior management; in assisting the board in reaching consensus on particular strategies and policies; and in facilitating robust director, board and Chief Executive Officer evaluation processes.

 

What is the board’s role in risk oversight?

 

The board is responsible for overseeing the major risks facing the company and the company’s enterprise risk management (“ERM”) efforts. The board has delegated to the audit committee primary responsibility for overseeing and monitoring these efforts. Under its charter, the audit committee is responsible for discussing with management and the company’s independent registered public accounting firm significant risks and exposures relating to the company’s quarterly and annual financial statements and assessing management’s steps to mitigate them, and for reviewing corporate insurance coverage and other risk management programs. At each of its regularly scheduled meetings, the audit committee receives presentations and reports directly from the company’s Director of Corporate Compliance, who leads the company’s day-to-day ERM efforts. The audit committee briefs the board on the company’s ERM activities as part of its regular reports to the board on the activities of the committee, and the Director of Corporate Compliance also occasionally delivers presentations and reports to the full board as appropriate.

 

How is the board comprised?

 

The board presently has six directors. Our articles of incorporation currently provide for a board consisting of three classes of directors with overlapping three-year terms. One class of directors is elected each year with a term extending to the third succeeding annual meeting after election.

The amendments to the articles of incorporation and bylaws set forth in proposal 2, if approved by the company’s shareholders, would provide for the annual election of directors beginning at the 2011 annual meeting of shareholders. Beginning with the annual meeting of shareholders in 2013, the declassification of the board of directors would be complete and all directors would be subject to election for one-year terms at each annual meeting of shareholders.

 

How often did the board meet during 2009?

 

The board met eleven times during 2009. Each director is expected to attend each meeting of the board and those committees on which he or she serves. Each director attended at least 75% of the aggregate of all board meetings and meetings of committees on which the director served during 2009. We typically schedule one of the meetings of the board on the day immediately preceding or following our annual meeting of shareholders, and, when this schedule is followed, it is the policy of the board that directors are expected to attend our annual meeting of shareholders. With the exception of Messrs. Belk and Kritzmacher, who joined the board after the annual meeting of shareholders in June 2009, all current directors attended the 2009 annual meeting of shareholders.

 

What are the roles of the primary board committees?

 

The board has standing audit, compensation, finance and investment and nominating and corporate governance committees. Following the passing of Mr. Campagna, the board dissolved its executive committee in January 2010. The executive committee did not meet in 2009. The audit, compensation and nominating and corporate governance committees are composed entirely of independent directors, as determined by the board in accordance with applicable NASDAQ listing standards. In addition, audit committee members meet additional heightened independence criteria applicable to audit committee members under applicable NASDAQ listing standards. Each of the committees operates under a written charter that has been approved by the board. The table below provides information about the current membership of the committees and the number of meetings of each committee held in 2009.

 

 

Audit Committee

 

The audit committee assists the board in its general oversight responsibilities relating to the company’s corporate accounting, its financial reporting practices and audits of its financial statements. Among other things, the committee:

 

 

 

All of the audit committee members are financially literate. The board has determined that Mr. Kritzmacher is qualified as an audit committee financial expert within the meaning of applicable Securities and Exchange Commission (“SEC”) regulations and that Mr. Kritzmacher acquired his expertise primarily through his experience as a chief financial officer. The audit committee charter is available on the company’s website at http://ir.interdigital.com under the heading “Corporate Governance.”

 

Compensation Committee

 

The compensation committee assists the board in discharging its responsibilities relating to the compensation of the chief executive officer and other executive officers. Among other things, the committee:

 

 

The compensation committee charter is available on the company’s website at http://ir.interdigital.com under the heading “Corporate Governance.”

 

Nominating and Corporate Governance Committee

 

The nominating and corporate governance committee assists the board in identifying qualified individuals to become board and committee members, considers matters of corporate governance and assists the board in evaluating the board’s effectiveness. Among other things, the committee:

 

 

 

The committee will consider director candidates recommended by our shareholders. Shareholders recommending candidates for consideration by the nominating and corporate governance committee should send their recommendations to our Secretary at InterDigital, Inc., 781 Third Avenue, King of Prussia, Pennsylvania 19406-1409. The recommendation must include the candidate’s name, biographical data and qualifications and a written statement from the candidate of his or her consent to be named as a candidate and, if nominated and elected, to serve as a director. The committee may ask candidates for additional information as part of the process of assessing a shareholder-recommended director candidate.

 

While the board has not established a formal policy for considering diversity when evaluating director candidates, the board endeavors to have a diverse membership, viewing such diversity expansively to include differences of perspective, professional experience, education, skill and other individual qualities and attributes that contribute to board heterogeneity. As described in our corporate governance principles, the board aims to have members representing such diverse experiences at policymaking levels in business, finance and technology and other areas that are relevant to the company’s global activities. The selection criteria for director candidates include the following:

 

 

The committee periodically evaluates the composition of the board to assess the skills and experience that are currently represented on the board, as well as the skills and experience that the board will find valuable in the future. This evaluation of the board’s composition enables the board to update the skills and experience it seeks in the board as a whole, and in individual directors, as the company’s needs evolve and change over time and to assess the effectiveness of efforts at pursuing diversity.

 

The committee evaluates director candidates recommended by shareholders based on the same criteria used to evaluate candidates from other sources. The nominating and corporate governance committee charter is available on the company’s website at http://ir.interdigital.com under the heading “Corporate Governance.”

 

Finance and Investment Committee

 

The finance and investment committee assists the board by monitoring, providing advice and recommending action with respect to the investment and financial policies and strategies and the capital structure of the company.

 

How can shareholders communicate with the board?

 

Shareholders and other parties interested in communicating directly with any individual director, including the chairman, the board as a whole or the non-management directors as a group may do so by writing to Investor Relations, InterDigital, Inc., 781 Third Avenue, King of Prussia, Pennsylvania 19406-1409, or by

sending an email to Directors@InterDigital.com. Our corporate communications department reviews all such correspondence and regularly forwards to the board or specified director(s) a summary of all such correspondence and copies of all correspondence that deals with the functions of the board or its committees or that otherwise requires their attention. Directors may, at any time, review a log of all correspondence we receive that is addressed to members of the board and request copies of any such correspondence.

 

How can individuals report concerns relating to accounting, internal control or auditing matters?

 

Concerns relating to accounting, internal control or auditing matters may be submitted by writing to our Secretary at InterDigital, Inc., 781 Third Avenue, King of Prussia, Pennsylvania 19406-1409. All correspondence will be brought to the attention of the chairman of the audit committee and handled in accordance with procedures established by the audit committee with respect to these matters.

 

How are directors compensated?

 

For board participation during 2009, our non-management directors each received an annual cash retainer of $25,000. They each also received cash retainers equal to $5,000 annually for service on each committee of which they were a member, except that the chairmen of the executive, compensation, finance and investment and nominating and corporate governance committees received $15,000 annually and the chairman of the audit committee received $30,000 annually. All cash payments were based upon service for a full year, and prorated payments were made for service less than a full year. The retainers were paid on a quarterly basis.

 

On January 15, 2009, our then Chairman of the Board received 10,000 restricted stock units (“RSUs”) (which vested in full one year from the grant date). In addition, in 2009 each non-management director received 2,000 RSUs (which vest in full one year from the grant date) on June 4th, the date of the 2009 annual meeting of shareholders, or, in the case of Mr. Kritzmacher, on July 24th. Under the program in effect in 2009, non-management directors also received 6,000 RSUs upon their initial election to the board (2,000 of which vest on each of the first three anniversaries of the director’s initial election), and all non-management directors who were re-elected at the annual meeting of shareholders received 6,000 RSUs (2,000 of which vest on each of the first three anniversaries of the director’s re-election). RSU awards may be deferred. An election to defer must be made in the calendar year preceding the year in which services are rendered and the compensation is earned.

 

Effective January 27, 2010, based on the recommendation of the compensation committee after surveying market and industry data, the board approved and adopted certain changes to the company’s compensation program for non-management directors. The annual cash retainer was increased to $40,000 (from $25,000). The cash retainers for members of the audit committee were increased to $10,000 (from $5,000) annually, and the cash retainers for the chairmen of the compensation, finance and investment and nominating and corporate governance committees were decreased to $10,000 (from $15,000) annually. Moreover, payment of the annual board and all committee retainers are now subject to the director’s attendance at the regularly scheduled quarterly meetings, as follows: 100% payment for participating in person, 50% payment for participating telephonically and no payment for not participating. The annual grant of 10,000 RSUs to the Chairman of the Board was replaced by an annual cash retainer of $50,000, and non-management directors now receive 4,000 RSUs upon their initial election to the board (which vest in full one year from the grant date) in lieu of the grant of 6,000 RSUs. Finally, each non-management director now receives annual grants of 4,000 RSUs (which vest in full one year from the grant date) in lieu of the annual grants of 2,000 RSUs and the re-election grants of 6,000 RSUs.

