UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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| ☐ | Soliciting Material Pursuant to §240.14a-12 | |
DASAN ZHONE TECHNOLOGIES,SOLUTIONS, INC.
(Name of Registrant as Specified in itsIn Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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DASAN ZHONE TECHNOLOGIES,SOLUTIONS, INC.
NOTICE OF ANNUALSPECIAL MEETING OF STOCKHOLDERS
May 5, 2015, 2017
10:00 a.m. Pacific Time
To our stockholders:
You are cordially invited to attend our 2015 annuala special meeting of stockholders of DASAN Zhone Solutions, Inc. (DZSI or the Company), which will be held at Zhone’sDZSI’s principal executive offices, located at 7195 Oakport Street, Oakland, California 94621 on May 5, 2015, 2017 at 10:00 a.m. Pacific Time. We are holding the annualspecial meeting for the following purposes:
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These items are fully described in the proxy statement, which is part of this notice. We have not received notice of other matters that may be properly presented at the annual meeting.
Only stockholders of record at the close of business on March 16, 2015,, 2017, the record date, will be entitled to vote at the annualspecial meeting.Your vote is very important. Whether or not you expect to attend the annualspecial meeting in person, please complete, sign, date and return the enclosed proxy card or vote electronically via the Internet or over the telephone as soon as possible to ensure that your shares are represented at the annualspecial meeting.If your shares are held in “street name,” which means your shares are held of record by a broker, bank or other nominee, you must provide your broker, bank or other nominee with instructions on how to vote your shares. For specific instructions on voting procedures, please refer to the section entitled “Voting Rights and Procedures” beginning on page 1 of the proxy statement and the instructions on the proxy card.
| By Order of the Board of Directors |
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| Kirk Misaka |
| Chief Financial Officer, |
| Treasurer and Secretary |
Oakland, California
March 26, 2015 , 2017
YOUR VOTE IS IMPORTANT.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUALSPECIAL MEETING IN PERSON,
PLEASE SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD OR SUBMIT
YOUR PROXY ELECTRONICALLY VIA THE INTERNET OR OVER THE TELEPHONE BY
FOLLOWING THE ENCLOSED INSTRUCTIONS.
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DASAN ZHONE TECHNOLOGIES,SOLUTIONS, INC.
7195 Oakport Street
Oakland, California 94621
PROXY STATEMENT
Zhone’sDZSI’s Board of Directors solicits your proxy for use at the annualspecial meeting of stockholders to be held on May 5, 2015, 2017 at 10:00 a.m. Pacific Time at DASAN Zhone Technologies,Solutions, Inc., 7195 Oakport Street, Oakland, California 94621, and at any adjournments or postponements of the meeting, for the purposes set forth in the “Notice of AnnualSpecial Meeting of Stockholders.” We made copies of this proxy statement available to stockholders beginning on or about March 26, 2015., 2017.
Record Date and Shares Entitled to Vote
Only stockholders of record at the close of business on the record date, March 16, 2015,2017, will be entitled to vote at the annualspecial meeting. These stockholders are entitled to cast one vote for each share of common stock held as of the record date on all matters properly submitted for the vote of stockholders at the annualspecial meeting. As of the record date, there were approximately 32,621,153 shares of ZhoneDZSI common stock outstanding and entitled to vote at the annualspecial meeting.
Stockholder of Record: Shares Registered in Your Name
If on March 16, 2015, 2017 your shares are registered directly in your name with Zhone’sDZSI’s transfer agent, Computershare, then you are a stockholder of record. As a stockholder of record, you may vote in person at the meeting or vote by proxy. Whether or not you plan to attend the meeting, we request that you fill out and return the enclosed proxy card or vote by proxy on the Internet or over the telephone as instructed below to ensure your vote is counted.
Beneficial Owner: Shares Registered in the Name of Broker or Bank
If on March 16, 2015, 2017 your shares are registered not in your name, but rather in an account at a brokerage firm, bank, dealer or similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by the organization. The organization holding your account is considered to be the stockholder of record for purposes of voting at the annualspecial meeting. As a beneficial owner, you have the right to direct your broker or other agent regarding how to vote the shares in your account. You are also invited to attend the annualspecial meeting. However, since you are not the stockholder of record, you may not vote your shares in person at the meeting unless you request and obtain a “legal proxy” from your broker or other agent authorizing you to vote your shares in person.
A quorum of stockholders is necessary to hold a valid annualspecial meeting. The presence, in person or by proxy, of the holders of a majority of the outstanding shares of common stock entitled to vote at the annualspecial meeting is
necessary to constitute a quorum at the annualspecial meeting. In
The proposal to amend our Restated Certificate of Incorporation to effect the election of directors,reverse stock split and the two nominees whoassociated reduction in our authorized capitalization (Proposal 1) must receive the highest numberaffirmative vote of affirmative votes willa majority of all of the shares of our common stock outstanding and entitled to vote for that proposal to be elected as directors. All other proposals requireapproved. The proposal to adjourn the special meeting, if necessary, to solicit additional proxies (Proposal 2) must receive the affirmative vote of a majority of the votes cast at the annual meeting.special meeting for that proposal to be approved.
Abstentions and brokernon-votes will be counted for the purpose of determining whether a quorum is present, but they will not be counted as votes cast on any matter.present. Generally, brokernon-votes occur when shares held by a broker in “street name” for a beneficial owner are not voted with respect to a particular proposal because the broker does not have discretionary voting power with respect to that proposal and has not received voting instructions from the beneficial owner. BecauseIf a quorum is present, abstentions and brokernon-votes with respect to the proposal to amend our Restated Certificate of Incorporation to effect the reverse stock split and the associated reduction in our authorized capitalization (Proposal 1) will have the effect of a vote AGAINST that proposal. However, because abstentions and brokernon-votes will not be considered votes cast, they will have no effect on the outcome of any proposal.the proposal to adjourn the special meeting, if necessary, to solicit additional proxies (Proposal 2).
Your vote is important. Whether or not you plan to attend the annualspecial meeting in person, please complete, sign, date and return the enclosed proxy card, vote by proxy on the Internet, or by proxy over the telephone as soon as possible to ensure that your vote is recorded promptly. Voting by proxy does not deprive you of your right to attend the annualspecial meeting and to vote your shares in person.
Stockholder of Record: Shares Registered in Your Name
If you are a stockholder of record, you may vote in person at the annualspecial meeting or vote by proxy using the enclosed proxy card, vote by proxy on the Internet or vote by proxy over the telephone. Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the meeting and vote in person even if you have already voted by proxy.
To vote in person, come to the annualspecial meeting and we will give you a ballot when you arrive.
To vote using the proxy card, simply complete, sign and date the enclosed proxy card and return it promptly in the envelope provided. If you return your signed proxy card to us before the annualspecial meeting, we will vote your shares as you direct.
To vote on the Internet, go to www.envisionreports.com/ZHNEDZSI to complete an electronic proxy card. Follow the steps outlined on the secured website.
To vote over the telephone, dial toll-free1-800-652-VOTE (8683) using a touch-tone phone and follow the recorded instructions. You will be asked to provide the company number and control number from the enclosed proxy card. Your vote must be received by 10:00 a.m. Pacific Time on May 5, 2015, 2017 to be counted.
If you submitreturn a signed proxy card but do not fill out the voting instructions on the proxy card, the persons named as proxies will vote the shares represented by your proxy “FOR” Proposals 1 and 2. If any other matters are properly presented for voting at the annualspecial meeting, or any adjournments or postponements of the annualspecial meeting, the proxy card will confer discretionary authority on the individuals named as proxies to vote the shares represented by the proxies in their discretion. We have not received notice of other matters that may properly be presented for voting at the annualspecial meeting.
Beneficial Owner: Shares Registered in the Name of Broker or Bank
If you are a beneficial owner of shares registered in the name of your broker, bank or other agent, you should have received a proxy card and voting instructions with these proxy materials from that organization
rather than from Zhone.DZSI. Your broker, bank or other nominee may allow you to deliver your voting instructions over the Internet or by telephone. Please see the voting instruction card from your broker, bank or other nominee that accompanies this proxy statement. If you complete and submit your proxy card, the persons named as proxies will vote the shares represented by your proxy card in accordance with your instructions.
Under the rules that govern how brokers may vote shares held in street name, brokers do not have the discretion to vote your shares on anynon-routine matters, which includeincludes the electionamendment to our Restated Certificate of directors, actions onIncorporation to effect the reverse stock plans and actions on executive compensation.split. Therefore, unless you provide voting instructions to any broker holding shares on your behalf, your broker may not use discretionary authority to vote your shares on any of the proposals described in this proxy statement other than the ratification of our independent registered public accounting firm.statement. Please vote your proxy so your vote on these matters can be counted.
Revocation
You may revoke your proxy at any time before your proxy is voted at the annualspecial meeting by taking any of the following actions: (1) submitting another proxy card bearing a later date, (2) delivering written notice of revocation to Zhone’sDZSI’s Corporate Secretary at 7195 Oakport Street, Oakland, California 94621, or (3) attending the annualspecial meeting and voting in person, although attendance at the annualspecial meeting will not, by itself, revoke a proxy. If your shares are held in “street name,” you must contact your broker, bank or other nominee to revoke any prior instructions.
We will bear the entire cost of this solicitation of proxies, including the preparation, assembly, printing and mailing of this proxy statement and any additional solicitation material that we may provide to stockholders. The original solicitation of proxies by mail may be supplemented by solicitation by mail, telephone, fax, personal interviews or other methods of communication by our directors, officers and employees. We will not pay any additional compensation to directors, officers or other employees for such services, but may reimburse them for reasonableout-of-pocket expenses in connection with such solicitation. DZSI does not currently intend to retain any proxy solicitation firm to assist in soliciting proxies.
Admission to the AnnualSpecial Meeting
Only ZhoneDZSI stockholders, as of the close of business on March 16, 2015,, 2017, and other persons holding valid proxies for the annualspecial meeting are entitled to attend the annualspecial meeting. You should be prepared to present valid government issued photo identification for admittance. In addition, if you are not a stockholder of record but hold shares in “street name,” you will need to provide proof of ownership by bringing either a copy of the voting instruction card provided by your broker or a copy of a brokerage statement showing your share ownership as of March 16, 2015., 2017. If you do not provide photo identification or comply with the other procedures outlined above, you will not be admitted to the annualspecial meeting. The annualspecial meeting will be held at our principal executive offices, located at 7195 Oakport Street, Oakland, California 94621. For directions, please call(510) 777-7000.
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting To Be Held on May 5, 2015, 2017
Electronic copies of our proxy statement and our annual report are available at the Investor Relations section of our website at www.zhone.com.www.Zhone.com.
Stockholders Sharing the Same Address
The rules promulgated by the Securities and Exchange Commission or the SEC,(the SEC) permit companies, brokers, banks or other intermediaries to deliver a single copy of an annual report, proxy statement or notice of Internet
availability of proxy materials to households at which two or more stockholders reside. This practice, known as “householding,” is designed to reduce duplicate mailings, save significant printing and postage costs, and conserve natural resources. Stockholders sharing an address who have been previously notified by their broker, bank or other intermediary, and have consented to householding, either affirmatively or implicitly by not objecting to householding, will receive only one copy of our annual report, proxy statement and any notice of Internet availability of proxy materials. If you would like to opt out of or into this practice for future mailings,
and receive separate or multiple annual reports, proxy statements and notices of Internet availability of proxy materials for stockholders sharing the same address, please contact your broker, bank or other intermediary. You may also obtain a separate annual report, proxy statement or any notice of Internet availability of proxy materials without charge by sending a written request to Zhone Technologies, Inc.,DZSI, Attention: Investor Relations, 7195 Oakport Street, Oakland, California 94621, or by calling us at(510) 777-7013. We will promptly send additional copies of the annual report or proxy statement or any notice of Internet availability of proxy materials upon receipt of such request. Stockholders sharing an address who now receive multiple copies of our annual report, proxy statement and any notice of Internet availability of proxy materials may request delivery of a single copy by contacting us as indicated above, or by contacting their broker, bank or other intermediary. Householding does not apply to stockholders with shares registered directly in their name.
Recommendation of the Board of Directors
The ZhoneDZSI Board of Directors unanimously recommends that you vote“FOR” the electionamendment to our Restated Certificate of Incorporation to effect the director nomineesreverse stock split of DZSI’s outstanding common stock at exchange ratios of1-for-3,1-for-4 and1-for-5, as determined by the Company, and the associated proportional reduction in our authorized capitalization (Proposal 1), and“FOR” the ratificationapproval of any adjournment of the appointment of KPMG LLP as Zhone’s independent registered public accounting firmspecial meeting, if necessary, to solicit additional proxies (Proposal 2).
YOUR VOTE IS IMPORTANT.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUALSPECIAL MEETING IN PERSON,
PLEASE SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD OR SUBMIT YOUR
PROXY ELECTRONICALLY VIA THE INTERNET OR OVER THE TELEPHONE BY
FOLLOWING THE ENCLOSED INSTRUCTIONS.
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERSPROPOSAL 1:
We are dedicated to maintaining the highest standards of business integrity. It is our belief that adherence to sound principles of corporate governance, through a system of checks, balances and personal accountability is vital to protecting Zhone’s reputation, assets, investor confidence and customer loyalty. Above all, the foundation of Zhone’s integrity is our commitment to sound corporate governance. Our corporate governance principles and Code of Conduct and Ethics can be found atwww.zhone.com.AMENDMENT OF RESTATED CERTIFICATE OF
INCORPORATION TO EFFECT A REVERSE STOCK SPLIT
AND REDUCTION IN DZSI’S AUTHORIZED CAPITALIZATION
TheOur Board of Directors has affirmatively determined thatadopted, declared advisable and is submitting for stockholder approval a proposal to approve a series of three separate and alternative amendments to our Restated Certificate of Incorporation to effect, at the discretion of our Board of Directors, a reverse stock split of our common stock at one of three reverse stock split ratios,1-for-3,1-for-4 and1-for-5, and contemporaneously with such reverse stock split, to effect a corresponding and proportional reduction in the number of authorized shares of DZSI’s common stock. By voting in favor of Proposal 1, stockholders will be approving three separate and distinct amendments to our Restated Certificate of Incorporation in order to effect a reverse stock split of our outstanding common stock and a corresponding reduction in the number of authorized shares of common stock on a proportional basis, at each member of the aforementioned ratios. After the receipt of stockholder approval of these amendments, DZSI will thereafter have the ability, until our 2018 annual meeting of stockholders,to unilaterally decide which amendment to give effect to, if any, and in so doing, will abandon each other amendment without further action by our stockholders. Thereafter the selected amendment will be filed with the Secretary of State of the State of Delaware. Pursuant to the law of our state of incorporation, Delaware, our Board of Directors must adopt any amendment to our Restated Certificate of Incorporation and submit the amendment to stockholders for their approval. The affirmative vote of a majority of the outstanding shares of common stock is required to approve Proposal 1.