To align the interests of non-management directors with those of our shareholders, the company has adopted stock ownership guidelines for non-management directors. Individuals are expected to meet their targets within five years of the date they become subject to the guidelines. Stock ownership guidelines applicable to the non-management directors are set at a target of three times their annual cash retainer. Qualifying ownership includes common stock, restricted stock and RSUs. All non-management directors were in compliance with the guidelines as of March 31, 2010.

 

The following table sets forth the compensation paid to each person who served as a non-management director of the company in 2009. Directors who also serve as employees of the company do not receive any additional compensation for their services as a director.

 

 

 

 

As of December 31, 2009, each person who served as a non-management director of the company in 2009 had the following option and unvested RSU awards outstanding. This table does not include RSUs that, as of December 31, 2009, had vested according to their vesting schedule, but had been deferred.

 

 

 

Which directors are nominated for election?

 

Messrs. Jeffrey K. Belk and Robert S. Roath are nominated for election at the 2010 annual meeting, each to serve a three-year term expiring at our annual meeting in 2013. Mr. Belk is standing for election for the first time. He was identified as a director candidate by senior members of the company’s business development function, including Mr. Mark A. Lemmo, the company’s Executive Vice President, Corporate Development, as well as by Mr. William J. Merritt, the company’s President and Chief Executive Officer and a member of the board.

 

Set forth below is biographical information about the nominees and other directors of the company whose terms of office continue after the annual meeting of shareholders and information about the skills and qualifications of our directors that support their service on the board.

 

What are their backgrounds?

 

Mr. Belk, 47, has been a director of the company since March 2010. He is Managing Director of ICT168 Capital, LLC, which is focused on developing and guiding global growth opportunities in the information and communications technologies space. Formerly, Mr. Belk spent almost 14 years at Qualcomm Incorporated, a developer and provider of digital wireless communications products and services, where, prior to his departure in early 2008, he was Qualcomm’s Senior Vice President of Strategy and Market Development, focused on examining changes in the wireless ecosystem and formulating approaches to help accelerate mobile broadband adoption and growth. From 2000 through 2006, Mr. Belk served as Qualcomm’s Senior Vice President, Global Marketing, leading a team responsible for all facets of the company’s corporate messaging, communications and marketing worldwide. He currently serves on the boards of directors of Peregrine Semiconductor Corp., a privately held company that designs, manufactures and markets high-performance communications radio frequency integrated circuits, and the Wireless-Life Sciences Alliance, a special purpose trade organization and international think tank. Mr. Belk’s extensive industry-specific experience in strategy, marketing and other critical functions makes him a valuable resource to the board and provides him with unique insights on the challenges and opportunities facing the company in the wireless markets. For these reasons, the board has concluded that Mr. Belk should serve as a director of the company.

 

Mr. Roath, 67, has been a director of the company since May 1997. He served as Senior Vice President and Chief Financial Officer of RJR Nabisco, Inc. before his retirement in 1997. Mr. Roath is a long-time senior strategic and financial executive with diversified corporate and operating experience with various global companies, including Colgate-Palmolive, General Foods, GAF Corporation and Price Waterhouse. He has been a director of Standard Parking, a provider of parking management services, since its initial public offering in May 2004 and became its Chairman of the Board in October 2009. Mr. Roath also serves as chairman of Standard Parking’s audit committee. Mr. Roath’s achievements as an executive in operations, finance, strategy formulation, business development and mergers and acquisitions allow him to provide valuable guidance to the board, especially with respect to the major financial policies and decisions of the company and the analysis of the business challenges and opportunities facing the company. In addition, Mr. Roath’s positions as chairman of the board and of the audit committee of another publicly traded company enable him to contribute advice as to best practices in corporate governance. For these reasons, the board has concluded that Mr. Roath should serve as a director of the company.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
EACH OF THE NOMINEES.

Who are the remaining directors?

 

Continuing directors with terms expiring at the 2011 annual meeting

 

Mr. Clontz, 59, has been a director of the company since April 1998 and was elected Chairman of the Board in January 2010. Also in January 2010, Mr. Clontz joined Singapore Technologies Telemedia, a Singapore-registered private limited company that invests in and manages a group of information-communications companies across the globe, as Managing Director for North America and Europe. From January 1999 through 2009, Mr. Clontz served as President and Chief Executive Officer of StarHub, Ltd., a Singapore-based, publicly traded information-communications corporation providing a full range of information, communications and entertainment services over fixed, mobile, Internet and cable TV networks. He continues to serve as a non-executive director of StarHub. In January 2010, Mr. Clontz joined the Board of Directors of eircom Limited, which is the largest telecommunications services provider in Ireland. Mr. Clontz was appointed to the Board of Directors of Equinix, Inc., a leading global provider of network-neutral data centers and Internet exchange services, in April 2005. In February 2004, he was appointed to the Executive Committee of the Board of Directors of Global Crossing Limited, which provides telecommunications solutions over a global IP-based network. Mr. Clontz is a global telecommunications industry leader with thirty-seven years of industry-specific experience whose deep knowledge of the wireless markets brings valuable insight that is needed to evolve and execute the company’s strategy to be a leading innovator in wireless technology solutions. For these reasons, the board has concluded that Mr. Clontz should serve as a director of the company.

 

Mr. Kamins, 61, has been a director of the company since December 2003. Mr. Kamins is the principal member of UpFront Advisors, a business consulting services firm he founded in March 2009. From July 1999 until his retirement in February 2009, Mr. Kamins served as Corporate Senior Vice President of Avnet, Inc., one of the world’s largest global distributors of electronic components, enterprise computing and embedded subsystems. Mr. Kamins served as Chief Information Officer of Avnet beginning in July 2004 and accepted the newly created post of Chief Operational Excellence Officer in July 2006. As a long-time senior executive in the high technology industry with extensive operational and management experience, Mr. Kamins contributes valuable advice to the board regarding the company’s challenges and opportunities. For these reasons, the board has concluded that Mr. Kamins should serve as a director of the company.

 

Continuing directors with terms expiring at the 2012 annual meeting

 

Mr. Kritzmacher, 49, has been a director of the company since June 2009. Mr. Kritzmacher has served as Executive Vice President and Chief Financial Officer of Global Crossing Limited, which provides telecommunications solutions over a global IP-based network, since October 2008. Previously, Mr. Kritzmacher served as Chief Financial Officer at Lucent Technologies, a provider of telecommunications systems and services. Before becoming Chief Financial Officer, Mr. Kritzmacher rose through a variety of positions with increasing responsibility during his 10 years at Lucent, including Senior Vice President and Corporate Controller. After playing a leading role in the planning and execution of Lucent’s merger with Alcatel in 2006, Mr. Kritzmacher became Chief Operating Officer of the Services Business Group at Alcatel-Lucent. He is a veteran of the telecommunications and high technology industries with extensive operational and leadership experience and financial expertise. As such, Mr. Kritzmacher contributes valuable advice and guidance to the board, especially with respect to complex financial and accounting issues, and serves as the board’s audit committee financial expert. For these reasons, the board has concluded that Mr. Kritzmacher should serve as a director of the company.

Mr. Merritt, 51, has been a director of the company since May 2005. He has also served as President and Chief Executive Officer of the company since May 2005 and as President and Chief Executive Officer of InterDigital Communications, LLC, a wholly owned subsidiary of the company, since its formation in July 2007. Mr. Merritt served as General Patent Counsel of the company from July 2001 to May 2005 and as President of InterDigital Technology Corporation, a wholly owned patent licensing subsidiary of the company, from July 2001 to January 2008. In his current and former roles, Mr. Merritt has played a vital role in managing the company’s intellectual property assets and overseeing the growth of its patent licensing business. He also possesses tremendous knowledge about the company from short- and long-term strategic perspectives and from a day-to-day operational perspective and serves as a conduit between the board and management while overseeing management’s efforts to realize the board’s strategic goals. For these reasons, the board has concluded that Mr. Merritt should serve as a director of the company.

 

Description

 

On March 5, 2010, the board of directors voted unanimously to approve taking the necessary steps to provide for the annual election of directors. Specifically, the board voted to approve, and to recommend to our shareholders that they approve: (1) phasing out the classification of the board of directors and providing instead for the annual election of directors through amendments to the company’s articles of incorporation (the “Articles”) and the company’s bylaws (the “Bylaws”) and (2) adopting certain immaterial conforming and technical changes to the Articles.

 

The board of directors has determined that it is in the company’s best interests at this time to eliminate its classified board. In recent years, an increasing number of public companies have decided to eliminate classified board structures and allow shareholders to vote annually on the election of all directors. This growing trend reflects the view that annual elections enhance director accountability to shareholders by allowing shareholders to evaluate and vote on the election of each director each year. Many investors believe that the election of directors is the primary means for shareholders to influence corporate governance policies and to hold management accountable for implementing those policies. After considering evolving best practices in corporate governance, input from the company’s shareholders and the company’s current circumstances, including its size and financial strength, the board has determined that shareholders should have the ability to vote annually on the election of all of the company’s directors.

 

The proposed amendments to the Articles and Bylaws would implement annual elections and include other conforming and technical changes that may be necessary or appropriate to implement annual elections. Under the Articles and Bylaws, the board of directors is currently divided into three classes, as nearly equal in number as possible, composed of directors each serving terms of office of three years.

 

If the company’s shareholders approve the proposed amendments, the Articles and Bylaws would provide for the annual election of directors beginning at the 2011 annual meeting of shareholders. Directors elected by the shareholders of the company prior to the 2011 annual meeting, and directors appointed by the board prior to the 2010 annual meeting, would complete their three-year terms. Beginning with the annual meeting of shareholders in 2013, the declassification of the board of directors would be complete and all directors would be subject to election for one-year terms at each annual meeting of shareholders. In addition, directors elected to fill newly created directorships resulting from an increase in the number of directors will hold office until the next annual meeting and until their successors are elected and qualified. Similarly, directors elected to fill vacancies on the board of directors resulting from death, resignation, disqualification, removal or other cause will serve for the remainder of the full term of office of the directors whom they replaced and until their successors are elected and qualified.

 

In determining whether to recommend declassification as described above, the board of directors carefully reviewed the various arguments for and against a classified board structure. Classified boards may offer advantages, such as fostering continuity and stability and providing protection against takeovers. However, the board of directors also recognizes that classified boards may be perceived as reducing the accountability of directors to shareholders because shareholders do not have the opportunity to evaluate and elect each director each year. Accordingly, the board of directors has determined that it is in the company’s best interests at this time to eliminate its classified board and urges shareholders to approve the amendments to the Articles and Bylaws in this proposal. If shareholders approve the proposed amendments, the company will restate its Articles and Bylaws to reflect the amendments.

 

The description set forth above is a summary of the proposed changes to the Articles and Bylaws. Appendix A to this proxy statement includes the Amended and Restated Articles of Incorporation and the relevant sections of the Bylaws reflecting these changes. Deletions appear in brackets, and additions are double-underlined.

Vote Required and Board Recommendation

 

The affirmative vote of the holders of at least eighty percent (80%) of the combined voting power of the outstanding shares of common stock is required to approve the proposed amendments to the Articles and Bylaws to phase out the classification of the board of directors and provide for the annual election of directors and to adopt certain immaterial conforming and technical changes to the Articles.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR

THE PROPOSED AMENDMENTS TO THE ARTICLES OF INCORPORATION AND BYLAWS.

 

The audit committee has appointed PricewaterhouseCoopers LLP (“PwC”) as the company’s independent registered public accounting firm for the year ending December 31, 2010. PwC has served as the independent registered public accounting firm of the company since 2002.

 

Although ratification of the appointment of PwC is not legally required, the board is submitting it to the shareholders as a matter of good corporate governance. If the shareholders do not ratify the appointment, the audit committee will consider the selection of another independent registered public accounting firm in future years.

 

Representatives from PwC will be present at the annual meeting to make a statement, if they so desire, and will be available to respond to appropriate questions.

 

Fees Paid to Independent Registered Public Accounting Firm

 

Aggregate fees for professional services delivered by PwC for the fiscal years ended December 31, 2009 and 2008 were as follows:

 

 

 

Audit Committee Pre-Approval Policy for Audit and Non-Audit Services of Independent Registered Public Accounting Firm

 

The audit committee’s policy requires that it pre-approve all audit and non-audit services to be performed by the company’s independent registered public accounting firm. Unless a service falls within a category of services that the audit committee has pre-approved, an engagement to provide the service requires pre-approval by the audit committee. Also, proposed services exceeding pre-approved cost levels require specific pre-approval.

 

Consistent with the rules established by the SEC, proposed services to be provided by the company’s independent registered public accounting firm are evaluated by grouping the service fees under one of the following four categories: Audit Services, Audit-Related Services, Tax Services and All Other Services. All proposed services are discussed and pre-approved by the audit committee, generally at a meeting or meetings that take place during the October through December time period. In order to render approval, the audit committee has available a schedule of services and fees approved by category for the current year for reference, and specific details are provided.

 

The audit committee has delegated pre-approval authority to its chairman for cases where services must be expedited. In cases where the audit committee chairman pre-approves a service provided by the independent registered public accounting firm, the chairman reports the pre-approval decisions to the audit committee at its next scheduled meeting. The company’s management provides the audit committee with reports of all pre-approved services and related fees by category incurred during the current fiscal year, with forecasts of additional services anticipated during the year.

 

All of the services related to fees disclosed above were pre-approved by the audit committee.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2010.

 

As more fully described in our charter, the audit committee oversees the company’s financial reporting processes on behalf of the board. In fulfilling our oversight responsibilities, the audit committee has reviewed and discussed with management the company’s audited consolidated financial statements for the year ended December 31, 2009, including a discussion of the acceptability and appropriateness of significant accounting principles and management’s assessment of the effectiveness of the company’s internal controls over financial reporting. Management has represented to us that the company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States and considered appropriate in the circumstances to present fairly the company’s financial position, results of operations and cash flows. The audit committee has also reviewed and discussed with PwC, the company’s independent registered public accounting firm, the matters required to be discussed with the independent registered public accounting firm under Public Company Accounting Oversight Board (“PCAOB”) standards.

 

The audit committee has also received and reviewed the written disclosures and the letter from PwC required by applicable requirements of the PCAOB regarding the accountant’s communications with the audit committee concerning independence and has discussed with PwC their independence.

 

Based on the reviews and discussions with management and the independent registered public accounting firm referred to above, we recommended to the board that the audited financial statements be included in the company’s annual report on Form 10-K for the year ended December 31, 2009 for filing with the SEC, and we retained PwC as the company’s independent registered public accounting firm for the year ending December 31, 2010.

 

AUDIT COMMITTEE:

 

Edward B. Kamins, Chairman
John A. Kritzmacher
Steven T. Clontz(1)

 

 

 

Set forth below is certain information concerning our executive officers as of March 31, 2010:

 

 

There are no family relationships among the individuals serving as our directors or executive officers. Set forth below are the name, office and position held with our company and principal occupations and employment of each of our executive officers. Biographical information on Mr. Merritt is discussed under the caption “Continuing directors with terms expiring at the 2012 annual meeting” on page 12 of this proxy statement.

 

Scott A. McQuilkin is the company’s Chief Financial Officer, responsible for directing the organization’s financial planning and accounting practices and supporting the company’s capital markets efforts. Mr. McQuilkin joined the company in July 2007. Prior to InterDigital, Mr. McQuilkin served as Chief Financial Officer for Metavante Lending Solutions, a high growth technology firm providing business process automation to the financial services industry. Mr. McQuilkin had joined GHR Systems, Inc., a provider of lending technologies and related support services, in February 2000 as Chief Financial Officer and was responsible for finance, funding, acquisitions, accounting, strategy, human relations, facilities and risk management. In August 2006, GHR Systems was acquired by Metavante Corporation, a provider of banking and payment technology solutions and a wholly owned subsidiary of Marshall & Ilsley Corporation, a diversified financial services company. Mr. McQuilkin earned a Master of Business Administration from The Wharton School and a Bachelor of Science from Pennsylvania State University.

 

Richard J. Brezski is InterDigital’s Vice President, Controller and Chief Accounting Officer, responsible for the company’s internal and external financial reporting and analysis and tax and purchasing functions. Mr. Brezski joined the company as Director and Controller in May 2003. Mr. Brezski was promoted to Senior Director in July 2006 and in January 2007 was appointed Chief Accounting Officer. In January 2009, Mr. Brezski was promoted to Vice President, Controller and Chief Accounting Officer. Prior to joining InterDigital, Mr. Brezski served as an audit manager for PwC in its technology, information, communications and entertainment practice, where he provided business advisory and auditing services to product and service companies in the electronics, software and technology industries. Mr. Brezski earned a Bachelor of Science in Accountancy from Villanova University and an Executive Master of Business Administration from Hofstra University.