The form of the proposed amendments to our Restated Certificate of Incorporation to effect the reverse stock split is attached to this Proxy Statement asAppendix A. Our Board of Directors, in its discretion, may elect to effect any one (but not more than one) of the three exchange ratios upon receipt of stockholder approval, or none of them if our Board of Directors determines in its discretion not to proceed with the reverse stock split. The actual number of authorized shares of our common stock after giving effect to the reverse stock split, if and when effected, will depend on the reverse stock split ratio that is ultimately determined by DZSI. The table below shows the reverse stock split ratio and the number of authorized shares of our common stock for each of the three alternative amendments, identified as Amendments A through C:
| Amendment | Reverse Stock Split Ratio | Number of Authorized Shares of Common Stock Following the Reverse Stock Split Amendment | ||
A | 1-for-3 | 60,000,000 | ||
B | 1-for-4 | 45,000,000 | ||
C | 1-for-5 | 36,000,000 |
We believe that the availability of the three alternative exchange ratios will provide us with the flexibility to implement the reverse stock split in a manner designed to maximize the anticipated benefits for us and our stockholders. In determining which of the three alternative exchange ratios to implement, if any, following the receipt of stockholder approval, the Company may consider, among other than Messrs. Ejabatthings, factors such as:
the historical trading price and Norrod,trading volume of our common stock;
the then-prevailing trading price and trading volume of our common stock and the anticipated impact of the reverse stock split on the trading market for our common stock;
our ability to continue our listing on the Nasdaq Capital Market;
which of the alternative exchange ratios would result in the greatest overall reduction in our administrative costs; and
prevailing general market and economic conditions.
Under the reverse stock split, the existing shares of our common stock would be combined into new shares of our common stock at a whole number exchange ratio of1-for-3,1-for-4 and1-for-5, with the exact ratio to be determined by the Company. This means that you would receive one new share of our common stock for each three, four or five shares of common stock that you currently hold, depending on which exchange ratio we determine to implement. Except for adjustments that may result from the treatment of fractional shares (as described below), each stockholder will hold the same percentage of outstanding DZSI common stock immediately following the reverse stock split as such stockholder held immediately prior to the reverse stock split. The par value of the common stock would remain unchanged at $0.001 per share.
If this proposal is independent underapproved by our stockholders, our Board of Directors will have the criteria established bysole discretion pursuant to Section 242(c) of the Delaware General Corporation Law to elect, as it determines to be in the best interests of DZSI and its stockholders, whether or not to effect the reverse stock split and the associated reduction in DZSI authorized capitalization at any of the ratios set forth above. Our Board of Directors reserves the right, even after stockholder approval, to elect not to undertake the reverse stock split and the associated reduction in our authorized capitalization if it determines that it is no longer in the best interests of DZSI and its stockholders.
Reasons for the Reverse Stock Split
Compliance with Nasdaq’s Listing Standards
Our common stock is listed on the Nasdaq Capital Market. On September 12, 2016, the Company received a letter from the Listings Qualifications Department of The Nasdaq Stock Market LLC (Nasdaq) notifying the Company that, because the Company did not satisfy Nasdaq’s initial listing standard requiring a minimum bid price of $4 per share (or a minimum closing price of $3 per share for five consecutive trading days or Nasdaq,$2 per share for independent board members. In addition, each member90 consecutive trading days) at the closing of the committeesacquisition of Dasan Network Solutions, Inc., the Company’s common stock would be subject to delisting unless the Company timely requested a hearing before a Nasdaq Hearings Panel (the Panel). On September 19, 2016, the Company requested a hearing before the Panel with respect to the staff’s delisting determination letter, which was held on November 3, 2016. At the hearing, the Company presented its plan to gain compliance with the initial listing minimum bid or closing price requirement, including via the implementation of a reverse stock split if necessary. On November 8, 2016, the Company received a letter from Nasdaq stating that the Panel had granted the Company’s request for continued listing on Nasdaq, subject to the Company evidencing compliance with the initial listing minimum bid or closing price requirement by March 13, 2017. The compliance period granted by the Panel through March 13, 2017 is subject to the Company filing a preliminary proxy statement and a definitive proxy statement seeking stockholder approval of a reverse stock split with the SEC by no later than January 31, 2017 and February 13, 2017, respectively. If we fail to implement the reverse stock split and demonstrate compliance by March 13, 2017, or fail to file the required proxy statements with the SEC by the applicable deadline, the Panel will issue a final determination to delist the Company’s shares and suspend trading of the Board isCompany’s shares on Nasdaq.
Delisting from the Nasdaq Capital Market could have an independent director in accordance with Nasdaq standards. Atadverse effect on our business and on the conclusion of the regularly scheduled Board meetings, the independent directors have the opportunity to and regularly meet outside of the presencetrading of our management.
common stock. If a delisting of our common stock were to occur, our common stock would trade on the OTC Bulletin Board Structureor on the “pink sheets” maintained by the National Quotation Bureau, Inc. Such alternatives are generally considered to be less efficient markets, and Committee Composition
Asour stock price, as well as the liquidity of our common stock, may be adversely impacted as a result. Delisting from the dateNasdaq Capital Market could also have other negative results, including the potential loss of this proxy statement, ourconfidence by customers, suppliers and employees, the loss of institutional investor interest and fewer business development opportunities. Our Board of Directors has eight directorsbelieves that maintaining the listing of our common stock on The Nasdaq Capital Market is in the best interests of DZSI and its stockholders. We expect that the following three committees: (1) Audit Committee, (2) Compensation Committee, and (3) Corporate Governance and Nominating Committee. The membership duringreverse stock split would enable the last year and the function of each of the committees are described below. Each of the committees operates under a written charter which can be foundCompany to regain compliance with Nasdaq’s initial listing minimum bid or closing price requirement. Based on the “Corporate Governance” section of our website atwww.zhone.com. Duringforegoing, the year ended December 31, 2014, the Board held eight meetings. During this period, all of the directors attended or participated in at least 75% of the aggregate of the total number of meetings of the Board and the total number of meetings held by all committees of the Board on which each such director served, in each case during the period for which they were directors of Zhone. We endeavor to schedule our annual meeting of stockholders at a time and date to maximize attendance by directors taking into account the directors’ schedules. All of our directors attended last year’s annual meeting of stockholders.
| Director | Audit Committee | Compensation Committee | Corporate Governance and Nominating Committee | |||
Michael Connors | ||||||
Robert Dahl | Chair | Member | Member | |||
Morteza Ejabat | ||||||
C. Richard Kramlich | Member | Member | ||||
James Norrod(1) | ||||||
Nancy Pierce | Member | |||||
James Timmins | Member | |||||
Lawrence Briscoe(2) | ||||||
Mahvash Yazdi(2) | ||||||
Number of Meetings in 2014 | 5 | 2 | 1 |
Audit Committee
The Audit Committee reviews the professional services provided by our independent registered public accounting firm, the independence of such independent registered public accounting firm from our management, and our annual and quarterly financial statements. The Audit Committee also reviews such other matters with respect to our accounting, auditing and financial reporting practices and procedures as it may find appropriate or may be brought to its attention. The Audit Committee contains at least one “audit committee financial expert” as defined by the rules of the SEC. The Board of Directors has determined that Robert Dahl meetspursuing the qualificationsreverse stock split would be in the best interests of an “audit committee financial expert.” Stockholders should understandDZSI and its stockholders.
Increase in Eligible Investors
We believe that this designation isthe increased market price of DZSI common stock that we expect to result from implementing the reverse stock split may allow a disclosure requirementbroader range of institutions to invest in our common stock. Because of the SEC relatedtrading volatility often associated withlow-priced stocks, some brokerage houses and institutional investors have internal policies and practices that make them reluctant to invest, and some investors may be prohibited from investing, inlow-priced stocks. Accordingly, we believe an increased market price may result in DZSI common stock being viewed more favorably by potential investors and encourage interest and trading in our common stock, which could potentially increase the trading volume and liquidity of our common stock.
Increased Analyst and Broker Interest
An increase in market price as a result of the reverse stock split could increase analyst and broker interest in our common stock because their internal policies and practices may in some cases discourage them from following or recommending companies with low stock prices. Because of the trading volatility often associated withlow-priced stocks, many brokerage houses and institutional investors have adopted internal policies and practices that either prohibit or discourage them from investing in such stocks or recommending them to their customers. Some of those internal policies and practices may also function to make the processing of trades inlow-priced stocks economically unattractive to brokers.
Decrease in Transaction Costs for Stockholders
Brokers’ commissions on transactions onlow-priced stocks generally represent a higher percentage of the stock price than commissions on higher-priced stocks. As a result, we believe that individual stockholders seeking to trade DZSI common stock currently pay transaction costs representing a higher percentage of their total share value than would be the case if our share price were substantially higher. Although the reverse stock split would result in a reduced number of shares being outstanding after the reverse stock split, the combination of lower transaction costs and increased interest from institutional investors and investment funds (described above) could have the effect of improving trading liquidity of our common stock.
Risk Factors Associated with the Reverse Stock Split
There are certain risks associated with the reverse stock split, including those described below. You should carefully consider the following risks and other information included in this proxy statement before deciding to approve the proposal to amend our Restated Certificate of Incorporation to effect the reverse stock split and the associated reduction in our authorized capitalization.
We cannot assure you that the reverse stock split, if implemented, will have the desired effects of enabling us to satisfy Nasdaq’s initial listing minimum bid or closing price requirement or raising the price of our common stock over the long term, that the total market capitalization of DZSI common stock after the implementation of the reverse stock split will be equal to or greater than the total market capitalization before the reverse stock split or that the per share market price of DZSI common stock following the reverse stock split will increase in proportion to the experience and understandingreduction in the number of Mr. Dahl with respect to certain accounting and auditing matters. The designation does not impose upon Mr. Dahl any duties, obligations or liabilities that are greater than are generally imposed on him as a membershares of DZSI common stock outstanding before the Audit Committee and the Board, and his designation as an audit committee financial expert pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of the Audit Committee or the Board. The responsibilities and activities of the Audit Committee are described in greater detail in “Audit Committee Report.”
During 2014, the members of the Audit Committee included Messrs. Dahl (Chair) and Timmins, and Ms. Pierce.
Compensation Committeereverse stock split
The Compensation Committee is responsible for establishing and monitoring policies governing the compensation of executive officers. In carrying out these responsibilities, the Compensation Committee is responsible for reviewing the performance and compensation levels for executive officers, establishing salary and bonus levels for these individuals, and approving stock option grants for these individuals under our stock option plans. The objectives of the Compensation Committee are to correlate executive officer compensation with our business objectives and financial performance, and to enable us to attract, retain and reward executive officers who contribute to the long-term success of the company. The Compensation Committee seeks to reward executive officers in a manner consistent with our annual and long-term performance goals, and to recognize individual initiative and achievement among executive officers. For additional information concerning the Compensation Committee, see the “Compensation Discussion and Analysis.”
Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee develops and reviews corporate governance principles applicable to the company, identifies individuals qualified to serve as directors, selects or recommends nominees toAlthough the Board of Directors believes that the reverse stock split will increase the market price of DZSI common stock, the effect of the reverse stock split cannot be predicted with certainty. If the reverse stock split is implemented, there can be no assurance that the market price of DZSI common stock after the effectiveness of the reverse stock split will be sufficient to satisfy Nasdaq’s initial listing minimum bid or closing price requirement or that DZSI would otherwise meet the requirements for continued listing on Nasdaq.
In addition, there can be no assurance that the electionmarket price per share of directors,DZSI common stock after the reverse stock split will remain unchanged or increase in proportion to the reduction in the number of shares of
DZSI common stock outstanding before the reverse stock split. Moreover, in the future, the market price of DZSI common stock may decline. Other factors, such as DZSI’s financial results, market conditions and advisesthe market perception of our business, may adversely affect the price of DZSI common stock. Accordingly, the total market capitalization of DZSI common stock after the reverse stock split, when and if implemented, may be lower than the total market capitalization before the reverse stock split.
Even if the reverse stock split is completed, the resultingper-share market price of DZSI common stock may not attract institutional investors or investment funds or may not satisfy the investing guidelines of such investors, and, consequently, the liquidity of DZSI common stock may not improve
While the Board with respect to Boardof Directors believes that a higher stock price may help generate investor interest and committee composition. The Corporate Governanceenhance liquidity, the reverse stock split may not result in aper-share market price of DZSI common stock that will attract institutional investors or investment funds and Nominating Committee is also responsible for reviewing withmay not satisfy the Board from time to time the appropriate skills and characteristics requiredinvesting guidelines of Board members in the context of the current size and make-up of the Board. This assessment includes issues of diversity of professional experience, viewpoint, age, skills (such as understanding of manufacturing, technology, finance and marketing), and international background. These factors, and any other qualifications considered useful by the Corporate Governance and Nominating Committee, are reviewed in the context of an assessment of the perceived needs of the Board at a particular point in time.institutional investors or investment funds. As a result, the priorities and emphasisliquidity of DZSI common stock may not necessarily improve.
A decline in the market price of DZSI common stock after the reverse stock split is implemented may result in a greater percentage decline than would occur in the absence of the Corporate Governancereverse stock split, and Nominating Committeethe liquidity of DZSI common stock could be adversely affected by the reverse stock split
If the reverse stock split is effected and the market price of DZSI common stock declines, the decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of the Boardreverse stock split. Furthermore, the liquidity of DZSI common stock could be adversely affected by the reduced number of shares that would be outstanding after the reverse stock split.
There can be no assurance that the reverse stock split, if implemented, will result in decreased transaction costs for our stockholders
We cannot assure you that the reverse stock split will have the desired effect of raising the price of DZSI common stock over the long term. Shareholders’ transaction costs, which, as discussed above, we believe represent a higher percentage in transactions for lower-priced stocks than higher-priced stocks, may change from time to time to take into account changes in businessnot decrease if the per share market price of DZSI common stock is not substantially higher after the reverse stock split is implemented. In addition, if the proposed reverse stock split is implemented, it would increase the number of DZSI stockholders who own “odd lots” of less than 100 shares of common stock. Brokerage commission and other trends, andcosts of transactions in odd lots are generally higher than the portfoliocosts of skills and experiencetransactions of current and prospective Board members. Therefore, while focused onmore than 100 shares of common stock.
If our stockholders approve the achievement andamendment to our Restated Certificate of Incorporation to effect the ability of potential candidates to make a positive contribution with respect to such factors,reverse stock split, the Corporate Governance and Nominating Committee has not established any specific minimum criteria or qualifications that a nominee must possess.
In selecting or recommending candidates for election todetermination by the Board of Directors to implement the Corporate Governancereverse stock split would be based on various factors, and Nominating Committee considers nominees recommended by directors, management and stockholders usingthere is no assurance that the
same criteria to evaluate all candidates. The Corporate Governance and Nominating Committee reviews each candidate’s qualifications, including whether a candidate possesses reverse stock split would have any of the specific qualities and skills desirableanticipated benefits
If our stockholders approve the amendment to our Restated Certificate of Incorporation to effect the reverse stock split, our Board of Directors may, in certain members of the Board. Evaluations of candidates generally involve a review of background materials, internal discussions and interviews with selected candidates as appropriate. Upon the identification of a qualified candidate, the Corporate Governance and Nominating Committee would select, or recommend for consideration by the full Board, the nominee for the election of directors. The Corporate Governance and Nominating Committee may engage consultants or third party search firmsits sole discretion, at any time prior to assist in identifying and evaluating potential nominees. To recommend a prospective nominee for the Corporate Governance and Nominating Committee’s consideration, stockholders should submit the candidate’s name and qualifications to Zhone’s Corporate Secretary in writing to the following address: Zhone Technologies, Inc., Attention: Corporate Secretary, 7195 Oakport Street, Oakland, California 94621. When submitting candidates for nomination to be elected at theour 2018 annual meeting of stockholders, stockholders must also followauthorize the notice procedures and provide the information required by our bylaws.