 

Gary D. Isaacs is InterDigital’s Chief Administrative Officer, responsible for overseeing human resources, information systems technology and corporate services across all company locations. Mr. Isaacs joined InterDigital as Director of Human Resources in September 1998, after spending three years at RCN Corporation, a telecommunications company, where he was Vice President, Human Resources. He was promoted to Vice President of Human Resources of InterDigital in April 1999 and named Chief Administrative Officer in February 2007. Mr. Isaacs attended college at The University of Manchester in England as part of a

select international communications program prior to graduating with a Bachelor of Arts in Journalism from Pennsylvania State University.

 

Brian G. Kiernan is the company’s Executive Vice President, Standards, responsible for the development of new market and product initiatives and the coordination of InterDigital’s worldwide standards activities. Mr. Kiernan has been with the company since 1984. As Vice President of Engineering during the development of the company’s UltraPhone product, Mr. Kiernan was a principal contributor to InterDigital’s extensive portfolio of intellectual property. He was promoted to Senior Vice President, Standards, in July 1997, and in February 2007 Mr. Kiernan’s title was revised to Executive Vice President, Standards, without a change in responsibilities. Mr. Kiernan earned a Bachelor of Science in Electrical Engineering from The Newark College of Engineering and a Master of Science in Management Science from Fairleigh Dickinson University.

 

Mark A. Lemmo is InterDigital’s Executive Vice President, Corporate Development, responsible for managing corporate initiatives through strategic investments and acquisitions that align with the company’s technology roadmap. Mr. Lemmo has been with the company since 1987 and has led the establishment and growth of a number of key strategic partnerships. Mr. Lemmo held the position of Executive Vice President, Business Development and Product Management, from April 2000 to April 2009. Mr. Lemmo was named Executive Vice President, Corporate Development, in April 2009, in connection with the company’s decision to expand its technology development and licensing business and realign its SlimChip^tm business. Mr. Lemmo earned a Bachelor of Science in Electrical Engineering and a Bachelor of Arts in Psychology and Liberal Arts from Temple University.

 

James J. Nolan is InterDigital’s Executive Vice President, Research and Development, responsible for directing the development of advanced wireless technologies, including the incubation of advanced wireless communication solutions and the evolution of standards-based technologies. Since joining the company in 1996, Mr. Nolan has held a variety of engineering and management positions, including serving as the company’s senior engineering officer since May 2006. In February 2007, Mr. Nolan’s title was revised to Executive Vice President, Engineering, without a change in responsibilities. Prior to leading the company’s engineering organization, he led technology and product development of modems, protocol software and radio designs for multiple wireless standards. Mr. Nolan was named Executive Vice President, Research and Development, in April 2009, in connection with the company’s decision to expand its technology development and licensing business and realign its SlimChip business. Mr. Nolan earned a Bachelor of Science in Electrical Engineering from the State University of New York at Buffalo, a Master of Science in Electrical Engineering from Polytechnic University and an Executive Master of Business Administration from Hofstra University.

 

Janet M. Point is InterDigital’s Executive Vice President, Communications and Investor Relations, responsible for corporate communications, investor relations and marketing. Ms. Point joined the company in January 2000 as Director of Investor Relations to manage and build the company’s relationship with the institutional and individual investment communities. In January 2006, she was promoted to senior communications officer for the company, responsible for corporate communications, investor relations and marketing, and in February 2007 Ms. Point’s title was revised to Executive Vice President, Communications and Investor Relations, without a change in responsibilities. Prior to InterDigital, she spent five years as Vice President of Investor Relations at Advanta Corporation, a specialty finance corporation. Ms. Point received her Master of Business Administration from the University of Michigan and her Bachelor of Arts in Economics and English from the University of Virginia.

 

Lawrence F. Shay is the company’s Executive Vice President, Intellectual Property, and Chief Intellectual Property Counsel and President of InterDigital’s patent holding subsidiaries. Mr. Shay is responsible for overseeing all activities pertaining to InterDigital’s patent licensing business, including managing the company’s intellectual property assets, negotiating and administering license agreements and supervising litigation relating to intellectual property rights. He joined InterDigital in November 2001 as Chief Legal Officer and served as Corporate Secretary from November 2001 to September 2004. In February 2007, Mr. Shay’s title was revised to Chief Legal and Government Affairs Officer, without a change in responsibilities. Mr. Shay was appointed to his current position in January 2008. He previously served as General Counsel of U.S. Interactive, Inc., a multinational, publicly held Internet professional services corporation.

U.S. Interactive filed a Chapter 11 bankruptcy petition in January 2001, and its reorganization plan was confirmed in September 2001. From 1985 until 1999, Mr. Shay practiced corporate law with Dilworth Paxson LLP, a major Philadelphia law firm. Mr. Shay earned his Juris Doctor, with honors, from the Temple University School of Law and is a magna cum laude graduate of Saint Joseph’s University, where he earned a Bachelor of Arts in Economics.

 

Naresh H. Soni joined the company as Vice President, Strategic Engineering, in July 2009 and was promoted to Chief Technology Officer in December 2009. He is responsible for the company’s technology strategy and roadmap, university and industry relationships and providing guidance on merger and acquisition opportunities as well as new research and development initiatives. Prior to joining the company, Mr. Soni founded Exemplar Technologies, a consulting firm that provides innovative services and product development strategies to clients. Previously, he served as Chief Technology Officer for Streamezzo, a venture-funded provider of interactive rich media solutions for some of the world’s leading handset manufacturers and wireless operators, and Vice President of the Computing Architecture Research Lab at Nokia, the world’s largest manufacturer of mobile devices by market share. Mr. Soni earned his Master of Science in Computer Engineering from the University of Texas, Austin, and a Bachelor of Science in Electrical Engineering from the University of Mumbai.

 

Steven W. Sprecher is InterDigital’s General Counsel and Secretary, responsible for overseeing all activities pertaining to the company’s legal and regulatory compliance issues. Mr. Sprecher joined the company in September 2007 as Deputy General Counsel, and he was promoted to General Counsel and Government Affairs Officer in March 2008. In September 2008, Mr. Sprecher was also appointed Secretary of the company. He previously served as Vice President, Legal, at Mindspeed Technologies, a semiconductor manufacturer, from April 2004 to August 2007. Prior to his role at Mindspeed, Mr. Sprecher was Of Counsel at Gibson, Dunn & Crutcher LLP, a global law firm. Mr. Sprecher earned his Juris Doctor and Master of Business Administration from the University of California, Los Angeles, and a Bachelor of Science in Physics from the United States Naval Academy.

 

The company’s executive officers are appointed to the offices set forth above to hold office until their successors are duly elected and qualified. Each executive officer is also an officer, with the same titles, of InterDigital Communications, LLC, a wholly owned subsidiary of the company, since its formation in July 2007.

 

The compensation committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on its review and discussions, has recommended to the board that the Compensation Discussion and Analysis be included in this proxy statement.

 

COMPENSATION COMMITTEE:

 

Steven T. Clontz, Chairman
Edward B. Kamins
John A. Kritzmacher

 

This Compensation Discussion and Analysis focuses on the company’s compensation strategy, programs and practices for fiscal 2009 for the executive officers named in the Summary Compensation Table (the “named executive officers”) that follows this discussion.

Compensation Objectives and Philosophy

 

The compensation and benefits provided to the company’s named executive officers generally have, as their primary purpose, the attraction, retention and motivation of talented employees who will drive the execution of the company’s strategic plan, encourage company stock ownership and create long-term value for the company’s shareholders.

 

The core objectives of the company’s compensation program are to:

 

 

The company’s total compensation program is part of an overall strategy to create an environment of collective effort toward common goals, to give each named executive officer both short- and long-term stakes in the success of the company and to reward named executive officers appropriately when company performance meets or exceeds desired objectives.

 

Factors Considered in Setting Compensation

 

In establishing compensation for the named executive officers, the compensation committee exercises its judgment after considering the following factors:

 

 

In evaluating the accomplishment of 2009 goals and related compensation awards for the named executive officers, the compensation committee considered the company’s performance during 2009. During 2009, the company delivered solid financial results and significantly enhanced its intellectual property portfolio. In addition, the company secured patent licensing agreements with several customers, updated and started implementing its strategic plan to expand its technology development and licensing business and monetize the SlimChip product investment through technology licensing and ceased further product development of its SlimChip HSPA technology. The compensation committee also considered the extent to which the company achieved corporate goals established under the company’s Annual Employee Bonus Plan and Long Term Compensation Program (“LTCP”), as well as the chief executive officer’s assessment regarding the company’s achievement of the corporate goals.

 

The compensation committee also considered the compensation practices of other companies in the telecommunications/communications industry. Consistent with the core objectives of the company’s compensation program, the compensation committee seeks to provide compensation that is competitive in light of current market conditions and industry practices. Accordingly, the compensation committee reviews data on peer group companies to gain a general perspective on the compensation levels and practices at these companies and to assess the relative competitiveness of the compensation paid to the company’s named executive officers. The peer group data serve as a guide for the compensation committee in evaluating competitiveness; the committee does not target compensation (including specific pay elements and total compensation) for individual named executive officers to specific benchmarks. The compensation committee has engaged Compensation Strategies, Inc. (“CSI”) to assist it in the process of identifying peer group companies and gathering information on their practices. As part of the market review conducted in June 2009, CSI identified a peer group that included 20 companies from the technology/communications industry sector

generally, including several companies that had patent licensing components to their businesses. The peer group companies had annual revenues in 2008 ranging from approximately $140 million to $1.1 billion, with median revenue of approximately $513 million, compared to InterDigital’s revenues of $228 million in 2008. The companies comprising the peer group were:

 

 

CSI gathered available information about individual positions, elements of compensation and overall compensation at the peer group companies and provided the compensation committee with this data, which the compensation committee reviewed. Although the compensation committee does not specifically target the median in setting compensation for the named executive officers, the company’s practice generally has been to pay near the median for comparable roles in the marketplace in order to attract, retain and motivate talented leaders.

 

The third factor that the compensation committee considered in determining compensation for our named executive officers in 2009 was individual performance, including the chief executive officer’s assessment of the other named executive officers’ individual performance. The compensation committee considered individual performance when setting both base salaries and the amount of the named executive officers’ annual bonuses, 25% of which, as discussed below, are based on individual performance.

 

Role of Compensation Committee, Executive Officers and Compensation Consultant in Compensation Decisions

 

The compensation committee determines the structure and amount of all named executive officer compensation. The committee has final authority with respect to these compensation decisions. The committee considers the recommendations of the chairman of the board in determining the base salary of the chief executive officer and the individual performance component of his annual bonus. As part of the annual performance and compensation review for our named executive officers other than the chief executive officer, the committee considers the chief executive officer’s assessment of each named executive officer’s individual performance, including identification of major individual accomplishments, and his recommendations with respect to their compensation. In addition, the chief executive officer provides an assessment to the compensation committee regarding the extent to which the company achieved corporate goals established under the company’s Annual Employee Bonus Plan and LTCP. From time to time, the compensation committee may also receive information from other executive officers about matters such as compensation trends and changes in the law that might affect the terms of the company’s compensation plans.

 

The compensation committee has retained CSI to assist the committee by providing relevant market data and by making recommendations to the committee regarding the structure and amounts of various components of executive compensation. CSI reports directly to the compensation committee. As discussed above under the heading “How are directors compensated?,” CSI also conducts periodic market reviews of the company’s non-management director compensation and provides other advice to the committee on director compensation matters. In addition, from time to time, CSI may advise the board and management on an ad hoc basis about discrete compensation-related issues. In June 2009, at the compensation committee’s direction, CSI conducted a market review of the company’s compensation levels for its senior executives. As discussed in more detail

below, CSI assessed the competitiveness of the company’s named executive officer compensation as measured against a peer group recommended by CSI.

 

CSI did not provide any services to the company during 2009 other than the compensation consulting services described above.

 

Elements of Executive Compensation — Overview

 

The various elements of our compensation program are designed to promote specific compensation objectives, with a view toward furthering the three core objectives of the program, which are described above. The company’s compensation program for its named executive officers includes a mix of current and long-term compensation, both of which have cash and equity components.

 

The basic components of the named executive officers’ current compensation are:

 

 

The named executive officers are also eligible for, and participate in, a variety of savings, health and welfare plans that are available to all U.S. employees of the company.

 

Long-term compensation for the named executive officers is paid out under the LTCP, as more fully described below. The LTCP has two components: (i) equity (in the form of time- and performance-based RSUs) and (ii) a cash award based on the achievement of corporate goals after the completion of cycles that are generally three years in length.

 

The company’s compensation programs for senior management, including the named executive officers, are designed to attract, retain and motivate executive talent as well as align their interests with those of our shareholders. To achieve this result, we employ a mix of current and long-term elements, as well as a mix of cash and equity. The balance between equity and cash, and short- and long-term compensation, is established in our program documents. We also have established executive stock ownership guidelines to ensure that our senior officers achieve and maintain meaningful levels of equity ownership in the company. To ensure that our compensation programs overall are meeting the stated objectives, we periodically compare our programs to those used by our peer group and make adjustments as necessary. Further, in implementing the plans, the compensation committee also considers the current equity ownership of the executives and can, as permitted under the plans, adjust payouts between cash and equity to drive achievement of the stock ownership guidelines.

 

Current Compensation

 

Base Salary

 

Base salary is the guaranteed element of a named executive officer’s annual cash compensation. Base salaries for the company’s named executive officers are designed to attract and retain highly qualified individuals. The compensation committee approves base salaries for the named executive officers annually based on the committee’s assessment of each named executive officer’s individual performance during the prior year and his or her experience and scope of responsibilities within the company. The committee also considers salaries paid to similarly situated executives within the company’s peer group and information on changes in the Consumer Price Index provided by management.

 

In 2009, salary adjustments for our named executive officers were based primarily on individual performance and peer group data. Although the compensation committee does not specifically target the median in setting compensation for the named executive officers, the company’s practice generally has been to pay near the median for comparable roles in the marketplace in order to attract, retain and motivate talented

leaders. Individual adjustments generally are made after the compensation committee considers the performance of each executive, together with job tenure, individual responsibilities, the unique nature of certain positions and other elements of the individual’s annual cash, total and projected compensation. Salary adjustments for 2009 resulted in increases ranging from 0% to 6.6% for the named executive officers. Mr. Merritt’s base salary remained flat from 2008 to 2009 primarily because on January 1, 2009 he received, in lieu of a salary increase, a one-time grant of 4,000 RSUs, which are scheduled to vest annually, in three equal installments, beginning on the grant date. Messrs. Lemmo and McQuilkin received salary increases of 4% and 4.5%, respectively, consistent with the company’s salary increases for employees generally. Mr. Shay, who oversees the company’s patent licensing business, received an increase of 6.1% to maintain competitiveness with respect to compensation for comparable roles in the marketplace. Finally, Mr. Nolan received an increase of 6.6%, which reflects the expansion of the scope of his responsibilities upon his promotion to Executive Vice President, Research and Development, in connection with the company’s decision to expand its technology development and licensing business.

 

Annual Bonuses

 

Bonus awards are designed to reward the achievement of annual business goals and the individual accomplishments of the named executive officers. Bonuses are payable to the named executive officers under the company’s Annual Employee Bonus Plan. The targeted annual bonus of each of the company’s named executive officers is set as a percentage of salary. Those percentages are intended to reflect the relative influence and importance of each named executive officer’s role within the company. For 2009, those percentages were 75% for Mr. Merritt, 50% for Messrs. McQuilkin and Shay and 40% for the other named executive officers. The compensation committee increased Mr. Merritt’s annual bonus target percentage from 57% in 2008 to 75% in 2009 and Mr. McQuilkin’s percentage from 40% in 2008 to 50% in 2009 after consulting market and industry data and in order to maintain competitiveness with respect to compensation for comparable roles in the marketplace. The amount awarded is based 75% on achievement of annual corporate goals and 25% on individual performance.

 

In 2009, the primary corporate goals were: securing additional patent and technology licensees, building the scale of or selling the company’s modem business, updating and implementing the company’s strategic

plan, enhancing the company’s intellectual property portfolio, limiting cash spending and strengthening the organization. The specific goals, and the relative weights assigned to each, were as follows:

 

 

The annual corporate goals are generally structured to challenge management to achieve results that could be met through reasonable “stretch” performance and that collectively yield a payout at or about 100% of target. Historically, the company achieved, in the aggregate, 100% of the 2008 annual corporate goals, 83% of the 2007 annual corporate goals, 52.5% of the 2006 annual corporate goals, 94% of the 2005 annual corporate goals and 110% of the 2004 annual corporate goals. At the end of 2009, the chief executive officer provided his assessment to the compensation committee regarding the extent to which the company achieved the annual corporate goals. The committee considered this assessment and in particular discussed the company’s failure to enter into a patent licensing agreement with a top-five 3G handset manufacturer in 2009. Following discussion among the members, the compensation committee determined that the company achieved, in the aggregate, 75% of the 2009 annual corporate goals.