Board Leadership Structure
In 2014, in connection with the appointment of James Norrod as Zhone’s new Chief Executive Officer, the independent members of the Board determined to separate the positions of Chairman and Chief Executive Officer and retain Mr. Ejabat as Executive Chairman. Mr. Ejabat is a co-founder of Zhone and had served as both our Chairman of the Board and Chief Executive Officer from June 1999 through July 2014. The Board determined to retain Mr. Ejabat in the role of Executive Chairman following the appointment of Mr. Norrod to facilitate the management transition and enable Zhone to continue to benefit from Mr. Ejabat’s continued strategic guidance as it relates to the carrier access business and future product development, while allowing Mr. Norrod to focus on the day-to-day operations of the company.
Board’s Role in Risk Oversight
The Board has an active role, asreverse stock split at a whole and alsonumber ratio1-for-3,1-for-4 or1-for-5, with such ratio to be set at the committee level, in overseeing management of the company’s risks.our discretion. The Compensation Committee is responsible for overseeingdetermination by the management of risks relating to our executive compensation plans and arrangements. The Audit Committee oversees management of financial risks and discusses our policies with respect to risk assessment and risk management. The Corporate Governance and Nominating Committee manages risks associated with the independence of the Board and potential conflicts of interest.
The Board’s role in the company’s risk oversight process includes receiving regular reports from members of senior management on areas of material risk to the company, including operational, financial, legal and regulatory, and strategic and reputational risks. The full Board (or the appropriate committee in the case of risks that are under the purview of a particular committee) receives these reports from the appropriate “risk owner” within the organization to enable it to understand our risk identification, risk management and risk mitigation strategies. When a committee receives the report, the Chairman of the relevant committee reports on the discussion to the full Board during the committee reports portion of the next Board meeting. This enables the Board and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships.
Any stockholder wishing to communicate with any of our directors regarding corporate matters may write to the director, c/o Corporate Secretary, Zhone Technologies, Inc., 7195 Oakport Street, Oakland, California 94621. The Corporate Secretary will forward these communications directly to the director(s). However, certain correspondence such as spam, junk mail, mass mailings, product complaints or inquiries, job inquiries, surveys, business solicitations or advertisements, or patently offensive or otherwise inappropriate material may be forwarded elsewhere within the company for review and possible response.
ELECTION OF DIRECTORS
In accordance with our certificate of incorporation, we divide our Board of Directors into three classes, with Class I consistingto implement the reverse stock split and to set the exact ratio would be based on various factors, including existing and expected market prices for DZSI common stock, Nasdaq listing requirements, prevailing market conditions and other factors. There can be no assurance that the timing of two members, Class II consisting of two members, and Class III consisting of four members. We elect one class of directors to serve a three year term at each annual meeting of stockholders. At this year’s annual meeting of stockholders, we will elect two Class II directors to hold office until the 2018 annual meeting. At next year’s annual meeting of stockholders, we will elect four Class III directors to hold office until the 2019 annual meeting,reverse stock split and the following year, we will elect two Class I directors to hold office untilexact exchange ratio determined by the 2020 annual meeting. Thereafter, elections will continue in a similar manner at subsequent annual meetings. Each elected director will continue to serve until his successor is duly elected or appointed.
The Board of Directors unanimously nominated C. Richard Kramlich and Mahvash Yazdi as Class II nominees for election to the Board. Unless proxy cards are otherwise marked, the persons named as proxies will vote all proxies received“FOR” the election of Mr. Kramlich and Ms. Yazdi. If any director nominee is unable or unwilling to serve as a nomineewould, at the time of the annual meeting, the persons named as proxies may vote either (1) for a substitute nominee designated by the present Board to fill the vacancy or (2) for the balanceimplementation of the nominees, leaving a vacancy. Alternatively, the Board may reduce the size of the Board. The Board has no reason to believe thatreverse stock split, result in any of the nomineesintended benefits of DZSI having implemented the reverse stock split.
Board of Directors Discretion to Implement the Reverse Stock Split
If the amendment to our Restated Certificate of Incorporation to effect the reverse stock split and the associated reduction in our authorized capitalization is approved by our stockholders, the amendment would be
effected, if at all, only upon a determination by our Board of Directors that the reverse stock split (using an exchange ratio determined by us within the range set forth above) and the associated reduction in our authorized capitalization are in the best interests of DZSI and its stockholders. Such determination will be unable or unwilling to serve if elected as a director. Abstentionsbased upon certain factors, including:
the historical trading price and broker non-votes will have no effecttrading volume of our common stock;
the then-prevailing trading price and trading volume of our common stock and the anticipated impact of the reverse stock split on the vote.trading market for our common stock;
our ability to continue our listing on the Nasdaq Capital Market;
which of the alternative exchange ratios would result in the greatest overall reduction in our administrative costs; and
prevailing general market and economic conditions.
Notwithstanding approval by the stockholders of the proposed amendment to our Restated Certificate of Incorporation to effect the reverse stock split and the associated reduction in our authorized capitalization, our Board of Directors may, in its sole discretion, abandon the proposed amendment to our Restated Certificate of Incorporation and determine, prior to the effectiveness of any filing of the amendment with the Secretary of State of the State of Delaware, not to effect the reverse stock split and the associated reduction in our authorized capitalization, as permitted under Section 242(c) of the Delaware General Corporation Law.
Principal Effects of the Reverse Stock Split
If approved and implemented, the principal effects of the reverse stock split would include the following:
Depending on the ratio for the reverse stock split, as determined by the Company in its sole discretion, you will receive one new share of DZSI common stock for each three, four or five shares of DZSI common stock that you currently hold (that is, every three, four or five shares would be combined into one share). However, the reverse stock split will affect all stockholders uniformly and will not affect any stockholder’s percentage ownership interest or voting rights in DZSI (except to the extent that the reverse stock split would result in some of our stockholders owning fractional shares as described below). For example, a holder of 2% of the total voting power of DZSI immediately prior to the reverse stock split would continue to hold approximately 2% of the total voting power of DZSI immediately after the reverse stock split.
The total number of shares of common stock issued and outstanding will be reduced proportionally based on the ratio of the reverse stock split.
The total number of shares of common stock that DZSI is authorized to issue will be reduced proportionally based on the ratio of the reverse stock split.
The number of shares of DZSI common stock available for issuance under the DASAN Zhone Solutions, Inc. Amended and Restated 2001 Stock Incentive Plan (the 2001 Plan), the DASAN Zhone Solutions, Inc. 2017 Incentive Award Plan (the 2017 Plan), which are the only equity incentive compensation plans currently active from which we may make new stock awards, and the DASAN Zhone Solutions, Inc. 2002 Employee Stock Purchase Plan, as amended and restated (the ESPP) would also be reduced proportionally to the ratio of the reverse stock split.
With respect to outstanding stock options to purchase shares of DZSI common stock, the reverse stock split would effect a reduction in the number of shares subject to such outstanding stock options proportional to the exchange ratio of the reverse stock split (rounded down to the nearest whole share) and would effect a proportionate increase in the exercise price of such outstanding stock options (rounded up to the nearest whole cent). Unless required by the terms of the equity incentive compensation plan pursuant to which a stock award was issued, no cash payment would be made to
holders of equity awards in respect of such rounding. With respect to outstanding restricted stock units and restricted stock awards, the reverse stock split would effect a reduction in the number of shares subject to such outstanding restricted stock units and restricted stock awards proportional to the ratio of the reverse stock split (rounded down to the nearest whole share). No cash payment would be made to holders of equity awards in respect of such rounding. |
The following table sets forth forcontains approximate information relating to our common stock under each nomineeof the proposed reverse stock split exchange ratios based on share information as of January 4, 2017 (in thousands):
Common Stock | Pre- Reverse Split | 1-for-3 | 1-for-4 | 1-for-5 | ||||||||||||
Authorized | 180,000 | 60,000 | 45,000 | 36,000 | ||||||||||||
Issued and outstanding | 81,888 | 27,296 | 20,472 | 16,378 | ||||||||||||
Reserved for future issuance pursuant to outstanding stock options | 3,931 | 1,310 | 983 | 786 | ||||||||||||
Reserved for future issuance pursuant to outstanding restricted stock units | 47 | 16 | 12 | 9 | ||||||||||||
Reserved for future issuance pursuant to the 2001 Plan | 35 | 12 | 9 | 7 | ||||||||||||
Reserved for future issuance pursuant to the 2017 Plan (1) | 3,000 | 1,000 | 750 | 600 | ||||||||||||
Reserved for future issuance pursuant to the ESPP | 569 | 190 | 142 | 114 | ||||||||||||
| (1) | The number of shares of common stock reserved for future issuance pursuant to the 2017 Plan does not include any shares that may become available for issuance pursuant to the 2017 Plan’s evergreen provision, under which the share pool would be automatically increased each year based on a specified formula, or any other terms of the 2017 Plan. |
The number of stockholders of record will not be affected by the reverse stock split (except to the extent that the reverse stock split would result in some of our stockholders owning only a fractional share as described below).
If the proposed reverse stock split is implemented, it would increase the number of DZSI stockholders who own “odd lots” of less than 100 shares of common stock. Brokerage commission and other costs of transactions in odd lots are generally higher than the costs of transactions of more than 100 shares of common stock.
Shares of DZSI common stock resulting from the reverse stock split will remain fully paid andnon-assessable. Our common stock is currently registered under Section 12(b) of the Securities Exchange Act of 1934 (the Exchange Act), and DZSI is subject to the periodic reporting and other requirements of the Exchange Act. The reverse stock split would not affect the registration of the common stock under the Exchange Act. If the reverse stock split is implemented, our common stock would continue to be elected atreported on the annual meeting and for each director whose term of office will extend beyondNasdaq Capital Market under the annual meeting,symbol “DZSI” (although Nasdaq would likely add the age of each nominee or director, the positions currently held by each nominee or director with the company, the year in which each nominee’s or director’s current term will expire, and the class of director of each nominee or director.
Name | Age | Position | Term Expires | Class | ||||||||
Morteza Ejabat | 64 | Executive Chairman of the Board of Directors | 2016 | III | ||||||||
Michael Connors | 73 | Director | 2016 | III | ||||||||
Robert Dahl | 74 | Director | 2017 | I | ||||||||
C. Richard Kramlich | 79 | Director | 2015 | II | ||||||||
James Norrod | 67 | President, Chief Executive Officer and Director | 2016 | III | ||||||||
Nancy Pierce | 57 | Director | 2017 | I | ||||||||
James Timmins | 59 | Director | 2016 | III | ||||||||
Mahvash Yazdi | 63 | Director | 2015 | II | ||||||||
All of our directors bringletter “D” to the Boardend of the trading symbol for a wealthperiod of executive leadership experience derived from their service as executives or managing directors of large corporations or venture capital firms. They also bring extensive board experience. The process undertaken20 trading days to indicate that the reverse stock split has occurred).
If approved by the Corporate Governanceour stockholders and Nominating Committee in recommending qualified director candidates is described above under “Corporate Governance Principles and Board Matters—Board Structure and Committee Composition—Corporate Governance and Nominating Committee.” Certain individual qualifications and skills of our directors that contribute to the Board’s effectiveness as a whole are described in the following paragraphs.
Mr. Ejabat stepped down from Chief Executive Officer on July 17, 2014 and remains as Executive Chairman ofimplemented by the Board of Directors. Mr. Norrod was appointed as President, Chief Executive OfficerDirectors, the reverse stock split and director on July 17, 2014. Mr. Briscoe resigned from his position as a directorthe associated reduction in DZSI’s authorized capitalization would become effective upon the filing of Zhonethe amendment to our Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. At the effective astime, shares of September 30, 2014DZSI common stock issued and Ms. Yazdi was appointed as a director to fill the vacancyoutstanding immediately prior thereto will be combined and converted, automatically and without any action on the Board createdpart of stockholders, into new shares of DZSI common stock in accordance with the exchange ratio determined by us from among the resignation of Mr. Briscoe effective as of September 30, 2014.possible ratios set forth above.
Class II Directors with Terms Expiring at this Annual MeetingTreatment of Fractional Shares
C. Richard Kramlich has servedNo scrip or fractional shares will be issued if, as a directorresult of Zhone since November 1999the reverse stock split, a stockholder would otherwise become entitled to a fractional share. Instead, DZSI will pay to the stockholder, in cash, the value of any fractional share arising from the reverse stock split. The cash payment will equal the average closing price per share of DZSI common stock as reported by the Nasdaq Capital Market for the five trading days immediately preceding the effective date of the reverse stock splitmultiplied by the number of shares ofpre-split common stock held by the stockholder that would otherwise have been exchanged for such fractional share. No transaction costs would be assessed to stockholders for the cash payment. Stockholders would not be entitled to receive interest for the period of time between the effective date of the reverse stock split and wasthe date payment is made for their fractional shares.
If you do not hold sufficient shares ofpre-split DZSI common stock to receive at least one post-split share of DZSI common stock and you want to continue to hold DZSI common stock after the reverse stock split, you may do so by taking either of the following actions far enough in advance so that it is completed before the reverse stock split is effected:
purchase a sufficient number of shares of DZSI common stock so that you would hold at least that number of shares of common stock in your account prior to the implementation of the reverse stock split that would entitle you to receive at least one share of DZSI common stock on a post-split basis; or
if applicable, consolidate your accounts so that you hold at least that number of shares of DZSI common stock in one account prior to the reverse stock split that would entitle you to at least one share of DZSI common stock on a post-split basis.
DZSI common stock held in registered form (that is, shares held by you in your own name on the DZSI share register maintained by our transfer agent) and DZSI common stock held in “street name” (that is, shares held by you through a bank, broker or other nominee) for the same investor would be considered held in separate accounts and would not be aggregated when implementing the reverse stock split. Also, shares of DZSI common stock held in registered form but in separate accounts by the same investor would not be aggregated when implementing the reverse stock split.
After the reverse stock split, then-current stockholders would have no further interest in DZSI with respect to their fractional shares. A person otherwise entitled to a fractional share would not have any voting, dividend or other rights in respect of their fractional share except to receive the cash payment as described above. Such cash payments would reduce the number of post-split stockholders to the extent that there are stockholders holding fewer than that number ofpre-split shares within the exchange ratio that is determined by us as described above. Reducing the number of post-split stockholders, however, is not the purpose of this proposal.
Stockholders should be aware that, under the escheat laws of the various jurisdictions where stockholders reside, where DZSI is domiciled and where the funds for fractional shares would be deposited, sums due to stockholders in payment for fractional shares that are not timely claimed after the effective date may be required to be paid to the designated agent for each such jurisdiction. Thereafter, stockholders otherwise entitled to receive such funds may have to seek to obtain them directly from the state to which they were paid.