 

In determining the annual bonus of the chief executive officer for 2009, the compensation committee considered the recommendations of the chairman of the board and reviewed the individual performance of the chief executive officer in 2009. For the other named executive officers, the compensation committee reviewed the performance assessments provided by the chief executive officer. The compensation committee also has discretion to exercise its judgment based on interactions with each named executive officer. As noted above, the amount awarded as annual bonus is based 75% on achievement of annual corporate goals and 25% on individual performance. The payout under the portion of the annual bonus attributable to individual performance may range from 0% to 150% of the target amount for such portion, depending upon the individual executive’s performance assessment. The annual bonuses for fiscal 2009 paid to the named executive officers in 2010 were entirely in cash.

Savings and Protection (401(k)) Plan

 

The company’s Savings and Protection Plan (the “401(k) Plan”) is a tax-qualified retirement saving plan pursuant to which employees, including the named executive officers, are able to contribute the lesser of 100% of their annual base salary or the limit prescribed by the Internal Revenue Service (“IRS”) on a pre-tax basis. The company provides a 50% matching contribution on the first 6% of an employee’s salary contributed to the 401(k) plan, up to the cap mandated by the IRS. The company offers this benefit to encourage employees to save for retirement and to provide a tax-advantaged means for doing so.

 

Supplemental Payment and Profit-Sharing Programs

 

The supplemental payment program provides all employees with an annual cash payment equal to 3.5% of their annual base salary, payable quarterly in arrears. This program is designed to serve as a retention incentive. Starting in 2009, each executive-level employee, including each named executive officer, receives, in lieu of participating in the supplemental payment program, an annual grant of 1,000 shares of the company’s common stock, which are subject to a one-year restriction on transferability. The purpose of paying the supplement in the form of equity is to enhance senior management stock ownership, thereby fostering the alignment of senior management’s interests with those of our shareholders.

 

In addition, the compensation committee approved a profit-sharing 401(k) contribution to each employee, including the named executive officers, of 1.5% of the employee’s salary earned in 2009, up to the cap mandated by the IRS, which was paid in first quarter 2010.

 

Long-Term Incentives

 

The company’s LTCP is designed to incentivize the named executive officers to achieve strong corporate performance aligned with the company’s long-term strategic plan, to align the interests of the named executive officers with shareholders and to attract and retain highly qualified individuals. The LTCP is comprised of both equity and cash components, which include:

 

 

The LTCP consists of overlapping cycles that are generally three years in length. The first cycle under the program covered the period from April 1, 2004 to January 1, 2006 and included both RSU (“RSU Cycle 1”) and cash (“Cash Cycle 1”) components. The second cycle originally covered the period from January 1, 2005 to January 1, 2008 (“Cycle 2”) and also included both RSU (“RSU Cycle 2”) and cash (“Cash Cycle 2”) components. In second quarter 2005, the compensation committee amended the LTCP to end Cash Cycle 2 on June 30, 2005 and to begin a new cash cycle (“Cash Cycle 2a”) covering the 3.5-year period from July 1, 2005 through December 31, 2008. The compensation committee amended the LTCP because it believed that several events, including the conclusion of a major arbitration that would have had a significant one-time effect on achievement of corporate goals, and the appointment of a new chief executive officer, warranted the establishment of new long-term goals, and because the parallel cycles that previously existed resulted in erratic expense patterns for the company every other year. The RSU component of the third cycle (“RSU Cycle 3”) began on January 1, 2007 and runs to January 1, 2010; the cash component of the third cycle (“Cash Cycle 3”) began on January 1, 2008 and runs through December 31, 2010. The RSU component of the fourth cycle (“RSU Cycle 4”) began on January 1, 2009 and runs to January 1, 2012; the cash component of the fourth cycle (“Cash Cycle 4”) began on January 1, 2010 and runs through December 31, 2012.

 

Participants may earn a pro-rata portion of their awards under the LTCP in the event of death, disability or retirement or if the company terminates their employment without cause. Participants also may earn their full awards in the event of a change in control of the company as defined under the LTCP.

Equity Awards

 

Each named executive officer receives RSU awards under the LTCP based on a percentage of their base salary at the time of grant. Awards under the LTCP are paid out at the end of each cycle for all senior management participants, including the named executive officers. Until 2006, the equity component of the LTCP consisted solely of time-based RSUs, which for members of senior management vest in full on the third anniversary of the grant date. To align management’s compensation with corporate performance more closely, in August 2006 members of senior management were offered the opportunity to exchange 50% of their then-current time-based RSUs (from Cycle 2) for an equal number of performance-based RSUs, with the level of payout tied to the company’s achievement of pre-approved performance goals established by the compensation committee. All the named executive officers participated in this exchange offer, other than Mr. McQuilkin, who joined the company in July 2007 and was therefore not eligible to participate in the equity award portion of Cycle 2. In December 2006, the LTCP was amended so that, beginning with RSU Cycle 3, executives now receive 50% of their RSU grant as performance-based RSUs and 50% as time-based RSUs.

 

Under the performance-based RSU component of the LTCP, 100% achievement of the corporate goals set by the compensation committee results in a 100% payout of the performance-based RSU incentive target amounts. For each 1% change above or below 100% achievement, the actual award amount is adjusted by four percentage points, with a minimum payout of 20% of target and a maximum payout of 300%. For performance that falls below 80% of target, no RSU payout would occur. Unvested performance-based and time-based RSUs are entitled to receive dividend equivalents at the same time and only to the extent that the awards are paid out.

 

Cash Awards

 

The cash portion of the LTCP provides performance-based cash awards to the named executive officers based on the company’s achievement of pre-approved performance goals established by the compensation committee for each program cycle. As with the equity component discussed above, each participant’s target award is established as a percentage of his or her base salary in effect at the start of each cycle, and the payout is based on the company’s achievement of the applicable long-term goals.

 

RSU Cycle 3

 

The amount of the RSUs (both time- and performance-based) granted on January 1, 2007 pursuant to RSU Cycle 3 to each named executive officer was based on the following percentages of base salary. Such percentages are set to reflect the relative influence and importance of each named executive officer’s role within the company.

 

 

 

 

For RSU Cycle 3, in order to receive a payout of the performance-based RSUs, the company had to achieve the specified goals, which focused on elements of the company’s strategic plan that related to our realigned SlimChip business. The company did not meet the minimum performance goals for the cycle, so there was no payout of performance-based RSUs granted under RSU Cycle 3.

Cash Cycle 3

 

For Cash Cycle 3, the percentages of January 1, 2008 base salaries used to calculate the LTCP cash awards to the named executive officers were as follows. Such percentages are set to reflect the relative influence and importance of each named executive officer’s role within the company. Effective January 1, 2008, the compensation committee increased Mr. Lemmo’s LTCP target percentage from 80% to 90% because, pursuant to the terms and conditions of the LTCP, he had served in his capacity for three consecutive years and also increased Mr. Shay’s LTCP target percentage from 90% to 100% after consulting market and industry data and in order to maintain competitiveness with respect to compensation for comparable roles in the marketplace.

 

 

The objectives underlying the goals established for Cash Cycle 3 are to drive the company’s strategic plan and complement the annual bonus plan goals for each of the three years covered by the cycle. The goals associated with Cash Cycle 3 are: (i) achieve patent licensing / technology solutions revenue coverage at a specified target percentage of the 3G market on terms consistent with our strategic plan and (ii) generate a specified amount of free cash flow over the period of the cycle.

 

The Cash Cycle 3 goals are structured to challenge management to achieve results that collectively yield a payout at or about 100% of target. The payout may exceed or be less than the targeted percentage of base salary depending on the company’s level of goal achievement, or there may be no payout at all if the company fails to meet the minimum performance goals for the cycle. Historically, the company achieved, in the aggregate, results that yielded no payout under RSU Cycle 3 and payouts at 175% of target for Cash Cycle 2a, 20% of target for RSU Cycle 2, 50% of target for Cash Cycle 2 and 102.5% of target for Cash Cycle 1. RSU Cycle 1 consisted solely of time-based RSUs.