Effect onNon-Registered Stockholders
Banks, brokers and other nominees will be instructed to effect the reverse stock split, if implemented, for their beneficial holders holding shares in “street name.”Non-registered stockholders holding our common stock in “street name” should note that such banks, brokers or other nominees may have different procedures for processing the consolidation than those that would be put in place by DZSI for registered stockholders, and their procedures may result, for example, in differences in the precise cash amounts being paid by such nominees in lieu of a fractional share. If you hold your shares with such a bank, broker or other nominee and if you have questions in this regard, you are encouraged to contact your nominee.
Exchange of Stock Certificates and Payment for Fractional Shares
The combination of and reduction in the number of our outstanding shares of common stock as a result of the reverse stock split would occur automatically on the effective date without any action on the part of stockholders and without regard to the date that stock certificates representingpre-split shares of common stock are physically surrendered for new stock certificates representing post-split shares of common stock.
As soon as practicable after the effective date, transmittal forms will be mailed to each holder of record of certificates for shares of DZSI common stock to be used in forwarding such certificates for surrender in exchange for any cash payment due for fractional shares and, if so elected by the holder, certificates representing the number of shares of our post-split common stock such stockholder is entitled to receive as a result of the reverse stock split. Our transfer agent will act as exchange agent for purposes of implementing the payment in lieu of fractional shares and exchange of stock certificates. The transmittal forms will be accompanied by instructions specifying other details of the exchange. Upon receipt of the transmittal form, each stockholder should surrender the certificates representing shares of our common stock prior to the reverse stock split in accordance with the applicable instructions. Each stockholder who surrenders certificates will receive any cash payment due for fractional shares and new certificates representing the whole number of shares of our common stock that he or she holds as a result of the reverse stock split. No new certificates and no payments in lieu of fractional shares will be issued to a stockholder until the stockholder has surrendered its outstanding stock certificate(s) together with the properly completed and executed transmittal form to the exchange agent.
STOCKHOLDERS SHOULD NOT DESTROY ANYPRE-SPLIT STOCK CERTIFICATES AND SHOULD NOT SUBMIT ANY STOCK CERTIFICATES UNTIL THEY ARE REQUESTED TO DO SO.
The par value per share of our common stock would remain unchanged at $0.001 per share after the reverse stock split. As a result, on the effective date of the reverse stock split, the stated capital on our balance sheet attributable to our common stock would be reduced proportionally, based on the actual exchange ratio of the reverse stock split, from its present amount, and the additionalpaid-in capital account would be credited with the amount by which the stated capital is reduced. DZSI’s stockholders’ equity, in the aggregate, would remain unchanged. The per share common stock net loss and net book value would be increased because there would be fewer shares of our common stock outstanding. We do not anticipate that any other accounting consequences would arise as a result of the reverse stock split.
Under the Delaware General Corporation Law, stockholders are not entitled to dissenters’ rights with respect to the proposed amendment to our Restated Certificate of Incorporation to effect the reverse stock split and we will not independently provide our stockholders with any such right.
Certain U.S. Federal Income Tax Consequences of the Reverse Stock Split
The following discussion is a general summary of certain U.S. federal income tax consequences of the reverse stock split that may be relevant to U.S. Holders (as defined below) of our common stock, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local ornon-U.S. tax laws are not discussed. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the Code), Treasury regulations promulgated thereunder (the Treasury Regulations), judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service (the IRS), in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a holder of our common stock.
We have not sought and will not seek an opinion of counsel or any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the reverse stock split.
This discussion is limited to holders that hold our common stock as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a holder’s particular circumstances, including the impact of the Medicare contribution tax on net investment income. In addition, it does not address consequences relevant to holders subject to special rules, including, without limitation:
persons that are not U.S. Holders (as defined below);
persons subject to the alternative minimum tax;
U.S. Holders (as defined below) whose functional currency is not the U.S. dollar;
persons holding our common stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment;
banks, insurance companies, and other financial institutions;
real estate investment trusts or regulated investment companies;
brokers, dealers or traders in securities;
corporations that accumulate earnings to avoid U.S. federal income tax;
S corporations, partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors therein);
tax-exempt organizations or governmental organizations;
persons deemed to sell our common stock under the constructive sale provisions of the Code;
persons who hold or receive our common stock pursuant to the exercise of any employee stock option or otherwise as compensation; and;
tax-qualified retirement plans.
If an entity treated as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at New Enterprise Associates, Inc. (NEA)the partner level. Accordingly, partnerships holding our common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. HOLDERS OF OUR COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT ARISING UNDER OTHER U.S. FEDERAL TAX LAWS (INCLUDING ESTATE AND GIFT TAX LAWS), UNDER THE LAWS OF ANY STATE, LOCAL ORNON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
For purposes of this discussion, a U.S. Holder is any beneficial owner of shares of our common stock that, for U.S. federal income tax purposes, is or is treated as:
an individual who is a citizen or resident of the United States;
a corporation created or organized under the laws of the United States, any state thereof, or the District of Columbia;
an estate, the income of which is subject to U.S. federal income tax regardless of its source; or
a trust that (a) is subject to the primary supervision of a U.S. court and the control of one of more “United States persons” (within the meaning of Section 7701(a)(30) of the Code), or (b) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.
The reverse stock split should constitute a “recapitalization” for U.S. federal income tax purposes. As a result, a U.S. Holder generally should not recognize any gain or loss upon the reverse stock split, except with respect to cash received in lieu of a fractional share of our post-split common stock, as discussed below. A U.S. Holder’s aggregate tax basis in the shares of our common stock received pursuant to the reverse stock split should equal the aggregate tax basis of the shares of our common stock surrendered (excluding any portion of such basis that is allocated to any fractional share of our post-split common stock), and such U.S. Holder’s holding period in the shares of our common stock received should include the holding period in the shares of our common stock surrendered. Treasury Regulations provide detailed rules for allocating the tax basis and holding period of the shares of our common stock surrendered to the shares of our common stock received pursuant to the reverse stock split. Holders of shares of our common stock acquired on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares.
A U.S. Holder that receives cash in lieu of a fractional share of our post-split common stock pursuant to the reverse stock split should recognize capital gain or loss in an amount equal to the difference between the amount of cash received and the U.S. Holder’s tax basis in the shares of our common stock surrendered that is allocated to such fractional share of our post-split common stock. Such capital gain or loss should be long-term capital gain or loss if the U.S. Holder’s holding period for our common stock surrendered exceeded one year at the effective time of the reverse stock split. Long-term capital gains recognized by certainnon-corporate U.S. Holders, including individuals, generally will be taxable at reduced rates. The deductibility of capital losses is subject to limitations.
Information Reporting and Backup Withholding
A U.S. Holder (other than corporations and certain other exempt recipients) may be subject to information reporting and backup withholding when such holder receives cash in lieu of a fractional share of our post-split common stock pursuant to the reverse stock split. A U.S. Holder will be subject to backup withholding if such holder is not otherwise exempt and such holder does not provide its taxpayer identification number in the manner required or otherwise fails to comply with applicable backup withholding tax rules. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or allowed as a credit against the U.S. Holder’s federal income tax liability, if any, provided the required information is timely furnished to the IRS. U.S. Holders should consult their tax advisors regarding their qualification for an exemption from co-foundingbackup withholding and the venture capital firm in 1978 until his retirement in December 2012. Present board memberships include, among others, Movius Interactive Corporation, Sierra Monitor Corporation (BB: SRMC), SVB Financial Group (NASDAQ: SIVB), Smart Drive Systems, Inc., Tabula, Inc., TriAlpha Energy, Inc., Visual Edge Technology, Inc.procedures for obtaining such an exemption.
Vote Required and Xoom Corporation. Prior to co-founding NEA, Mr. Kramlich was a General PartnerRecommendation of Arthur Rock & Associates and Executive Vice President of Gardner & Preston Moss. He received an M.B.A. from Harvard University and a B.S. in History from Northwestern University. We believe Mr. Kramlich is well suited to serve on our Board of Directors given his extensive experience as general partner
Approval of this Proposal 1 requires the affirmative vote of a prominent venture capital firm and his active involvement with numerous public and private companies.
Mavash Yazdi has served as a directormajority of Zhone since September 2014. Since 2012, Ms. Yazdi has served as the President of Feasible Management Consulting. Ms. Yazdi also currently serves as an advisory board member for Comverge, Inc., Infosys and Itineris where she provides strategic consulting in the energy and technology sectors. From 1997 to 2012, Ms. Yazdi held various senior management positions with Southern California Edison Company, most recently as Vice President of Business Integration and Chief Information Officer. From 1980 to 1997, Ms. Yazdi held various positions with Hughes Aircraft Company, most recently as Vice President and Chief Information Officer. Ms. Yazdi earned an M.B.A. from the University of Southern California and a B.S. in industrial management from Polytechnic University, Pomona She also completed the Management of Information Technology program at Harvard Business School. We believe Ms. Yazdi is well suited to serve on our Board of Directors given her extensive experience with enterprise business firms in several industries as well as her active involvement with numerous organizations.
Class III Directors with Terms Expiring 2016
Morteza Ejabat is a co-founder of Zhone and has served as Executive Chairman of the Board of Directors since July 2014. From June 1999 to July 2014, Mr. Ejabat served as Zhone’s President, Chief Executive Officer and Chairman of the Board. Prior to co-founding Zhone, from June 1995 to June 1999, Mr. Ejabat was President and Chief Executive Officer of Ascend Communications, Inc., a provider of telecommunications equipment which was acquired by Lucent Technologies, Inc. in June 1999. Previously, Mr. Ejabat held various senior management positions with Ascend from September 1990 to June 1995, most recently as Executive Vice President and Vice President, Operations. Mr. Ejabat holds a B.S. in Industrial Engineering and an M.S. in Systems Engineering from California State University at Northridge, and an M.B.A. from Pepperdine University. As our co-founder, Mr. Ejabat has significant knowledge of all facets of our company, including day-to-day operations. We believe that Mr. Ejabat’s long history with our company, combined with his leadership experience and expertise in running large telecommunications companies, makes him particularly well suited to be our Executive Chairman.
Michael Connors has served as a director of Zhone since November 2003 following the consummation of Zhone’s merger with Tellium, Inc. Dr. Connors had been a member of Tellium’s board of directors since June 2000. From 1992 to 1998, Dr. Connors held the office of President of AOL Technologies, an Internet service provider, where he led the creation and growth of AOLnet and the development of AOL software and services. Dr. Connors is currently a director of The Connors Foundation. Dr. Connors earned a B.S. in Engineering, an M.S. in Statistics and a Ph.D. in Operations Research from Stanford University. We believe Dr. Connors is well suited to serve on our Board of Directors given his extensive knowledge of the communications industry based on his experience as President of AOL Technologies and director of Tellium.
James Norrod was appointed President, Chief Executive Officer and a director of Zhone in July 2014. Prior to joining Zhone, from January 2013 to December 2013, Mr. Norrod served as Chief Executive Officer of BigBelly Solar, a provider of innovative solar powered solutions for the management of waste and recycling. From October 2010 to January 2013, Mr. Norrod served as President and Chief Executive Officer of Infinite
Power Solutions, a clean technology company focused on the development and manufacturing of micro-energy storage devices. From April 2005 to January 2010, Mr. Norrod served as President and Chief Executive Officer of Segway Inc., a company focused on the development and manufacturing of electric personal transportation products and technologies. Prior to joining Segway, Mr. Norrod held various chief executive officer positions across the technology industry. Mr. Norrod started his career with IBM managed the General Motors account for more than 10 years. Mr. Norrod holds a B.S. in Economics from Oakland University and an M.B.A. from the University of Detroit. We believe Mr. Norrod’s extensive chief executive officer experience and expertise in the enterprise business arena and telecommunications industry, make him particularly well suited to be our President and Chief Executive Officer and serve on our Board.
James Timmins has served as a director of Zhone since July 2002. Mr. Timmins has been a managing director of Teknos Associates, LLC, a valuation firm, since November 2008. From 2005 to 2008, he served as managing director for Pagemill Partners LLC, an investment banking and venture firm. From 1998 to 2005, Mr. Timmins was a general partner and managing director for NIF Ventures, the U.S. venture capital operation of The Daiwa Securities Group of Japan, an investment banking firm. From 1991 to 1998, Mr. Timmins was a partner at Redwood Partners, an investment firm. From 1987 to 1990, Mr. Timmins was a principal at Hambrecht & Quist, an investment banking firm. Mr. Timmins holds a B.A. in History and Philosophy from the University of Toronto, and an M.B.A. from Stanford University. We believe Mr. Timmins’ considerable expertise in investment banking and venture capital well qualifies him to serve on our Board.
Class I Directors with Terms Expiring 2017
Robert Dahlhas served as a director of Zhone since June 1999. Since January 1998, Mr. Dahl has served as a partner of Riviera Ventures LLP, a private investment firm. Previously, Mr. Dahl held various senior management positions in large corporations, including Ascend Communications, Inc., American President Companies, Ungermann Bass Corporation, ROLM Corporation, Measurex Corporation and Fairchild Camera & Instrument Corporation. Mr. Dahl also served as a director of NorCal Community Bancorp from 1998 to 2008. Mr. Dahl holds a B.S. in Finance from the University of California at Berkeley and is a retired certified public accountant. Mr. Dahl has gained extensive knowledge of finance from his experience as senior manager of a number of large corporations, and we believe this is particularly valuable to our Board’s discussion of financial matters.
Nancy Pierce has served as a director of Zhone since April 2010. From October 2012 until February 2014, Ms. Pierce served as Treasurer and Chief Financial Officer of Knowledge Adventure, Inc. dba JumpStart, a children’s educational online and mobile game company. Since 1997, Ms. Pierce has also served as President and Managing Director of KELD LLC, an investment management and strategic advisory company focusing on advising and investing in young technology companies. In addition, Ms. Pierce has served on the board of directors of Carrier Access Corporation, a public company, since 1992 and is the Managing Director of MCAP Ventures LLC. Ms. Pierce also served on the board, and as chairman of the audit and compensation committees of Koala Corporation, a public company, from 2001 to 2004. Prior to KELD, Ms. Pierce was a co-founder of, and held various senior management positions, including Chief Financial Officer at, Carrier Access Corporation from 1992 to 2008. Prior to co-founding Carrier Access in 1992, Ms. Pierce held senior positions at IBM and ROLM Corporation. Ms. Pierce holds a B.S. from Colorado State University, an M.B.A. from California State University—Chico, and an honorary Ph.D. from St. Thomas Aquinas. We believe Ms. Pierce’s extensive experience in public and private companies in strategy, business development, corporate governance, finance, operations, legal, information systems, financing, investor and media relations and mergers and acquisitions makes her well suited to serve on our Board of Directors.
We entered into a letter agreement with NEA, dated as of November 13, 2003, relating to the nomination of a designee to the Board of Directors. Under the terms of this letter agreement, at any annual or special meeting called or in any other action taken for the purpose of electing directors to the Board, Zhone agrees to nominate
as director one nominee designated by NEA. Mr. Kramlich is currently serving as NEA’s designated nominee to the Board of Directors. NEA’s right to designate its nominee terminates at such time that NEA holds less than 50% of the shares issuedof our common stock outstanding and entitled to itvote for the proposal.This means that an abstention or a failure to submit a proxy or vote in connection withperson at the merger with Tellium.
Recommendation ofspecial meeting will have the Boardsame effect as a vote “Against” Proposal 1.
The Board of Directors unanimously recommends that youa vote “FOR” the electionproposal to approve a series of Mr. Kramlichthree separate and Ms. Yazdi.alternative amendments to DZSI’s Restated Certificate of Incorporation to effect the reverse stock split of DZSI’s outstanding common stock at exchange ratios of1-for-3,1-for-4 and1-for-5, as determined by the Company, and a corresponding decrease in the number of authorized shares of DZSI’s common stock on a proportional basis, subject to the Board of Directors’ authority to abandon such amendment.
RATIFICATIONADJOURNMENT OF APPOINTMENT OFTHE SPECIAL MEETING, IF NECESSARY, TO SOLICIT ADDITIONAL PROXIES
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMIN FAVOR OF PROPOSAL 1
The Audit Committee has selected KPMG LLP as Zhone’s independent registered public accounting firm forAt the fiscal year ending December 31, 2015. KPMG LLP has served asspecial meeting and any adjournment or postponement thereof, our independent registered public accounting firm sincestockholders may be asked to consider and vote upon a proposal to adjourn the year ended December 31, 2000. Representatives of KPMG LLP are expectedspecial meeting, if necessary, to be present at the annual meeting, will have an opportunity to make a statementsolicit additional proxies if they so desire and will be available to respond to appropriate questions.
Stockholder ratification of the selection of KPMG LLP as our independent registered public accounting firm is not required by our bylaws or otherwise. However, we are submitting the selection of KPMG LLP to the stockholders for ratification as a matter of good corporate practice. If the selection is not ratified, the Audit Committee will reconsider whether or not to retain KPMG LLP, and may retain that firm or another without re-submitting the matter to the stockholders. Even if the selection is ratified, the Audit Committee may, in its discretion, direct the appointment of a different firm at any time during the year if it determines that such a change would be in the best interests of the company and its stockholders.
Principal Accounting Fees and Services
The following is a summary of the fees billed by KPMG LLP for professional services rendered for the fiscal years ended December 31, 2014 and December 31, 2013:
Fee Category | 2014 Fees | 2013 Fees | ||||||
Audit Fees | $ | 841,210 | $ | 612,000 | ||||
Audit-Related Fees | — | — | ||||||
Tax Fees | 11,500 | 7,000 | ||||||
All Other Fees | — | — | ||||||
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Total Fees | $ | 852,710 | $ | 619,000 | ||||
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Audit Fees.This category includes the audit of our annual financial statements, audit of our internal control over financial reporting, review of financial statements included in our Form 10-Q quarterly reports, and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements. Audit of our internal control over financial reporting occurred in 2014 but not 2013.
Audit-Related Fees. This category consists of assurance and related services provided by KPMG LLP that are reasonably related to the performance of the audit or review of our financial statements, andthere are not reported above as “Audit Fees.” These services include accounting consultationssufficient votes in connection with acquisitions, and consultations concerning financial accounting and reporting standards.
Tax Fees. This category consistsfavor of professional services rendered by KPMG LLP, primarily in connection with tax compliance, tax planning and tax advice activities. These services include assistance with the preparation of tax returns, claims for refunds, value added tax compliance, and consultations on state, local and international tax matters.
All Other Fees. This category consists of fees for products and services other than the services reported above.
Pre-Approval Policy of the Audit Committee
The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year, is detailed as to the particular service or category of services, and is generally subject to a specific budget. The independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. All of the audit-related fees, tax fees and other fees billed in each of the last two fiscal years, as described above, were pre-approved by the Audit Committee.Proposal 1.
Recommendation of the Board of Directors
The Board of Directors unanimously recommends that youa vote “FOR”any proposal to adjourn the ratificationspecial meeting of stockholders, if necessary, to solicit additional proxies in favor of Proposal 1.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 and the Exchange Act. These forward-looking statements include, among others, statements related to the completion of the appointmentreverse stock split, the Company gaining compliance with the Nasdaq initial listing standards and the consequences of KPMG LLPdelisting the Company’s common stock from the Nasdaq Capital Market. These statements are based on current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. We use words such as Zhone’s independent registered public accounting firm.“anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” variations of such words, and similar expressions to identify forward-looking statements. In addition, statements that refer to plans, objectives and strategies for future operations and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict, including those identified under the heading “Risk Factors Associated with the Reverse Stock Split” on page 7 hereof, elsewhere in this proxy statement and our other filings with the SEC. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements.
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We undertake no obligation to revise or update any forward-looking statements for any reason. For a further discussion of these and other factors that could impact our future results, performance or transactions, see the section entitled “Risk Factors” included in our Annual Report on Form10-K for the year ended December 31, 2015, as updated by our Quarterly Report on Form10-Q for the quarter ended September 30, 2016 and future filings.
The following table sets forth information known to us regarding ownership of ZhoneDZSI common stock on March 16, 2015January 4, 2017 by (1) each person who beneficially owned more than 5% of ZhoneDZSI common stock, (2) each current director and director nominee, (3) each of the named executives identified(as such term is defined in the Summary Compensation Table set forth belowItem 402(a)(3) of RegulationS-K under the heading “Executive Compensation,”Exchange Act); and (4) all directors, named executives and their affiliates as a group. We are not aware of any arrangements, including any pledge of our common stock that could result in a change in control.
Name of Beneficial Owner (1) | Number of Shares Beneficially Owned (2) | Percent Owned (3) | Number of Shares Beneficially Owned (2) | Percent Owned (3) | ||||||||||||
New Enterprise Associates entities | 4,781,291 | (4) | 14.7 | % | ||||||||||||
Morteza Ejabat | 2,787,307 | (5) | 8.5 | % | ||||||||||||
DASAN Networks, Inc. | 47,465,082 | (4) | 58.0 | % | ||||||||||||
New Enterprise Associates | 4,781,273 | (5) | 5.8 | % | ||||||||||||
James Norrod | 60,000 | (6) | * | 164,165 | (6) | * | ||||||||||
II Yung Kim | — | * | ||||||||||||||
Kirk Misaka | 706,542 | (7) | * | 678,623 | (7) | * | ||||||||||
Michael Fischer | 14,040 | (8) | * | |||||||||||||
David Misunas | 6,000 | (8) | * | — | * | |||||||||||
Eric Presworsky | 46,842 | (9) | * | 36,842 | (9) | * | ||||||||||
Michael Connors | 317,706 | (10) | * | 406,708 | (10) | * | ||||||||||
Robert Dahl | 147,052 | (11) | * | |||||||||||||
SeongGyun Kim | — | * | ||||||||||||||
C. Richard Kramlich | 75,349 | (12) | * | 159,372 | (11) | * | ||||||||||
Nancy Pierce | 139,959 | (13) | * | |||||||||||||
James Timmins | 228,357 | (14) | * | |||||||||||||
Mahvash Yazdi | 22,407 | (15) | * | |||||||||||||
All directors, named executives and their affiliates as a group (11 persons)(16) | 9,296,405 | (16) | 28.5 | % | ||||||||||||
Min Woo Nam | 5,205 | (12) | * | |||||||||||||
Sung-Bin Park | 5,205 | (13) | * | |||||||||||||
All directors, named executives and their affiliates as a group (11 persons)(14) | 53,716,515 | 65.0 | % | |||||||||||||
| * |
| (1) | Under the rules of the SEC, a person is the beneficial owner of securities if that person has sole or shared voting or investment power. Except as indicated in the footnotes to this table and subject to applicable community property laws, to our knowledge, the persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned. Unless otherwise indicated, the address for each person or entity named below is c/o DASAN Zhone |
| (2) | In computing the number of shares beneficially owned by a person named in the table and the percentage ownership of that person, shares of common stock that such person had the right to acquire within 60 days after |
| (3) | For each person included in the table, percentage ownership is calculated by dividing the number of shares beneficially owned by such person by the sum of (a) |
| (4) | The address of DASAN Networks, Inc. is DASAN Tower, 49,Daewangpangyo-ro 644Beon-gilBudang-gu,Sungnam-si,Gyeonggi-do,463-400, Korea. |
| (5) | Consists of (a) 363,426 shares held by New Enterprise Associates VIII, L.P., (b) 258,836 shares held by New Enterprise Associates 8A, L.P., (c) 1,788,067 shares held by New Enterprise Associates 9, L.P., and (d) 2,370,944 shares held by New Enterprise Associates 10, |
Consists of (a) |
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| (7) | Consists of (a) |
| (8) | Consists of |
| (9) | Consists of (a) 1,842 shares held by Mr. Presworsky, and (b) |
| (10) | Consists of (a) |
| (11) | Consists of (a) |
| Consists of |
| Includes |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers and holders of more than 10% of Zhone common stock to file reports of ownership and changes in ownership with the SEC. These persons are required to furnish us with copies of all forms that they file. Based solely on our review of copies of these forms in our possession and in reliance upon written representations from our directors and executive officers, we believe that all of our directors, executive officers and 10% stockholders complied with the Section 16(a) filing requirements during 2014.
Compensation Discussion and Analysis
This compensation discussion and analysis summarizes the company’s philosophy and objectives regarding the compensation of its executive officers and senior managers, including how the company determines the elements and amounts of compensation. The Compensation Committee of the Board is responsible for determining, establishing and approving each element of compensation including salary and all bonus, incentive, equity and other compensation for the company’s executive officers and senior managers. Our fiscal year 2014 named executives are: Morteza Ejabat, Executive Chairman and former Chief Executive Officer; James Norrod, Chief Executive Officer; Kirk Misaka, Chief Financial Officer; David Misunas, Vice President of Business Development; and Eric Presworsky, Vice President, Chief Technology Officer.
Zhone is a global leader in all IP multi-service access solutions, serving more than 750 of the world’s most innovative network operators. We operate in a highly competitive environment. The purpose of our executive compensation program is to attract, motivate and retain the executives who lead our business and align their interests with the long-term interests of our stockholders. The main elements of our compensation program are base salary, annual cash bonus and long-term equity incentive awards. We seek to pay our named executives fairly and link pay with performance.
The leadership and discipline of our management team heavily contributed to our performance over the last several years. Among other achievements, Mr. Norrod and the other named executives demonstrated solid execution of our business plan and the promotion of our strategic objectives. They continued to position us appropriately for growth, including by increasing revenues, expanding operating income as a percentage of revenue, and promoting a diverse customer and product mix in our businesses. Their focus on expense and working capital management increased our efficiency and improved our results. In addition, our managers promoted a philosophy of continuous improvement, leadership development among our senior managers and the ongoing importance of diversity and inclusion among our employee population. Mr. Norrod and the other named executives are transitioning the company to expand and grow the enterprise business. Our company’s fiscal 2014 accomplishments, guided by our named executives, illustrate this focus, which included, among other things, the following:
Our results from continuing operations in fiscal year 2014 reflected ongoing resiliency in our business as demonstrated in our carrier business while investing in the expansion of the enterprise business.
Overall, we demonstrated strong execution on strategic business objectives.
In determining the compensation of our named executives for 2014, the Compensation Committee evaluated our company’s overall performance and their individual contributions to that performance, including the factors described above.
Based on the comparable company information reviewed by the Compensation Committee each year in connection with its annual review of our executive compensation program, the Compensation Committee has historically targeted total direct compensation opportunities for the named executives at approximately the median of the competitive market data at time of hire and gradually made adjustments to levels above the median as the named executive demonstrates performance and assumes additional responsibilities over time. However, in keeping with our corporate objectives to conserve cash, which is an overriding consideration for our company and the Compensation Committee, annual bonuses and equity awards are not granted on a regular basis to the named executives. As a result, base salary represented a substantial portion of our named executives’ compensation for 2014.
In connection with the transition of the role of Chief Executive Officer from Mr. Ejabat to Mr. Norrod in July 2014, the Compensation Committee approved a one-time cash bonus to Mr. Ejabat in the amount of $1,650,000 in recognition of his services as Chief Executive Officer since 1999. Mr. Ejabat remains in the capacity as Executive Chairman of the Board of Directors and provides advisory services to the sales team.
In light of our recent performance and the other factors described above, we believe our executive pay is reasonable, consistent with our performance and financial objectives and position.
Philosophy and Objectives
Zhone operates in the highly competitive and rapidly changing telecommunications industry. Our compensation program for named executives is designed to focus their activities and energies on the achievement of our short term and long term objectives and to attract and retain executive officers who possess the skills, knowledge and experience required to effectively manage the company. The Compensation Committee seeks to attract, retain and motivate our named executives through a total compensation package that consists primarily of:
base salary;
annual variable incentive arrangements; and
long-term, equity based incentives in the form of stock options.
Additional components of our compensation program for named executives include the participation in benefit plans that are generally available to all employees, severance provisions and, on a case-by-case basis, change in control benefits.
The Compensation Committee’s executive compensation determinations are based on a review of many factors including market information consisting of executive compensation data for our peer group of companies, which are discussed below, the company’s financial position, the company’s financial and strategic achievements over the past year, expectations for the current year, and the compensation practices of companies in the company’s industry. Each of these factors is weighed to determine whether the company’s compensation structure:
is competitive in the industry;
motivates executive officers to achieve the company’s business objectives; and
sufficiently aligns the interests of the executive officers with the long-term interests of the stockholders.
The Compensation Committee’s goal is to set total compensation for our named executives at levels that are generally comparable to executives with similar roles and responsibilities at our peer group of companies, consistent with our goals, and appropriate in light of the company’s financial position and the executive’s experience level and expected contribution . The Compensation Committee typically targets total compensation for our named executives at or above the median of the market data from our peer group of companies, although actual compensation for an executive officer may be higher or lower than the targeted position depending on such factors as the individual performance of the named executive, our actual financial performance during the year, intensity of competition and general market conditions, the experience level, responsibilities and expected future contribution of the executive, and the importance of each position. The Compensation Committee does not rely solely upon rigid, pre-determined formulas for determining executive compensation and may consider any factor that is deemed pertinent to its executive compensation decisions.
Role of Chief Executive Officer and Chief Financial Officer in Determining Executive Compensation and Benchmarking Data
We generally have followed a consistent process over the years for determining compensation for our named executives. At the conclusion of each fiscal year, our Chief Executive Officer and Chief Financial Officer,
with the assistance of the Human Resources Department, consider the compensation of executives in similar positions to theirs at our peer group, which is discussed below, using information gathered from proxy statements and other SEC filings. Our Chief Executive Officer and Chief Financial Officer then provide recommendations to the Compensation Committee for adjustments to their base salaries, bonus opportunities and equity levels.
Our Chief Executive Officer and our Chief Financial Officer attend some of the Compensation Committee meetings, but the Compensation Committee also regularly holds executive sessions not attended by any members of management or non-independent directors. The Compensation Committee discusses our Chief Executive Officer’s and Chief Financial Officer’s compensation package with them, but makes decisions with respect to their compensation without them present. The Compensation Committee has the ultimate authority to make decisions with respect to the compensation of our named executives, but may, if it chooses, delegate any of its responsibilities to subcommittees. The Compensation Committee has delegated to Mr. Norrod the authority to grant long-term incentive awards to employees below the level of executive officer under guidelines set by the Compensation Committee. This is the same authority Mr. Ejabat had prior to Mr. Norrod assuming the role of Chief Executive Officer. The Compensation Committee also has authorized Mr. Norrod to make salary adjustments and short-term incentive decisions for all employees other than officers under guidelines approved by the Compensation Committee. The Compensation Committee has not delegated any of its authority with respect to the compensation of executive officers. Although neither the Compensation Committee nor the Board of Directors is required to ratify the actions of Mr. Norrod with regard to the authority delegated to him, as a matter of good corporate practice, Mr. Norrod periodically provides a report to the Board regarding grants of long-term incentive awards to employees authorized by him. The Compensation Committee reviews this information in light of its own current experience, access to compensation information and experience at other companies and on other boards. The Compensation Committee historically has given considerable weight to management recommendations based on their direct knowledge of their performance and contributions to the company. The Compensation Committee considers these factors, as well as any other factors it may deem relevant to its executive compensation determinations, and sets the compensation for the company’s executive officers.
In determining the compensation of the named executives for fiscal 2014, Mr. Ejabat, Mr. Norrod, Mr. Misaka and the Compensation Committee considered external market data and publicly available information from a peer group of comparable companies compiled as described above. This market data focused on, among other things, the cash components of compensation for executives.
The 2014 peer group represents companies within the telecommunications industry. The peer group was chosen primarily because they are our primary business competitors and because we consider the scope and complexity of their business operations to be closely related to ours. Our 2014 peer group was established by the Compensation Committee based on recommendations made by management, and was not modified from the 2013 peer group.
For fiscal 2014, our peer group was comprised of the following companies:
Adtran, Inc.
Aruba Networks, Inc.
Brocade Communications Systems, Inc.
Calix, Inc.
Ciena Corporation
F5 Networks, Inc.
Harmonic, Inc.
Infinera Corporation
IXIA
Juniper Networks, Inc.
Sonus Networks, Inc.
Tellabs, Inc.
Westell Technologies, Inc.
Role of Compensation Consultants
In performing its duties, the Compensation Committee may obtain input, as it deems necessary, from outside professional consulting firms retained directly by the Compensation Committee or through the assistance of the Human Resources Department. The Compensation Committee did not retain an outside professional consulting firm to conduct a competitive review and assessment of the company’s executive compensation program for fiscal 2014.
Elements of Compensation Allocation
The Compensation Committee believes that each element of our compensation program is essential to attracting and retaining experienced and motivated executive officers who are able to successfully manage our operations, strategic direction and financial performance, particularly given the intensely competitive and rapidly changing telecommunications industry in which we operate. In evaluating the overall mix of compensation for named executives, the Compensation Committee typically does not rely on pre-determined formulas for weighting different elements of compensation for allocating between long-term and short-term compensation, but instead strives to develop comprehensive compensation packages that emphasize attainment of our short-term and long-term objectives and are reflective of our financial position and the executive’s abilities, experience level and contributions.
Base Salaries
In general, base salaries for employees, including named executives, are established based on the scope of their responsibilities, individual contribution, prior experience, sustained performance and anticipated level of difficulty of replacing the employee with someone of comparable experience and skill. Decisions regarding salary increases take into account the executive officer’s current salary and the amounts paid to the named executive’s peers outside the company. In addition to considering the competitive pay practices of our peer group of companies, we also consider the amounts paid to a named executive’s peers internally by conducting an internal pay equity analysis which compares the pay of each named executive to other members of the management team. Base salaries are reviewed periodically, but are not automatically increased if the Compensation Committee believes that other elements of compensation are more appropriate in light of our stated objectives. This strategy is consistent with our intent of offering compensation that is contingent on the achievement of performance objectives.
Effective July 2014, Mr. Ejabat’s base salary was increased to $50,000 from $1.00 in connection with his transition from the role of Chief Executive Officer to Executive Chairman of the Board of Directors.
In connection with his commencement of employment in July 2014, the Compensation Committee established Mr. Norrod’s initial base salary at $400,000 after its considerations of the factors described above.
Annual Incentives
With the exception of Mr. Ejabat, none of our named executives received a bonus for 2014. As described above, in connection with his transition from the role of Chief Executive Officer to Executive Chairman of the Board of Directors, the Compensation Committee approved a one-time cash bonus payment for Mr. Ejabat in the amount of $1,650,000 in recognition of his services as Chief Executive Officer from September 1999 to July 2014.
In addition to Mr. Norrod’s Annual Salary, he is eligible to participate in a performance-based annual bonus program, beginning in 2014, to be earned and paid quarterly in equal installments. Mr. Norrod’s target annual bonus at full accomplishment of the corporate performance goals will be equal to his annual base salary. His actual bonus is intended to be based upon our overall results compared to the annual budget approved by our Board of Directors for the following criteria: revenues; pre-tax income from operations (excluding any non-recurring and/or extraordinary charges or credits); free cash flow (excluding any equity and/or debt changes); and other non-financial objectives determined by the Board of Directors. However, for 2014, due to the fact that Mr. Norrod’s employment commenced mid-year, no specific performance objectives were established for Mr. Norrod’s bonus opportunity and the Board of Directors determined that any bonus for 2014 would be determined by the Board of Directors based on its subjective assessment of overall corporate performance. The annual bonus plan and the final payout will be approved by our Board of Directors or the Compensation Committee and is subject to change. No bonus payment was earned by Mr. Norrod in 2014.
Long-Term Equity Incentives
The goal of our long-term, equity-based incentive awards is to align the interests of employees with stockholders and to provide each employee with an incentive to manage Zhone from the perspective of an owner with an equity stake in the business. Because vesting is based on continued employment, our equity-based incentives also facilitate the retention of employees through the term of the awards. In determining the size of the long-term equity incentives to be awarded to employees, we take into account a number of internal factors, such as the relative job scope, individual performance history, prior contributions, the size of prior grants and competitive market data for our peer group of companies. Based upon these factors, the Compensation Committee determines the size of the long-term equity incentives at levels it considers appropriate to create a meaningful opportunity for reward predicated on the creation of long-term stockholder value. The Compensation Committee does not apply any set formula or consider any specific weighting of these factors in setting the awards for a year. Rather, the level of awards is determined solely in the discretion of the Compensation Committee, taking into account those factors and the recommendations of management.
To reward and retain employees in a manner that best aligns employees’ interests with stockholders’ interests, we use stock options as the primary incentive vehicle for long-term compensation opportunities. We believe that stock options are an effective tool for meeting our compensation goal of increasing long-term stockholder value by tying the value of the stock options to our future performance. Because employees are able to profit from stock options only if our stock price increases in value over the stock option’s exercise price, we believe the options provide effective incentives to employees to achieve increases in the value of our stock. To the extent they are awarded in any given year, annual grants of options are typically approved by the Board of Directors at its regularly scheduled meeting in August and have a grant date effective as of the first day of the September following the Board’s meeting. While historically the vast majority of stock option awards to our employees have been made pursuant to our annual grant program, the Compensation Committee retains discretion to make stock option awards to employees at other times, including in connection with the hiring of an employee, the promotion of an employee, to reward an employee, for retention purposes or for other circumstances recommended by management or the Compensation Committee. The exercise price of any such grant is the fair market value of our common stock on the grant date. In addition, our stock option programs are broad-based.
In 2014, in order to reduce expenses and enhance profitability, no stock options were granted to our named executives, with the exception of Mr. Norrod. In connection with his commencement of employment in July 2014, Mr. Norrod was awarded an option to purchase 1,250,000 shares of our common stock as an “employment inducement” award granted to him as a material inducement to his entering into employment with the company, pursuant to NASDAQ rules. The option award vests over a four year vesting schedule as follows: 25% of the option will vest on the first anniversary of Mr. Norrod’s commencement of employment, and the remainder will vest in 36 equal monthly installments thereafter, subject to Mr. Norrod’s continued employment through each such vesting date. In addition, in the event Mr. Norrod’s employment is terminated by us for any reason other than by reason of Mr. Norrod’s death, disability, his termination for “cause” (as defined in his employment agreement) or expiration of the term of his employment agreement, or if Mr. Norrod resigns for “good reason”
(as defined in his employment agreement), in each case following a change in control (as defined in our Amended and Restated 2001 Stock Incentive Plan), the vesting and exercisability of 100% of the option shall accelerate on the date of such termination.
The Compensation Committee has not granted, nor does it intend in the future to grant, equity compensation awards to employees in anticipation of the release of material nonpublic information that is likely to result in changes to the price of our common stock, such as a significant positive or negative earnings announcement. Similarly, the Compensation Committee has not timed, nor does it intend in the future to time, the release of material nonpublic information based on equity award grant dates.
Retirement Savings
Our employees are eligible to participate in our 401(k) plan. Each employee may make before-tax contributions of up to 75% of their base salary, up to the limits imposed by the Code. We provide this plan to help our employees save some amount of their cash compensation for retirement in a tax efficient manner. We currently do not provide a matching contribution under our 401(k) plan, nor do we offer other retirement benefits.
Health and Welfare Benefits
The establishment of competitive benefit packages for our employees is an important factor in attracting and retaining highly qualified personnel. Named executives are eligible to participate in all of our employee benefit plans, such as medical, dental, vision, group life and disability insurance, in each case on the same basis as other employees. We believe that these health and welfare benefits help ensure that the company has a productive and focused workforce.
Tax Deductibility of Executive Compensation
Limitations on the deductibility of compensation may occur under Section 162(m) of the Code, which generally limits the tax deductibility of compensation paid by a public company to its chief executive officer and certain other highly compensated executive officers to $1 million, unless such compensation is performance based and certain specific and detailed criteria are satisfied. Tax deductibility is not a primary objective of our compensation programs, particularly in light of the company’s substantial net operating losses. We believe that achieving our compensation objectives set forth above is more important than the benefit of tax deductibility, and we reserve the right to maintain flexibility in how we compensate our executive officers that may result in limiting the deductibility of amounts of compensation from time to time.
Relationship Between Compensation and Risk
In early 2015, management assessed our compensation policies and programs for all employees for purposes of determining the relationship of such policies and programs and the enterprise risks faced by Zhone. After that assessment, management determined that none of our compensation policies or programs create risks that are reasonably likely to have a material adverse effect on Zhone. Management reported the results of its assessment to the Compensation Committee.
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Zhone’s proxy statement for the 2015 annual meeting.
Respectfully Submitted by the Compensation Committee
Robert Dahl
C. Richard Kramlich
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee for the 2014 fiscal year were C. Richard Kramlich and Robert Dahl. All members of the Compensation Committee during 2014 were independent directors, and none of them were our officers or employees or former officers or employees. During 2014, none of our executive officers served on the compensation committee (or equivalent), or the board of directors, of another entity whose executive officer(s) served on the Compensation Committee or Board of Directors.
The following table sets forth the compensation earned during the years ended December 31, 2014, 2013 and 2012 by our Executive Chairman and former Chief Executive Officer, Chief Executive Officer and Chief Financial Officer, as well as our two other most highly compensated senior managers. We refer to these executive officers and senior managers throughout these compensation tables and in our beneficial ownership table above as our “named executives.”
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) (1) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) (2) | Total ($) | |||||||||||||||||||||||||||
Morteza Ejabat | 2014 | 21,503 | 1,650,000 | (3) | — | — | — | — | $ | 1,386 | 1,672,889 | |||||||||||||||||||||||||
Executive Chairman of the Board of Directors and Former Chief Executive Officer and President | 2013 | 1 | 371,250 | (4) | — | — | — | — | 816 | 372,067 | ||||||||||||||||||||||||||
| 2012 | 507,693 | — | — | — | — | — | 618 | 508,311 | ||||||||||||||||||||||||||||
James Norrod | 2014 | 172,306 | — | — | 2,826,383 | — | — | 49,738 | (5) | 3,048,429 | ||||||||||||||||||||||||||
President and Chief Executive Officer | ||||||||||||||||||||||||||||||||||||
Kirk Misaka | 2014 | 365,000 | — | — | — | — | — | 15,039 | (6) | 380,039 | ||||||||||||||||||||||||||
Chief Financial Officer, Treasurer and Secretary | 2013 | 346,000 | 54,750 | (4) | 618 | 401,368 | ||||||||||||||||||||||||||||||
| 2012 | 310,250 | — | — | — | — | — | 618 | 310,868 | ||||||||||||||||||||||||||||
David Misunas | 2014 | 275,000 | — | — | — | — | — | 8,401 | (7) | 283,401 | ||||||||||||||||||||||||||
Vice President, Business Development | 2013 | 267,600 | 618 | 268,218 | ||||||||||||||||||||||||||||||||
Eric Presworsky | 2014 | 300,000 | — | — | — | — | — | 8,113 | (8) | 308,113 | ||||||||||||||||||||||||||
Vice President, Chief Technology Officer | 2013 | 300,000 | — | — | — | — | — | 1,368 | 301,368 | |||||||||||||||||||||||||||
| 2012 | 264,615 | 100,000 | — | — | — | — | 258 | 364,873 | ||||||||||||||||||||||||||||
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2014 Grants of Plan-Based Awards
The following table sets forth summary information regarding grants of plan-based awards made to our named executives during the year ended December 31, 2014.
Name | Grant Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards Target ($) | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($) | ||||||||||||||||||
Morteza Ejabat | — | — | — | — | — | — | ||||||||||||||||||
James Norrod | 7/21/2014 | $ | 200,000 | — | 1,250,000 | (1) | $ | 3.70 | $ | 2,826,383 | ||||||||||||||
Kirk Misaka | — | — | — | — | — | — | ||||||||||||||||||
David Misunas | — | — | — | — | — | — | ||||||||||||||||||
Eric Presworsky | — | — | — | — | — | — | ||||||||||||||||||
Outstanding Equity Awards at 2014 Fiscal Year-End
The following table lists all outstanding equity awards held by our named executives as of December 31, 2014.
| Option Awards | ||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date (1) | |||||||||||||||
Morteza Ejabat | 189,999 | — | — | 1.65 | 9/2/2015 | |||||||||||||||
| 714,623 | — | — | 0.50 | 11/17/2015 | ||||||||||||||||
| 189,999 | — | — | 2.70 | 9/1/2016 | ||||||||||||||||
| 200,000 | — | — | 1.23 | 9/1/2017 | ||||||||||||||||
| 200,000 | — | — | 1.51 | 9/1/2018 | ||||||||||||||||
James Norrod | — | 1,250,000 | (2) | — | 3.70 | 7/21/2021 | ||||||||||||||
Kirk Misaka | 79,999 | — | — | 1.65 | 9/2/2015 | |||||||||||||||
| 270,477 | — | — | 0.50 | 11/17/2015 | ||||||||||||||||
| 79,999 | — | — | 2.70 | 9/1/2016 | ||||||||||||||||
| 90,000 | — | — | 1.23 | 9/1/2017 | ||||||||||||||||
| 90,000 | — | — | 1.51 | 9/1/2018 | ||||||||||||||||
David Misunas | — | — | — | — | — | |||||||||||||||
Eric Presworsky | 10,000 | — | — | 1.65 | 9/2/2015 | |||||||||||||||
| 10,000 | — | — | 2.70 | 9/1/2016 | ||||||||||||||||
| 10,000 | — | — | 1.23 | 9/1/2017 | ||||||||||||||||
| 15,000 | — | — | 1.51 | 9/1/2018 | ||||||||||||||||
Option Exercises and Stock Vested in 2014
None of our named executives exercised any stock options or vested in any stock awards during the fiscal year ended December 31, 2014.
None of our named executives participates in or has account balances in qualified or non-qualified defined benefit plans sponsored by us.
Nonqualified Deferred Compensation
None of our named executives participates in or has account balances in non-qualified defined contribution plans or other deferred compensation plans maintained by us.
Potential Payments Upon Termination
We have employment, severance or change of control agreements with all of the named executives, as described below.
Employment Agreement with Morteza Ejabat
On July 21, 2014, we entered into a third amended and restated employment agreement with Mr. Ejabat. This amendment and restatement reflected the change in position of Mr. Ejabat relinquishing his responsibilities as Chief Executive Officer and his transition to Executive Chairman of the Board of Directors. The restated agreement has an initial term expiring on July 21, 2015, and on each anniversary thereof the term will automatically be extended for one additional year unless either party delivers notice to the other party of its intention not to extend the term. During the term, Mr. Ejabat will serve as Executive Chairman of the Board of Directors of the company, with such duties and responsibilities as are commensurate with the position, and will report directly to our Board of Directors. Pursuant to the restated agreement, Mr. Ejabat’s annual salary will be $50,000, and Mr. Ejabat will not be entitled to an annual bonus. Mr. Ejabat is also eligible to participate in all health benefits, insurance programs, pension and retirement plans and other employee benefit and compensation arrangements generally available to our other officers.
Under the restated agreement, Mr. Ejabat will receive certain compensation in the event that his employment is terminated by us without “cause” or by Mr. Ejabat for “good reason” following a change in control. For purposes of the restated agreement, “cause” is generally defined to include: (1) his willful or continued failure to substantially perform his duties with the company, (2) his conviction of, guilty plea to, or entry of a nolo contendere plea to a felony, (3) his willful or reckless misconduct that has caused or is reasonably likely to cause demonstrable and material financial injury to the company, (4) his willful and material breach of certain sections in the restated agreement pertaining to disclosure and assignment of inventions, confidentiality and nonsolicitation, or (5) his failure to cure the adverse effects of his willful and material breach of any of such
sections of the amended and restated employment agreement within the required time. For purposes of the restated agreement, “good reason” is generally defined to include the occurrence of any of the following events without his consent: (1) a material diminution in his base compensation, (2) a material diminution in his authority, duties or responsibilities, (3) a material change in the geographic location at which he must perform his duties, or (4) any other action or inaction that constitutes a material breach by the company of its obligations under the restated agreement. For purposes of the restated agreement, a “change in control” will have the meaning given to such term in our Amended and Restated 2001 Stock Incentive Plan. Specifically, in those events, Mr. Ejabat would be entitled to receive a lump sum payment equal to $825,000. Assuming a hypothetical termination of Mr. Ejabat’s employment by us without “cause” or by Mr. Ejabat for “good reason” following a change in control on December 31, 2014, the last day of our 2014 fiscal year, we would have been obligated to pay Mr. Ejabat a lump sum payment of $825,000.
Employment Agreement with James Norrod
In July 2014, we entered into an employment agreement with Mr. Norrod. The Agreement has an initial term expiring on July 21, 2016 and may be extended upon mutual agreement by all parties. During the term, Mr. Norrod will perform the responsibilities as President and Chief Executive Officer reporting to the Board of Directors of the company, with such duties and responsibilities as are commensurate with the position. Mr. Norrod’s annual salary will be $400,000, and will be reviewed on at least an annual basis by the Compensation Committee. In addition, Mr. Norrod will be eligible to participate in a performance-based annual bonus program, to be earned and paid quarterly in equal installments. Mr. Norrod’s target bonus will be equal to 100% of his annual salary. During the term, the company will pay for or reimburse Mr. Norrod for housing expenses in the San Francisco Bay Area, up to a maximum of $4,000 per month, as well as for up to two round-trip airline tickets per month to visit his family. Mr. Norrod is also eligible to participate in all health benefits, insurance programs, pension and retirement plans and other employee benefit and compensation arrangements generally available to our other officers.
Under the Norrod Employment Agreement, Mr. Norrod will receive certain compensation in the event that his employment is terminated by us for any reason other than by reason of Mr. Norrod’s death, disability, his termination for “cause” (as defined below) or expiration of the term of his employment agreement, or if Mr. Norrod resigns for “good reason” (as defined below) (a “Qualifying Termination”), Mr. Norrod will be entitled to receive a lump sum payment equal to his annual salary as in effect immediately prior to the date of termination. For purposes of the employment agreement, “cause” is generally defined to include: (1) his willful or continued failure to substantially perform his duties with the company, or any failure to carry out, or comply with, in any material respect any lawful and reasonable directive of the Board consistent with the terms of his employment agreement, which failure continues for 15 days following Mr. Norrod’s receipt of written notice from the Board, (2) his conviction of, guilty plea to, or entry of a nolo contendere plea to a felony or a crime of moral turpitude or commission of an act of fraud, embezzlement or misappropriation against us, (3) his willful or reckless misconduct that has caused or is reasonably likely to cause demonstrable and material financial injury to the company, or (4) his willful and material breach of his employment agreement, which breach remains uncured for 15 days following his receipt of written notice by the Board.
For purposes of the Norrod Employment Agreement, “good reason” is generally defined to include the occurrence of any of the following events without his consent: (1) a material diminution in his base compensation, (2) a material diminution in his authority, duties or responsibilities, (3) a material change in the geographic location at which he must perform his duties, or (4) any other action or inaction that constitutes a material breach by the company of its obligations under the amended and restated employment agreement. Specifically, in those events, Mr. Norrod would be entitled to receive a lump sum payment equal to $400,000. In addition, in the event of Mr. Norrod’s Qualifying Termination following a change in control (as defined in our Amended and Restated 2001 Stock Incentive Plan), the vesting and exercisability of his stock options will accelerate on the date of termination.
Assuming a hypothetical Qualifying Termination of Mr. Norrod’s employment on December 31, 2014, the last day of our 2014 fiscal year, we would have been obligated to pay Mr. Norrod a lump sum payment of $400,000. If a change in control had occurred on December 31, 2014 and, in connection with such change in control, Mr. Norrod experienced a Qualifying Termination, we would have been obligated to pay Mr. Norrod a lump sum payment of $400,000 and the vesting and exercisability of his stock options will accelerate on the date of termination, which stock options would have had no value as of December 31, 2014, due to the fact that the closing price per share of our common stock on such date ($1.77 per share) was lower than the exercise price per share of Mr. Norrod’s stock options.
Severance Agreement with Kirk Misaka
In August 2012, we entered into a severance agreement with Kirk Misaka. Pursuant to the agreement, in the event of Mr. Misaka’s termination of employment by us without “cause” or, following a “change in control,” Mr. Misaka’s voluntary termination for “good reason,” Mr. Misaka will be entitled to receive a lump sum payment equal to the greater of (1) $365,000 or (2) Mr. Misaka’s then current annual base salary. For purposes of Mr. Misaka’s severance agreement, “cause” and “change in control” have the same meaning given to such terms in our 2001 Stock Incentive Plan. For purposes of Mr. Misaka’s severance agreement, “good reason” means (1) a diminution in Mr. Misaka’s authority, duties or responsibilities from those in effect immediately prior to the change in control, including an adverse change in his reporting relationship or a change in the named individual to whom he reports, (2) a reduction in his total compensation opportunities, (3) a diminution in the authority, duties or responsibilities of the named individual to whom he reports, including a requirement that he report to someone other than the Chief Executive Officer of the company or someone who reports directly to the Board of Directors of the company, or (4) a requirement that Mr. Misaka relocate his principal place of employment by more than 50 miles. Assuming a hypothetical termination of Mr. Misaka’s employment by us without “cause” or by Mr. Misaka for “good reason” following a change in control on December 31, 2014, the last day of our 2014 fiscal year, we would have been obligated to pay Mr. Misaka a lump sum payment of $365,000.
Severance Agreement with David Misunas
In August 2012, we entered into a severance agreement with David Misunas. Pursuant to the agreement, in the event of Mr. Misunas’ termination of employment by us without “cause” or, following a “change in control,” Mr. Misunas’ voluntary termination for “good reason,” Mr. Misunas will be entitled to receive a lump sum payment equal to the greater of (1) $275,000 or (2) Mr. Misunas’ then current annual base salary. For purposes of Mr. Misunas’ severance agreement, “cause” and “change in control” have the same meaning given to such terms in our 2001 Stock Incentive Plan. For purposes of Mr. Misunas’ severance agreement, “good reason” means (1) a diminution in Mr. Misunas’ authority, duties or responsibilities from those in effect immediately prior to the change in control, including an adverse change in his reporting relationship or a change in the named individual to whom he reports, (2) a reduction in his total compensation opportunities, (3) a diminution in the authority, duties or responsibilities of the named individual to whom he reports, including a requirement that he report to someone other than the Chief Executive Officer of the company or someone who reports directly to the Board of Directors of the company, or (4) a requirement that Mr. Misunas relocate his principal place of employment by more than 50 miles. Assuming a hypothetical termination of Mr. Misunas employment by us without “cause” or by Mr. Misunas for “good reason” following a change in control on December 31, 2014, the last day of our 2014 fiscal year, we would have been obligated to pay Mr. Misunas a lump sum payment of $275,000.
Severance Agreement with Eric Presworsky
In July 2012, we entered into a severance agreement with Eric Presworsky. Pursuant to the agreement, in the event of Mr. Presworsky’s termination of employment by us other than for “cause,” Mr. Presworsky will be entitled to receive a lump sum payment equal to the greater of (1) $300,000 or (2) Mr. Presworsky’s then current annual base salary. For purposes of Mr. Presworsky’s severance agreement, “cause” means (1) his willful or continued failure to substantially perform his duties with the company, (2) his conviction of, guilty plea to, or entry of a nolo contendere plea to a felony, (3) his willful or reckless misconduct that has caused or is reasonably
likely to cause demonstrable and material financial injury to the company, or (4) his willful and material breach of the proprietary rights agreement with the company pertaining to disclosure and assignment of inventions, confidentiality and nonsolicitation, regardless of its termination. Assuming a hypothetical termination of Mr. Presworsky’s employment by us without “cause” on December 31, 2014, the last day of our 2014 fiscal year, we would have been obligated to pay Mr. Presworsky a lump sum payment of $300,000.
Directors who are employees of the company, such as Messrs. Ejabat and Norrod, do not receive any additional compensation for their services as directors. With respect to non-employee directors, each non-employee director is eligible to receive an annual cash retainer of $20,000, but may elect to receive an equivalent amount of fully vested shares of Zhone common stock, in lieu of the cash retainer, based on the fair market value of the shares on the date the cash retainer would otherwise be paid. To align the interests of directors with the long-term interests of stockholders, each non-employee director is also entitled to receive an annual equity grant in the form of a stock option to purchase 50,000 shares at an exercise price equal to the fair market value of Zhone common stock on the date of grant. In lieu of this stock option, each non-employee director may elect to receive the annual equity grant in the form of 15,000 shares of restricted stock. The annual equity grant of stock options vests in 48 equal monthly installments over the course of four years. The annual equity grant of restricted stock vests in four equal annual installments over the course of four years. In addition, the chair of the Audit Committee receives a $4,000 cash payment per committee meeting attended, and each of the other committee members receives a $2,000 cash payment per committee meeting attended. Non-employee directors are entitled to reimbursement of reasonable out-of-pocket expenses incurred attending Board and committee meetings, and in connection with Board related activities.
The following table sets forth the compensation earned during the year ended December 31, 2014 by each of our non-employee directors.
Name | Fees Earned or Paid ($) (1) | Stock Awards ($) (2) | Option Awards ($) (3) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) (4) | Total ($) | |||||||||||||||||||||
Lawrence Briscoe(5) | 20,000 | — | 100,957 | — | — | — | 120,957 | |||||||||||||||||||||
Michael Connors(6) | 20,000 | — | 100,957 | — | — | — | 120,957 | |||||||||||||||||||||
Robert Dahl(7) | 40,000 | 40,500 | — | — | — | — | 80,500 | |||||||||||||||||||||
C. Richard Kramlich(8) | 20,000 | — | 100,957 | — | — | — | 120,957 | |||||||||||||||||||||
Nancy Pierce(9) | 30,000 | 40,500 | — | — | — | — | 70,500 | |||||||||||||||||||||
James Timmins(10) | 30,000 | — | 100,957 | — | — | — | 130,957 | |||||||||||||||||||||
Mahvash Yazdi(11) | 20,000 | 40,500 | — | — | — | — | 60,500 | |||||||||||||||||||||
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Equity Compensation Plan Information
The following table provides information as of December 31, 2014 with respect to shares of our common stock that may be issued under existing equity compensation plans. The table does not include information with respect to shares subject to outstanding options granted under equity compensation arrangements assumed by us in connection with mergers and acquisitions of the companies that originally granted those options.
| (a) | (b) | (c) | ||||||||||
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||
Equity compensation plans approved by security holders | 4,916,727 | $ | 1.40 | 133,076 | (2)(3) | |||||||
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Equity compensation plans not approved by security holders | 1,250,000 | (4) | $ | 3.70 | — | |||||||
Total | 6,166,727 | $ | 1.87 | 133,076 | ||||||||
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Review and Approval of Related Party Transactions
All relationships and transactions in which the company and our directors and executive officers or their immediate family members are participants are reviewed by our Audit Committee or another independent body of the Board of Directors, such as the independent and disinterested members of the Board. As set forth in the Audit Committee charter, the members of the Audit Committee, all of whom are independent directors, review and approve related party transactions for which such approval is required under applicable law, including SEC and Nasdaq rules. In the course of its review and approval or ratification of a disclosable related party transaction, the Audit Committee or the independent and disinterested members of the Board may consider:
the nature of the related person’s interest in the transaction;
the material terms of the transaction, including, without limitation, the amount and type of transaction;
the importance of the transaction to the related person;
the importance of the transaction to the company;
whether the transaction would impair the judgment of a director or executive officer to act in the best interest of the company; and
any other matters the Audit Committee deems appropriate.
As required under SEC rules, transactions that are determined to be directly or indirectly material to the company or a related person are disclosed in the company’s proxy statement.
In the ordinary course of business, our executive officers and non-employee directors are reimbursed for travel related expenses when incurred for business purposes. Consistent with this policy, we reimburse Mr. Ejabat for the direct operating expenses incurred in the use of his private aircraft when used for business purposes. The amount reimbursed to Mr. Ejabat for this expense was zero ($0.00) and $53,633 during the years ended December 31, 2014 and 2013, respectively. In addition, until July 2014 we provided Mr. Ejabat with access to approximately 240 square feet of office space, which he used for business operations unrelated to Zhone, although Mr. Ejabat owned and maintained separate phone, facsimile, server and computer systems. We did not incur any incremental costs in connection with the provision of this office space.
The Audit Committee has been established for the purpose of overseeing the accounting and financial reporting processes of the company and audits of Zhone’s financial statements and internal control over financial reporting. Zhone’s Audit Committee is made up solely of independent directors, as defined in the applicable Nasdaq and SEC rules, and it operates under a written charter adopted by the Board of Directors. The composition of the Audit Committee, the attributes of its members and its responsibilities, as reflected in its charter, are intended to be in accordance with applicable requirements for corporate audit committees. As described more fully in the charter, the purpose of the Audit Committee is to assist the Board in its general oversight of Zhone’s financial reporting, internal controls and audit functions. Management is responsible for the preparation, presentation and integrity of Zhone’s financial statements, accounting and financial reporting principles, internal controls, and procedures designed to assure compliance with accounting standards, applicable laws and regulations. KPMG LLP, Zhone’s independent registered public accounting firm, is responsible for performing an independent audit of Zhone’s consolidated financial statements in accordance with generally accepted auditing standards. The Audit Committee periodically meets with KPMG, with and without management present, to discuss the results of their examinations, their evaluations of Zhone’s internal controls and the overall quality of Zhone’s financial reporting. The Audit Committee members are not professional accountants or auditors, and their functions are not intended to duplicate or to certify the activities of management and the independent registered public accounting firm, KPMG. The Audit Committee serves a board level oversight role, in which it provides advice, counsel and direction to management and KPMG on the basis of the information it receives, discussions with management and KPMG, and the experience of the Audit Committee’s members in business, financial and accounting matters.
In performing its oversight role, the Audit Committee reviewed and discussed the audited financial statements with management and KPMG. The Audit Committee also discussed with KPMG the matters required to be discussed by Statement on Auditing Standard No. 16 (Communications with Audit Committees), as amended, as adopted by the Public Company Accounting Oversight Board (United States) in Rule 3200T, including the quality and acceptability of Zhone’s accounting principles as applied in its financial reporting. The Audit Committee has received the written disclosures and the letter from KPMG required by applicable requirements of the Public Company Accounting Oversight Board regarding KPMG’s communications with the Audit Committee concerning independence, and has discussed with KPMG its independence from Zhone. In reliance on these reviews and discussions, and the reports of KPMG, the Audit Committee recommended to the Board, and the Board approved, the inclusion of the audited financial statements in Zhone’s annual report on Form 10-K for the year ended December 31, 2014 for filing with the SEC.
Respectfully Submitted by the Audit Committee
Robert Dahl (Chairman)
James Timmins
Nancy Pierce
We have not received notice of other matters that may be properly presented at the annual meeting other than those listed on the Notice of Annual Meeting of Stockholders and discussed above. If other matters should properly come before the meeting, however, the persons named in the accompanying proxy will vote all proxies in their discretion.
Stockholder Proposals for Inclusion in Next Year’sthe Proxy Statement.Statement for the 2017 Annual Meeting. Stockholders of ZhoneDZSI may submit proposals on matters appropriate for stockholder action at meetings of our stockholders in accordance with Rule14a-8 promulgated under the Exchange Act. ToThe Company has tentatively set May 9, 2017 as the date for its 2017 annual meeting of stockholders. The date will be eligible for inclusion insignificantly earlier than the proxy statement relatinganniversary of last year’s annual meeting of stockholders, which was held on September 8, 2016. Because the date of the meeting is expected to ourbe more than 30 days earlier than the anniversary of the Company’s 2016 annual meeting of stockholders, proposals to be included in the Company’s proxy statement for the 2017 annual meeting of stockholders in accordance with Rule14a-8 under the Exchange Act, must be received at ourthe Company’s principal executive offices no later than November 27, 2015 (120the close of business on February 8, 2017 (being 90 calendar days prior to the anniversary of theproposed date of the proxy statement for our 20152017 annual meeting), which the Company believes is a reasonable time before it expects to begin to print and send its proxy materials, and must otherwise satisfy the conditions established by the SEC for stockholder proposals to be included in the proxy statement for that meeting.
Stockholder Proposals for Presentation at Next Year’sthe 2017 Annual Meeting. If a stockholder wishes to present a proposal, including a director nomination, at our 20162017 annual meeting of stockholders and the proposal is not intended to be included in our proxy statement relating to that meeting, the stockholder must give advance notice in writing to our Corporate Secretary prior to the deadline for such meeting determined in accordance with our bylaws. OurAs described above, the Company has tentatively set May 9, 2017 as the date for its 2017 annual meeting of stockholders. The date will be significantly earlier than the anniversary of last year’s annual meeting of stockholders, which was held on September 8, 2016. Because the date of the meeting is expected to be more than 30 days earlier than the anniversary of the Company’s 2016 annual meeting of stockholders, our bylaw notice deadline with respect to the 20162017 annual meeting of stockholders is the close of business on February 5, 2016 (908, 2017 (being 90 calendar days prior to the anniversaryproposed date of our 2015the 2017 annual meeting). If a stockholder gives notice of a proposal outside of the bylaw notice deadline, the stockholder will not be permitted to present the proposal to the stockholders for a vote at our 20162017 annual meeting. However, in the event that the 2016 annual meeting is advanced by more than 30 days or delayed by more than 60 days from the anniversary of the 2015 annual meeting, to be timely, notice by the stockholder must be received by the later of (1) the close of business 90 days prior to the 2016 annual meeting or (2) the 10th day following the day on which public announcement of the date of the 2016 annual meeting is first made. A stockholder’s notice must set forth the information required by our bylaws with respect to each matter the stockholder proposes to bring before the annual meeting.
Matters Presented at the Special Meeting. As of the date of this proxy statement, our Board of Directors does not intend to bring any other business before the special meeting, and does not know of any other matter to be presented at the special meeting. If any additional matters are properly presented at the special meeting, the persons named on the enclosed proxy card will have discretion to vote the shares of common stock they represent in accordance with their own judgment on such matters.
Notices. All notices of proposals by stockholders, whether or not included in our proxy statement, should be delivered to DASAN Zhone Technologies,Solutions, Inc., Attn: Corporate Secretary, 7195 Oakport Street, Oakland, California 94621.
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
DASAN ZHONE SOLUTIONS, INC.
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
DASAN Zhone Solutions, Inc., a corporation duly organized and validly existing under the General Corporation Law of the State of Delaware (the “Corporation”), does hereby certify as follows:
1. The name of the Corporation is DASAN Zhone Solutions, Inc.
2. The Restated Certificate of Incorporation of the Corporation, as amended through September 9, 2016, is hereby amended as follows:
The first sentence of Article IV thereof is amended so that, as amended, such sentence shall read in its entirety as follows:
“The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is[Amendment A: Eighty-Five Million (85,000,000); Amendment B: Seventy Million (70,000,000); Amendment C:Sixty-One Million (61,000,000)]* shares, of which:
[Amendment A: Sixty Million (60,000,000); Amendment B: Forty-Five Million (45,000,000); Amendment C:Thirty-Six Million (36,000,000)]* shares, par value $.001 per share, shall be shares of common stock (the “Common Stock”); and
Twenty-Five Million (25,000,000) shares, par value $.001 per share, shall be shares of preferred stock (the “Preferred Stock”).”
Paragraph A of Article IV thereof is amended so that, as amended, such Paragraph A shall read in its entirety as follows: “(A)Common Stock. Except as (1) otherwise required by law or (2) expressly provided in
| * | Stockholders are being asked to approve a series of three separate and alternative amendments to our Restated Certificate of Incorporation to effect, at the discretion of our Board of Directors, a reverse stock split of our common stock at one of three reverse stock split ratios,1-for-3,1-for-4 or1-for-5, and contemporaneously with such reverse stock split, to effect a corresponding and proportional reduction in the number of authorized shares of DZSI’s common stock. The Certificate of Amendment filed with the Secretary of State of the State of Delaware will include the actual exchange ratio determined by the Company to be in the best interests of DZSI and its stockholders (being either1-for-3,1-for-4 or1-for-5) and a corresponding proportionate reduction in the total number of shares of common stock that DZSI is authorized to issue. The Board of Directors may also elect not to effect the reverse stock split and the associated reduction in our authorized capitalization, in which case this amendment to our Restated Certificate of Incorporation will be abandoned. In accordance with the resolutions to be adopted by the stockholders, we will not implement any amendment providing for an exchange ratio outside the range described in this proxy statement. |
this Restated Certificate of Incorporation (as amended from time to time), each share of Common Stock shall have the same powers, rights and privileges and shall rank equally, share ratably and be identical in all respects as to all matters. Upon the filing and effectiveness of this amendment to the Corporation’s Restated Certificate of Incorporation (the “Effective Time”), each share of Common Stock of the Corporation issued and outstanding or held as treasury shares immediately prior to the Effective Time (the “Old Shares”) shall automatically be reclassified and continued, without any action on the part of the holder thereof, as [Amendment A:one-third (1/3rd); Amendment B:one-fourth (1/4th); Amendment C:one-fifth (1/5th)] of one share of Common Stock (the “Reverse Stock Split”). The Corporation shall not issue fractional shares in connection with the Reverse Stock Split. Holders of Old Shares who would otherwise be entitled to receive a fraction of a share on account of the Reverse Stock Split shall receive, upon surrender of any stock certificates formerly representing the Old Shares, in lieu of such fractional share, an amount in cash equal to the product of (i) the average closing price per share of the Common Stock as reported by the Nasdaq Capital Market for the five (5) trading days immediately preceding the Effective Time, by (ii) the number of Old Shares held by such holder that would otherwise have been exchanged for such fractional share interests.”
3. This Amendment of the Restated Certificate of Incorporation was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. On January 4, 2017, the Board of Directors of the Corporation duly adopted resolutions setting forth the Amendment, declaring its advisability and calling for submission of the Amendment to the stockholders of the Corporation for vote at a special meeting. The stockholders approved the Amendment at the special meeting of stockholders held on , 2017.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by its Chief Financial Officer this day of , 201 .
| DASAN ZHONE SOLUTIONS, INC. | ||
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Kirk Misaka Chief Financial Officer | ||
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IMPORTANT SPECIAL MEETING INFORMATION |
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You can vote by Internet or telephone! Available 24 hours a day, 7 days a week!
Instead of mailing your proxy, you may choose one of the two voting
VALIDATION DETAILS ARE LOCATED BELOW IN
Proxies submitted by the Internet or telephone must be received by | ||||||||
| Vote by Internet
• Log on to the Internet and go to www.envisionreports.com/
• Follow the steps outlined on the secured website. | |||||||||
| Vote by telephone
• Call toll free1-800-652-VOTE (8683) within the USA, US territories & Canada any time on a touch tone telephone.
• Follow the instructions provided by the recorded message. | |||||||||
Using ablack inkpen, mark your votes with anXas shown in this example. Please do not write outside the designated areas. | ||||||||||
Special Meeting Proxy Card
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q IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q
| A | Proposal | |||||||
The | ||||||||
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| 1. | To approve a series of three separate and alternative amendments to DZSI’s Restated Certificate of Incorporation, which would (i) effect a reverse stock split of DZSI’s outstanding common stock at exchange ratios of1-for-3,1-for-4 and1-for-5, as determined by the | ☐ | ☐ | ☐ | ||||
Proposal 2 | ||||||||
The DZSI Board of Directors unanimously recommends that stockholders vote“FOR” Proposal 2. | ||||||||
| FOR | AGAINST | ABSTAIN | ||||||
| 2. To approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve Proposal 1. | ☐ | ☐ | ☐ | |||||
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| C | Authorized Signatures — This section must be completed for your |
Please sign your name(s) EXACTLY as your name(s) appear(s) on this proxy card. If shares are held jointly, each joint holder must sign. When signing as trustee, executor, administrator, guardian, attorney or corporate officer, please print your full title. | ||||||||
| Signature 1 — Please keep signature within the box | Signature 2 (Joint Owner) —Please keep signature within the box | Date (mm/dd/yyyy) — Please print date below. | ||||||||||||||||
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q IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.q
Proxy — DASAN ZHONE TECHNOLOGIES,SOLUTIONS, INC.
ANNUALSPECIAL MEETING OF STOCKHOLDERS
MAY 5, 2015 , 2017
THIS PROXY IS SOLICITED ON BEHALF OF THE ZHONEDZSI BOARD OF DIRECTORS
The undersigned revokes all previous proxies, acknowledges receipt of the notice of annualspecial meeting of stockholders and the accompanying proxy statement, and hereby appoints James Norrod, Il Yung Kim and Kirk Misaka, jointly and severally, with full power of substitution to each, as proxies of the undersigned, to represent the undersigned and to vote all shares of common stock of Zhone Technologies, Inc.DZSI that the undersigned is entitled to vote, either on his or her own behalf or on behalf of an entity or entities, at the annualspecial meeting of stockholders of Zhone Technologies, Inc.DZSI to be held on May 5, 2015, 2017 at 10:00 a.m. Pacific Time at 7195 Oakport Street, Oakland, California 94621, and at any adjournments or postponements thereof, with the same force and effect as the undersigned might or could do if personally present.
THE SHARES REPRESENTED BY THIS PROXY CARD WILL BE VOTED AS INSTRUCTED BY THE STOCKHOLDER. IF NO INSTRUCTIONS ARE SPECIFIED, THE SHARES WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS. IF ANY OTHER BUSINESS IS PROPERLY PRESENTED AT THE ANNUALSPECIAL MEETING, OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF, THIS PROXY CARD WILL CONFER DISCRETIONARY AUTHORITY ON THE INDIVIDUALS NAMED AS PROXIES TO VOTE THE SHARES REPRESENTED BY THE PROXIES IN ACCORDANCE WITH THEIR BEST JUDGMENT.
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting To Be Held on May 5, 2015:, 2017:
Zhone’sDZSI’s proxy statement and annual report are available electronically at the Investor Relations section of Zhone’sDZSI’s website at www.edocumentview.com/zhne.www.Zhone.com.
| SEE REVERSE SIDE | TO BE SIGNED AND DATED ON REVERSE SIDE | SEE REVERSE SIDE |
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q PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q
Proxy — ZHONE TECHNOLOGIES, INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 5, 2015
THIS PROXY IS SOLICITED ON BEHALF OF THE ZHONE BOARD OF DIRECTORS
The undersigned revokes all previous proxies, acknowledges receipt of the notice of annual meeting of stockholders and the accompanying proxy statement, and hereby appoints James Norrod and Kirk Misaka, jointly and severally, with full power of substitution to each, as proxies of the undersigned, to represent the undersigned and to vote all shares of common stock of Zhone Technologies, Inc. that the undersigned is entitled to vote, either on his or her own behalf or on behalf of an entity or entities, at the annual meeting of stockholders of Zhone Technologies, Inc. to be held on May 5, 2015 at 10:00 a.m. Pacific Time at 7195 Oakport Street, Oakland, California 94621, and at any adjournments or postponements thereof, with the same force and effect as the undersigned might or could do if personally present.
THE SHARES REPRESENTED BY THIS PROXY CARD WILL BE VOTED AS INSTRUCTED BY THE STOCKHOLDER. IF NO INSTRUCTIONS ARE SPECIFIED, THE SHARES WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS. IF ANY OTHER BUSINESS IS PROPERLY PRESENTED AT THE ANNUAL MEETING, OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF, THIS PROXY CARD WILL CONFER DISCRETIONARY AUTHORITY ON THE INDIVIDUALS NAMED AS PROXIES TO VOTE THE SHARES REPRESENTED BY THE PROXIES IN ACCORDANCE WITH THEIR BEST JUDGMENT.
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting To Be Held on May 5, 2015:
Zhone’s proxy statement and annual report are available electronically at the Investor Relations section of Zhone’s website at www.edocumentview.com/zhne.
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