 

RSU Cycle 4

 

The amount of RSUs (both time- and performance-based) granted on January 1, 2009 pursuant to RSU Cycle 4 to each named executive officer was based on the following percentages of base salary. These percentages are intended to reflect the relative influence and importance of each named executive officer’s role within the company. Effective with Mr. Shay’s promotion on January 1, 2008 to Executive Vice President, Intellectual property, and Chief Intellectual Property Counsel, the compensation committee increased Mr. Shay’s LTCP target percentage from 80% to 100%. Effective January 1, 2009, the compensation committee increased Mr. McQuilkin’s LTCP target percentage from 90% to 100% after consulting market and industry data and in order to maintain competitiveness with respect to compensation for comparable roles in the marketplace and also increased Mr. Nolan’s LTCP target percentage from 80% to 90% because, pursuant to the terms and conditions of the LTCP, he had served in his capacity for three consecutive years.

 

 

The objectives underlying the goals established for RSU Cycle 4 are to drive the company’s strategic plan and complement the annual bonus plan goals for each of the three years covered by the cycle. The goals

associated with RSU Cycle 4 are: (i) achieve patent licensing revenue coverage at a specified target percentage of the 3G market on terms consistent with our strategic plan and (ii) generate a specified amount of free cash flow over the period of the cycle.

 

The RSU Cycle 4 goals are structured to challenge management to achieve results that collectively yield a payout at or about 100% of target. The payout may exceed or be less than the targeted percentage of base salary depending on the company’s level of goal achievement, or there may be no payout at all if the company fails to meet the minimum performance goals for the cycle. Historically, the company achieved, in the aggregate, results that yielded no payout under RSU Cycle 3 and payouts at 175% of target for Cash Cycle 2a, 20% of target for RSU Cycle 2, 50% of target for Cash Cycle 2 and 102.5% of target for Cash Cycle 1. RSU Cycle 1 consisted solely of time-based RSUs.

 

Cash Cycle 4

 

For Cash Cycle 4, the percentages of January 1, 2010 base salaries used to calculate the LTCP cash awards to the named executive officers were as follows. Such percentages are set to reflect the relative influence and importance of each named executive officer’s role within the company.

 

 

The goals associated with Cash Cycle 4 are currently being formulated. The payout may exceed or be less than the targeted percentage of base salary depending on the company’s level of goal achievement, or there may be no payout at all if the company fails to meet the minimum performance goals for the cycle.

 

Grant Practices

 

The timing and amount of the grants under the LTCP are formulaic. The terms and conditions of the LTCP provide that RSU grant values are calculated as a target percentage of the named executive officer’s base salary at either the beginning of the cycle or, if the named executive officer joined the company during the first two years of the cycle or was promoted during the first six months of the cycle, his or her date of hire or promotion, respectively. This amount is then divided by the fair market value of the company’s common stock either at the beginning of the cycle or the date of hire or promotion, as applicable, to determine the number of RSUs to be granted. For example, if a named executive officer’s target RSU award value is equal to 90% of his or her $250,000 base salary (i.e., $225,000), and the closing fair market value of our common stock on the last business day of the year prior to the commencement of the cycle is $30, the named executive officer would automatically be granted 7,500 RSUs on the first day of the new cycle. Half of the total award, or 3,750 RSUs, would be time-based, with the remaining half being performance-based.

 

The compensation committee believes that the procedures described above for setting the grant date of equity awards provides assurance that the grant timing does not take advantage of material non-public information.

 

Impact of Tax Treatment

 

Section 162(m) of the Internal Revenue Code generally limits the company’s tax deduction for compensation paid to its chief executive officer and other named executive officers (excluding the chief financial officer) to $1 million per person in any tax year. Qualified performance-based compensation is not subject to the deduction limit if specified requirements are met. The compensation committee has considered the effects of Section 162(m) when implementing compensation plans and taken into account whether preserving the tax deductibility of compensation to named executive officers could impair the operation and effectiveness of the

company’s compensation programs. However, the committee believes it is important to maintain flexibility to make adjustments to the company’s LTCP, despite the fact that in the future certain amounts paid to executives in excess of $1 million may not be deductible. For 2009, there was no compensation paid in excess of the $1 million threshold under Section 162(m).

 

Stock Ownership Guidelines

 

To align the interests of senior officers with those of our shareholders, the company has established minimum stock ownership guidelines for senior officers. Individuals are expected to meet their targets within five years of the date they become subject to the guidelines. The compensation committee established the guidelines with the advice of CSI, and the committee monitors compliance with the guidelines on an annual basis. Qualifying ownership includes common stock, including common stock held through the company’s 401(k) plan, restricted stock and RSUs. The chief executive officer’s target ownership is set at an amount of company common stock equal in value to four times his current annual base salary. In 2008, the compensation committee increased the minimum stock ownership guidelines for some of the company’s other senior officers. As a result, the other named executive officers are expected to own company stock valued at a multiple of two (Messrs. Lemmo and Nolan) or three (Messrs. McQuilkin and Shay) times their current annual base salary. All of the named executive officers were in compliance with the guidelines as of March 31, 2010.

 

Employment Agreements

 

The company has entered into employment agreements with each of the named executive officers that provide severance payments and benefits in the event of termination of employment under specified circumstances, including termination of the named executive officer’s employment within one year after a change of control of the company as defined in the employment agreement. Severance payments and benefits provided under the employment agreements are used to attract and retain executives in a competitive industry that has experienced ongoing consolidation and to ease an individual’s transition in the event of an unexpected termination of employment due to changes in the company’s needs. Information regarding the nature and circumstances of payouts upon termination is provided under the heading “Potential Payments upon Termination or Change in Control.”

 

The following table contains information concerning compensation awarded to, earned by or paid to our named executive officers in the last three years. Our named executive officers include our chief executive officer, chief financial officer and our three other most highly compensated executive officers who were serving as executive officers of the company at December 31, 2009. Additional information regarding the items reflected in each column follows the table. All such compensation was attributable to services rendered to the company and its subsidiaries during fiscal 2009.

 

 

 

 

 

 

 

 

 

 

The following table summarizes the grants of time-based RSU awards (TRSU) and performance-based RSU awards (PRSU) under RSU Cycle 4 of the LTCP, cash awards under the Annual Employee Bonus Plan (AEBP), other time-based RSU awards (RSU) under the company’s 2009 Stock Incentive Plan (the “2009 Plan”) and awards of restricted stock (RS) granted in lieu of participation in the company’s supplemental payment program, each made to the named executive officers during the year ended December 31, 2009. Each of these types of awards is discussed in the Compensation Discussion and Analysis above.

 

 

 

 

The following table sets forth information concerning unexercised options, unvested stock and equity incentive plan awards for the named executive officers outstanding as of December 31, 2009.

 

 

 

The following table sets forth information, on an aggregated basis, concerning stock options exercised and stock awards vested during 2009 for the named executive officers.

 

 

 

 

Named Executive Officer Employment Agreements

 

Each of the named executive officers has entered into an employment agreement and is party to various other arrangements with the company that provides severance pay and benefits, among other things, in certain events of termination of employment, as described below.

 

Pursuant to the terms of the LTCP, if the named executive officer’s employment terminates in the event of long-term disability, death or absenteeism or is terminated by the company without cause (each as described below), the named executive officer would be entitled to pro-rata vesting of any time-based RSUs that would have vested at the end of the year during which the termination occurred. Time-based RSUs that would have vested at the end of subsequent years are forfeited entirely. If the named executive officer’s employment terminates for any reason during the first year of an LTCP cycle, the named executive officer forfeits eligibility to receive any cash award and all performance-based RSUs under that cycle. If, however, the named executive officer’s employment terminates during the second or third year of a cycle in the event of long-term disability, death or absenteeism or is terminated by the company without cause, the named executive officer would be eligible to earn a pro-rata portion of the cash award and performance-based RSUs under that cycle. Pursuant to the terms of the Annual Employee Bonus Plan, which require an employee to be working actively at the time of the payout (unless involuntarily terminated other than for intentional wrongdoing after the end of the plan year, but before the bonus is paid), the named executive officer would not be eligible to receive a bonus under the plan, although we retain the right to make exceptions to the eligibility requirements of the plan and have done so in the past. Any rights that the named executive officers have under these plans in connection with other termination scenarios are discussed below in connection with the relevant scenario.

 

Termination for Long-Term Disability

 

The company may terminate the employment of a named executive officer in the event of his long-term disability (as that term is defined in our Long-term Disability Plan), such that he is not otherwise qualified to perform the essential functions of his job either with or without reasonable accommodation. In the event the named executive officer’s employment terminates due to a long-term disability, the named executive officer is entitled to receive:

 

 

Messrs. Merritt and Lemmo are also entitled to receive benefits that are provided to our similarly situated executive officers, including, without limitation, medical and dental coverage, optional 401(k) participation and expense reimbursement (“Benefits”). In addition, provided that Mr. Merritt or Mr. Lemmo executes our standard termination letter, which includes, among other things, a broad release of all claims against us and a reiteration of confidentiality and other post-termination obligations (a “Termination Letter”), each is entitled to receive, for a period of 18 months (in the case of Mr. Merritt) or one year (in the case of Mr. Lemmo) following termination: (i) regular installments of his base salary at the rate in effect at the time of termination, reduced by the amount of payments received for this period pursuant to any Social Security entitlement or any long-term disability or any other employee benefit plan, policy or program maintained to provide benefits in the event of disability, in which he was entitled to participate at the time of termination, and (ii) medical and dental coverage on terms and conditions comparable to those most recently provided to him.

 

Termination Due to Retirement

 

The company’s retirement eligibility age is 70. For purposes of determining eligibility, the company employs a formula that sums the employee’s years of service and age. For each of the named executive officers, successfully meeting this eligibility requirement causes the vesting, on a pro-rata basis, of all otherwise unvested RSUs. For time-based RSUs, the pro-rated amount of RSUs will be determined by

multiplying the full time-based award amount by a fraction equal to the portion of the vesting period that had transpired prior to the cessation of employment. For performance-based RSUs, the pro-rated amount will be determined as described above, but not until the LTCP cycle is completed and a determination has been made regarding performance against established goals.

 

Termination by Death

 

In the event of the termination of a named executive officer’s employment due to death, the company will pay to the named executive officer’s executors, legal representatives or administrators an amount equal to the accrued but unpaid portion of the named executive officer’s base salary, Benefits and Other Compensation up through the date on which he dies. The named executive officer’s executors, legal representatives or administrators will be entitled to receive the payment prescribed under any death or disability benefits plan in which the named executive officer is a participant as our employee, and to exercise any rights afforded under any compensation or benefit plan then in effect.

 

Termination for Cause

 

The company may terminate a named executive officer’s employment at any time for “cause” upon the occurrence of any of the following: (i) any material breach by the named executive officer of any of his obligations under his employment agreement that is not cured within 30 days after he receives written notification from the company of the breach or (ii) other conduct by the named executive officer involving any type of willful misconduct with respect to the company, including, without limitation, fraud, embezzlement, theft or proven dishonesty in the course of his employment or conviction of a felony. In the event of a termination of the named executive officer’s employment for cause, the named executive officer is entitled to receive all accrued but unpaid (as of the effective date of termination) base salary, Benefits and Other Compensation.

 

Pursuant to the terms of the LTCP, the named executive officer forfeits any rights under the LTCP and Annual Employee Bonus Plan if his employment terminates for cause.

 

Termination Without Cause

 

The company may terminate a named executive officer’s employment at any time, for any reason, without cause upon 30 days prior written notice to the named executive officer. In the event of a termination without cause, the named executive officer is entitled to receive all accrued but unpaid (as of the effective date of termination) base salary, Benefits and Other Compensation. In addition, provided he executes a Termination Letter, the named executive officer is entitled to receive: (i) severance in an amount equal to his base salary, payable in equal installments, and (ii) medical and dental coverage on terms and conditions comparable to those most recently provided to him for the period of one year (18 months in the case of Mr. Merritt) commencing upon the date of termination. Mr. Merritt’s employment agreement provides that he is also entitled to receive additional severance equal to 50% of his target bonus for the year in which the termination occurs, payable in equal installments over a period of 18 months after the date of termination.

 

Termination for Absenteeism

 

The company may terminate a named executive officer’s employment in the event that he is absent for more than 150 days within any 12-month period. In the event of termination due to absenteeism, the named executive officer is entitled to receive all accrued but unpaid (as of the effective date of termination) base salary, Benefits and Other Compensation. In addition, provided he executes a Termination Letter, he is entitled to receive, for a period of one year (18 months in the case of Mr. Merritt) following termination: (i) regular installments of his base salary at the rate in effect at the time of termination, reduced by the amount of payments received for this period pursuant to any Social Security entitlement or any long-term disability or any other employee benefit plan, policy or program maintained to provide benefits in the event of disability in which the named executive officer was entitled to participate at the time of termination and (ii) medical and dental coverage on terms and conditions comparable to those most recently provided to him. Mr. Merritt’s

employment agreement provides that he is also entitled to receive an additional severance amount equal to 50% of his target bonus for the year in which termination occurs, payable in equal installments over a period of 18 months after the date of termination.

 

Termination by the Named Executive Officer

 

A named executive officer may terminate his employment with us at any time, for “good reason” or without “good reason,” provided that the date of termination is at least 30 days after the date he gives written notice of the termination to the company. For this purpose, “good reason” means: (i) the company’s failure to pay in a timely manner the named executive officer’s base salary or any other material form of compensation or material benefit to be paid or provided to him under his employment agreement or (ii) any other material breach of our obligations under his employment agreement that is not cured within 30 days after the company receives written notification from the named executive officer of the breach. In the event that the named executive officer terminates his employment, either for good reason or without good reason, he is entitled to receive all accrued but unpaid (as of the effective date of termination) base salary, Benefits and Other Compensation. In addition, if the termination is for good reason, and provided that the named executive officer executes a Termination Letter, he is entitled to receive: (a) severance in an amount equal to his base salary, payable in equal installments, and (b) medical and dental coverage on terms and conditions comparable to those most recently provided to him for the period of one year (18 months in the case of Mr. Merritt) commencing upon the date of termination.

 

Mr. Merritt’s employment agreement provides that he is also entitled to receive additional severance equal to 50% of his target bonus for the year in which termination occurs, payable in equal installments over the period of 18 months after the date of termination. Pursuant to the terms of the LTCP and Annual Employee Bonus Plan, Mr. Merritt forfeits any rights under these plans if he terminates his employment for any reason. If a named executive officer other than Mr. Merritt terminates his employment with us without good reason, the company generally may elect to pay severance of up to one year’s salary and continuation of medical and dental benefits for a period of one year.

 

Termination Following a Change in Control

 

If the company terminates a named executive officer’s employment (except for cause), or the named executive officer terminates his employment with us (whether or not for good reason) within one year following a change in control of the company, he is entitled to receive all accrued but unpaid (as of the effective date of termination) base salary, Benefits and Other Compensation. In addition, provided that he executes a Termination Letter, the named executive officer is entitled to receive, on the date of termination, an amount equal to two years’ worth of his base salary. For this purpose, “change in control of the company” means the acquisition (including by merger or consolidation, or by our issuance of securities) by one or more persons, in one transaction or a series of related transactions, of more than 50% of the voting power represented by our outstanding stock on the date of the named executive officer’s employment agreement, or a sale of substantially all of our assets.

 

Pursuant to the terms of the LTCP, upon termination of employment following a change in control (except for cause), the named executive officer is entitled to an early payout of his LTCP cash award in an amount that is the greater of either: (i) his target LTCP cash award or (ii) the LTCP cash award that would have been due to him at the end of the relevant LTCP cycle (but for the change in control), assuming the performance level achieved prior to the change in control continues to be the same through the remainder of the cycle. In addition, for each named executive officer, the occurrence of a change in control causes all otherwise unvested performance-based and time-based RSUs (whether granted as an LTCP, promotion or new hire award) and any other unvested equity awards to vest immediately in full. These actions will occur without regard to whether the named executive officer remains employed at the company and without regard to performance during the remainder of the LTCP cycles.

 

Pursuant to the terms of the Annual Employee Bonus Plan, the named executive officer is not eligible to receive a bonus under the Annual Employee Bonus Plan, with the exception of Mr. Shay, who is entitled to

receive an amount equal to 100% of his target bonus for the year in which the change in control of the company occurs.

 

Potential Payments upon Termination or Change in Control

 

The following tables reflect the amount of compensation payable to each of the named executive officers pursuant to their employment agreements, as well as pursuant to the LTCP and Annual Employee Bonus Plan, upon: termination for long-term disability, termination by death, termination for cause, termination without cause, termination for absenteeism, termination by the named executive officer and termination upon a change in control of the company. The amounts shown assume that the termination was effective as of December 31, 2009 and the price per share of the company’s common stock was $26.56, the closing market price as of that date. The amounts reflected are estimates of the amounts that would be paid out to the named executive officers upon their termination. The actual amounts to be paid out can be determined only at the time the events described above actually occur.

 

William J. Merritt

 

Assuming the following events occurred on December 31, 2009, Mr. Merritt’s payments and benefits have an estimated value of: