Exhibit (a)(9)
ANNEX II
PACKETEER, INC.
10201 North De Anza Boulevard
Cupertino, CA 95014
(408) 873-4400
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 ANDRULE 14f-1 THEREUNDER
This Information Statement is being mailed on or about April 30, 2008 as part of the Solicitation/ Recommendation Statement onSchedule 14D-9 (the “Statement”), of Packeteer, Inc., a Delaware corporation (“Packeteer” or the “Company”). You are receiving this Information Statement in connection with the possible election of persons designated by Cooper Acquisition, Inc., a Delaware corporation (“Purchaser”) and a wholly owned subsidiary of Blue Coat Systems, Inc., a Delaware corporation (“Blue Coat”), to a majority of seats on the Board of Directors of Packeteer (the “Packeteer Board” or “Packeteer’s Board of Directors”). On April 20, 2008, Packeteer entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Blue Coat and Purchaser, pursuant to which Purchaser agreed to commence a tender offer to purchase all of the outstanding shares of common stock, par value $0.001 per share (“Packeteer Common Stock”), of Packeteer (the “Shares”) at a price of $7.10 per Share, net to seller in cash, without interest thereon (the “Offer Price”), subject to withholding of any applicable taxes, upon the terms and subject to the conditions set forth in Purchaser’s Offer to Purchase, dated April 30, 2008 (the “Offer to Purchase”), and in the related Letter of Transmittal (which, together with any amendments or supplements to the Offer to Purchase and the Letter of Transmittal, collectively constitute the “Offer”). Copies of the Offer to Purchase and the Letter of Transmittal have been mailed to stockholders of Packeteer and are filed as Exhibits (a)(1)(A) and (a)(1)(B), respectively, to the Tender Offer Statement on Schedule TO (as amended from time to time, the “Schedule TO”) filed by Blue Coat and Purchaser with the Securities and Exchange Commission (the “Commission”) on April 30, 2008. The Merger Agreement provides that, subject to the satisfaction or waiver of certain conditions, following completion of the Offer, and in accordance with Delaware General Corporation Law (the “DGCL”), Purchaser will be merged with and into Packeteer (the “Merger”). Following consummation of the Merger, Packeteer will continue as the surviving corporation and will be a wholly owned subsidiary of Blue Coat. At the effective time of the Merger (the “Effective Time”), each issued and outstanding Share (other than Shares owned by Blue Coat, any of its subsidiaries (including Purchaser), Packeteer or any of its subsidiaries, and Shares held by stockholders of Packeteer who properly demand appraisal and comply with the provisions of Section 262 of the DGCL relating to dissenters’ rights of appraisal) will be converted into the right to receive an amount of cash equal to the Offer Price (the “Merger Consideration”), subject to withholding of any applicable taxes.
The Offer, the Merger and the Merger Agreement are more fully described in the Statement to which this Information Statement forms Annex II, which was filed by Packeteer with the Commission on April 30, 2008 and which is being mailed to stockholders of Packeteer along with this Information Statement.
This Information Statement is being mailed to you in accordance with Section 14(f) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), andRule 14f-1 promulgated thereunder. The information set forth in this Information Statement supplements certain information set forth in the Statement. Information set forth in this Information Statement related to Blue Coat, Purchaser or Purchaser’s Designees (as defined below) has been provided to Packeteer by Blue Coat, and Packeteer assumes no responsibility for the accuracy or completeness of such information. You are urged to read this Information Statement carefully. You are not, however, required to take any action in connection with the matters set forth in this Information Statement.
Purchaser will commence the Offer on May 1, 2008. The Offer is currently scheduled to expire at 12:00 midnight, New York City time, at the end of May 30, 2008, unless Purchaser extends it.
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GENERAL
Packeteer Common Stock is the only class of equity securities of Packeteer outstanding that is entitled to vote at a meeting of the stockholders of Packeteer. Each Share is entitled to one vote. As of March 31, 2008, there were 36,476,323 outstanding Shares, of which Purchaser owns 3,559,117 shares.
RIGHT TO DESIGNATE DIRECTORS AND MERGER SUB’S DESIGNEES
The Merger Agreement provides that, promptly upon the acceptance of any Shares for payment by Blue Coat or Purchaser or any of their affiliates pursuant to the Offer (the “Appointment Time”), and from time to time thereafter, Purchaser is entitled to designate such number of directors (“Purchaser’s Designees”), rounded up to the next whole number, on the Packeteer Board as is equal to the product of the total number of directors on the Packeteer Board (after giving effect to directors elected or designated by Purchaser pursuant to such provisions) multiplied by the percentage that the aggregate number of Shares beneficially owned by Blue Coat, Purchaser and any of their affiliates bears to the total number of Shares then outstanding.
The Merger Agreement provides that Packeteer will, upon any exercise of such rights by Purchaser, take all such actions as are necessary or desirable to, upon Purchaser’s request, promptly, either increase the size of the Packeteer Board or secure the resignations of such number of directors as is necessary to enable Purchaser’s Designees to be so elected and to cause Purchaser’s Designees to be so elected. The Merger Agreement also provides that Packeteer will take all such actions as are necessary or desirable to cause Purchaser’s Designees to constitute a majority of each committee of the Packeteer Board, other than any committee of the Packeteer Board established to take action under the Merger Agreement.
Notwithstanding the foregoing, in the event that Purchaser’s Designees are elected or designated to the Packeteer Board, then, until the Effective Time, the Merger Agreement provides that the parties shall cause the Packeteer Board to have at least two members who were directors on the date of the Merger Agreement. Moreover, until the Effective Time, Packeteer will remain subject to the listing requirements of the Nasdaq Stock Market, which among other things, require that a majority of the members of a listed company’s board be independent directors.
Purchaser has informed the Company that it will select Purchaser’s Designees from among the directors and executive officers of Blue Coat or Purchaser listed in Schedule I to this Statement. Purchaser has informed Packeteer that, as of the date of this Statement, each of the following persons listed in Schedule I has consented to serve as a director of Packeteer if appointed or elected: Brian M. NeSmith, David W. Hanna, James A. Barth, Keith Geeslin and Timothy A. Howes. The address and biographical information of each individual set forth in Schedule I to this Statement is incorporated herein by reference. It is expected that Purchaser’s Designees may assume office following consummation of the Offer, which cannot be earlier than May 30, 2008.
CURRENT DIRECTORS AND EXECUTIVE OFFICERS
The following information concerning the current directors and executive officers of Packeteer is as of April 30, 2008.
Steven J. Campbell,66, has served as Chairman of the Board of Directors since our inception in January 1996 and served as our Chief Executive Officer from January 1996 through April 1996. Mr. Campbell was a founder of StrataCom, Inc., a network switching equipment company which was acquired by Cisco Systems in July 1992. At StrataCom, Mr. Campbell was employed from January 1986 to June 1986 as Chief Executive Officer, and then from June 1986 to 1990 as Vice President of Engineering and Operations. He headed the PBX development at Rolm Communications, Inc., a telecommunications company, from 1978 through 1983 and held various positions at Intel Corporation from 1972 through 1978. Mr. Campbell holds a B.S. in electrical engineering from Oregon State University and an M.S. in electrical engineering from Santa Clara University.
Dave Côté, 53, has served as our President, Chief Executive Officer and director since October 2002. His term as a director will expire at the 2010 Annual Meeting of Shareholders. From April 1997 to October 2002, Mr. Côté served as Vice President of Worldwide Marketing and Communication ASSPs (Application-Specific Standard
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Products) for Integrated Device Technology, Inc., a semiconductor company. From January 1995 to November 1996, Mr. Côté served as Vice President of Marketing and Customer Support for ZeitNet Inc., which was acquired by Cabletron in 1996. From 1979 to 1995, he served in various marketing and sales positions, most recently as Director of Marketing at SynOptics, Inc. (now Nortel Networks). Mr. Côté holds a B.S. from the University of California at Davis and an M.B.A. from California State University at Sacramento.
Craig W. Elliott, 47, has served as a director since April 1996. From April 1996 until his retirement in May 2002, Mr. Elliott served as President and Chief Executive Officer of Packeteer. Prior to joining Packeteer, Mr. Elliott served as International General Manager of Apple, Inc.’s Online Internet Division from January 1991 to March 1996. From November 1987 to May 1990, Mr. Elliott served as Apple’s Product Business Manager in charge of Networking and Communication Products. Mr. Elliott holds a B.S. from Iowa State University.
Joseph A. Graziano, 64, has served as a director since February 1996. From June 1989 to December 1995, Mr. Graziano was Executive Vice President and Chief Financial Officer of Apple, Inc. and served as a director of Apple from June 1993 until October 1995. From May 1987 to June 1989, Mr. Graziano served as Chief Financial Officer of Sun Microsystems, Inc. From October 1981 to May 1985, he was Chief Financial Officer of Apple Computer, Inc. Mr. Graziano holds a B.S. in accounting, received an honorary doctorate of business from Merrimack College and is a certified public accountant.
L. William Krause, 65, has served as a director since March 2001. Mr. Krause has been President of LWK Ventures, a private investment firm, since 1991. In addition, Mr. Krause served as Chairman of the Board of Caspian Networks, Inc., an IP networking systems provider, from April 2002 to September 2006 and as CEO from April 2002 until June 2004. From September 2001 to February 2002, Mr. Krause was Chairman and Chief Executive Officer of Exodus Communications, Inc., which he guided through Chapter 11 Bankruptcy to a sale of assets. He also served as President and Chief Executive Officer of 3Com Corporation, a global data networking company, from 1981 to 1990, and as its Chairman from 1987 to 1993 when he retired. Mr. Krause currently serves as a director of Brocade Communication Systems, Inc., Core-Mark Holding, Inc., Sybase, Inc., and Trizetto Group, Inc. Mr. Krause holds a B.S. in electrical engineering and received an honorary doctorate of science from The Citadel.
Bernard F. (Bud) Mathaisel, 63, has served as a director since December 2004. Since June 2007, Mr. Mathaisel has been Senior Vice President and Chief Information Officer at Achievo Corporation. From August 1999 through September 2006, Mr. Mathaisel was Chief Information Officer of Solectron Corporation where he also held the title of Corporate Vice President from 1999 to 2004 and Senior Vice President from 2004 to 2006. Prior to joining Solectron, Mr. Mathaisel served as CIO of Ford Motor Company. Prior to Ford, Mr. Mathaisel was a national partner at Ernst & Young LLP where he founded and directed their Center for Business Innovation. Mr. Mathaisel has also held executive positions at Walt Disney Company and Temple, Barker and Sloane, Inc. Mr. Mathaisel holds a B.S. in aeronautics and astronautics and an M.S. in operations research from Massachusetts Institute of Technology.
Gregory E. Myers, 57, has served as a director since July 2006. From January 1999 to December 2005, Mr. Myers served as Vice President of Finance and Chief Financial Officer of Symantec Corporation, a provider of Internet security technology. Prior to his role as Symantec’s Chief Financial Officer, Mr. Myers served Symantec in various senior finance positions, beginning in September 1993. Since November 2007, Mr. Myers has also served on the Board of Directors of Altera Corporation. Mr. Myers served as a member of Maxtor Corporation’s Board of Directors from August 2003 until its sale to Seagate Technology in May 2006. He also served on the Board of Directors of Inktomi Corporation, an Internet software company, before it was acquired by Yahoo! Inc. in March 2003. Currently, Mr. Myers is a private investor. Mr. Myers holds a B.S. degree from Cal-State University, Hayward and holds an M.B.A. from Santa Clara University.
Peter Van Camp, 52, has served as a director since May 2001. Mr. Van Camp serves as the Executive Chairman of Equinix, Inc., an Internet infrastructure services company, where he also served as Chief Executive Officer from May 2000 through April 2007. Prior to joining Equinix in May 2000, he served as President, Americas Region forUUNet, an Internet services company and a division of WorldCom, Inc., beginning in January 1997. From October 1982 until January 1997, Mr. Van Camp served as Vice President of Sales and subsequently President of CompuServe Network Services, the corporate data networking division of CompuServe, Inc., a network services company. Mr. Van Camp holds a B.S. in accounting with a concentration in computer science from Boston College.
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Manuel R. Freitas, 59, has served as our Vice President, Operations and Customer Support since May 2000. Mr. Freitas served as an independent operations management consultant from April 1999 until November 1999 and then again from February 2000 through May 2000. From November 1999 to February 2000, he served as Vice President of Customer Operations for Vividence Corporation, an Internet services company. From February 1990 to March 1999, Mr. Freitas served in various positions at Adobe Systems, Inc., including Vice President of Worldwide Customer Operations from October 1995 to March 1999, interim Vice President of Sales and Support for the Americas from April 1998 to November 1998 and Director of OEM and Developer Support from February 1990 to September 1995. Prior to joining Adobe, Mr. Freitas served in product management, field operations management, and sales management positions at Schlumberger Technologies from 1980 to 1989. Mr. Freitas holds a B.A. in business administration from William Patterson College.
Nelu Mihai, 52, has served as our Vice President, Engineering since January 2006. Mr. Mihai served as Senior Vice President of Engineering and Operations at Cloudshield Technologies, a provider of servers for network traffic inspection, from April 2003 to March 2004. From April 2004 to January 2006, Mr. Mihai was a consultant for early stage private software, telecom, security and network semiconductor companies. In 2002, he co-founded SLA partners, an international consulting firm. From December 1999 to December 2001 he served as Chief Executive Officer and Chief Operating Officer of CPlane Inc, a telecommunication software company. Prior to 1999, he worked for six years at Bell Labs and AT&T, his last position there being Division Manager. Before 1994, he served in different positions at various Silicon Valley startup companies specializing in real time operating systems and at nuclear research institutes in Western Europe. Mr. Mihai holds a M.S. in computer engineering from Polytechnic University of Bucharest and a Ph.D in computer science from the Institute of Atomic Physics, Bucharest, with the doctorate work done at CERN Geneva, Switzerland.
Greg Pappas, 45, has served as our Vice President of Human Resources since November 2005. From July 2004 through October 2005, Mr. Pappas served as Vice President of Human Resources of Extended Systems, Inc., a mobility software company. From June 2000 through July 2004, Mr. Pappas served as Vice President of Human Resources for GlobalEnglish Corporation, an Internete-learning company. Prior to joining GlobalEnglish, from November 1998 through June 2000 Mr. Pappas served as Vice President of Human Resources for Inference Corporation, a knowledge management software company acquired byE-Gain Corporation. Mr. Pappas holds a B.S. in human resource administration from Kennedy-Western University.
Ray Smets, 44, has served as our Vice President of Worldwide Sales and Marketing since September 2007. From February 2007 to September 2007, Mr. Smets served as Vice President of Marketing for the Broadband Solutions Group within Motorola’s Connected Home Solutions business. Mr. Smets joined Motorola through the acquisition of Netopia, Inc., a software company, in February of 2007. At Netopia, Mr. Smets was the Senior Vice President of Sales and Marketing. Prior to joining Netopia in January 2006, Mr. Smets served from October 2002 to August 2004 as President of the Network General, Inc. subsidiary of McAfee Security, Inc., a security software company, and as a consultant for McAfee from August 2004 until December 2005. Before joining McAfee, Mr. Smets served for over 15 years in executive roles at BellSouth Corporation, including as President of BellSouth.net Inc. and Vice President of Network Transformation of BellSouth’s Telecommunications Group. Mr. Smets holds a B.S. in computer engineering from the University of Florida and an M.B.A. from Nova-Southeastern University.
David A. Winikoff, 50,has served as our Vice President of Product Management since June 2007. From March 2004 until June 2007, Mr. Winikoff was Vice President, Product Management of Siemens Enterprise Communications, Inc., the unified communications business unit of Siemens USA. Prior to holding that position, Mr. Winikoff worked in a variety of capacities within certain of Siemens AG’s various corporate affiliates, including as Director, Applications Product Management from June 2003 to March 2004; Director, Voice-over IP Platform Product Management from March 2002 to June 2003; Director, Messaging/Mobility Product Management from September 1999 to March 2002, Group Manager, Industry from January 1998 to January 1999 and Group Product Manager for Hicom from October 1991 to January 1998. Mr. Winikoff joined Siemens Enterprise Networks in May 1992 through its acquisition of ROLM Company, a joint venture of Siemens and IBM, where he served as Product Manager from 1990 to 1991. Prior to that, Mr. Winikoff was Manager, Marketing Education at IBM Corporation from 1986 to 1990, Senior Software Engineer at Teledex Corporation from 1984 to 1985 and a Product Development Engineer at ROLM Corporation from 1979 to 1984. He holds a B.S. in computer science and engineering from the Massachusetts Institute of Technology and an MBA in international marketing from Santa Clara University.
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David C. Yntema, 63, has served as our Chief Financial Officer and Secretary since January 1999. From May 1994 through August 1998, Mr. Yntema served as Chief Financial Officer and Vice President, Finance and Administration of VIVUS, Inc., a pharmaceutical company. Prior to joining VIVUS, Mr. Yntema served as Chief Financial Officer for EO, Inc., a handheld computer company; MasPar Computer Corporation, a massively parallel computer company; and System Industries, a storage subsystem company; and has held a variety of other financial and general management positions. Mr. Yntema holds a B.A. in economics and business administration from Hope College and an M.B.A. from the University of Michigan and is a certified public accountant.
There are no family relationships among any of our directors or executive officers.
CORPORATE GOVERNANCE
Director Independence
The Board of Directors has determined that, other than Mr. Côté, our current President and Chief Executive Officer, each of the members of the Board of Directors is an independent director for purposes of applicable Nasdaq rules.
The Board of Directors has an Audit Committee, a Compensation Committee and a Corporate Governance and Nominating Committee. Our Board of Directors has determined that each member of the Audit Committee satisfies the additional independence requirements for audit committee members set forth in applicable Nasdaq Marketplace and SEC rules. Our Board of Directors has also determined that each member of the Compensation Committee satisfies the additional independence requirements for our Compensation Committee members set forth in the charter of the Compensation Committee posted on our website athttp://www.packeteer.com/company/investors/corpgov.cfm.
Director Attendance at Meetings
The Board of Directors held fourteen meetings during 2007. Each of the standing committees of the Board of Directors held the number of meetings indicated below. Each of our directors attended at least 75% of the total number of meetings of the Board of Directors and all of the committees of the Board of Directors on which such director served during 2007.
The following table sets forth the members of each of the standing committees during 2007 and the number of meetings held by each such committee:
Committees of the Board of Directors
Nominating | ||||||
and Corporate | ||||||
Name of Director | Audit | Compensation | Governance | |||
Dave Côté | ||||||
Steven J. Campbell | Member | |||||
Craig W. Elliott | Member (1) | |||||
Joseph A. Graziano | Chairman and Financial Expert | Member | ||||
L. William Krause | Chairman | Chairman | ||||
Bernard F. (Bud) Mathaisel | Member | |||||
Gregory E. Myers | Member | |||||
Peter Van Camp | Member | |||||
Number of Meetings: | 5 | 13 | 3 |
(1) | Mr. Elliott resigned as a member of the Compensation Committee on January 4, 2007 and rejoined the Compensation Committee on October 18, 2007. |
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Director Attendance at Annual Meetings of Stockholders
We make every effort to schedule our annual meeting of stockholders at a time and date to maximize attendance by our directors taking into account their schedules. All of our directors are expected to make every effort to attend our annual meeting of stockholders absent an unavoidable and irreconcilable conflict. Messrs. Côté, Elliott, and Van Camp were present at our 2007 annual meeting of stockholders and Messrs. Krause, Mathaisel, Myers, and Graziano participated by conference telephone.
Board Committees
Audit Committee. The Audit Committee functions under a charter that is available on our website at:http://www.packeteer.com/company/investors/corpgov.cfm.The primary functions of the Audit Committee include: (i) overseeing our accounting and financial reporting processes and the audits of our financial statements, including monitoring the adequacy of our system of financial reporting and internal accounting controls and procedures; (ii) reviewing the qualifications, independence and performance, and approving the terms of engagement, of our independent registered public accounting firm; (iii) reviewing and pre-approving any audit and permissible non-audit services that may be performed by our independent registered public accounting firm; (iv) reviewing and approving any related party transactions; (v) reviewing with our management and the independent registered public accounting firm our interim and year-end operating results; (vi) reviewing our critical accounting policies and the application of accounting principles; and (vii) preparing any reports required under SEC rules.
The Board of Directors has determined that all of the members of the Audit Committee possess the level of financial literacy required by applicable Nasdaq Marketplace and SEC rules and that Mr. Graziano is an audit committee financial expert as defined by SEC rules. In addition, each of the members of the Audit Committee, including Mr. Graziano, satisfies the independence requirements for audit committee members set forth in applicable Nasdaq Marketplace and SEC rules.
Additional information regarding the Audit Committee is set forth in the Report of the Audit Committee below.
Compensation Committee. The Compensation Committee functions under a charter that is available on our website at:http://www.packeteer.com/company/investors/corpgov.cfm.The purpose of the Compensation Committee is to assist the Board of Directors in carrying out its responsibilities with respect to: (i) reviewing and approving the compensation of our executive officers, including the Chief Executive Officer; (ii) reviewing director compensation; (iii) administering our equity incentive plans; and (iv) preparing any reports required under SEC rules.
More specifically, the Compensation Committee’s scope and authority with respect to executive officer compensation include: (i) review and approval of all compensation for the Chief Executive Officer, including incentive compensation, in consultation with the Board of Directors; (ii) review and approval of annual performance goals and objectives relevant to Chief Executive Officer compensation and review of his performance in light of these goals and objectives; (iii) the making of recommendations to the Board of Directors regarding incentive-based and equity-based compensation plans in which executive officers participate; (iv) review and approval of salaries, incentive-based awards and equity-based awards for our executive officers; (v) oversight of the evaluation of management; (vi) administration of our incentive-based or equity-based compensation plans consistent with the provisions of such plans; (vii) approval of all employment, severance or change in control agreements, or other supplemental benefits applicable to executive officers; (viii) periodic review of and rendering of advice to the Board of Directors concerning regional and industry-wide compensation practices and trends to assess the adequacy and competitiveness of our director and executive officer compensation; and (ix) periodic review of changes to director compensation and recommendation of such changes to the Board of Directors. The Compensation Committee charter provides for delegation of any of our Compensation Committee’s duties or responsibilities to subcommittees or to one member of the committee.
When considering and determining the compensation paid to our executive officers, the Compensation Committee typically begins its annual process in the fall and finalizes new compensation arrangements in January of the following year. The Compensation Committee typically meets at regular and special meetings with our Vice
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President of Human Resources, a representative of the Compensation Committee’s compensation consultant and outside legal counsel. During a portion of each meeting, the Compensation Committee meets in executive session.
In making its decisions regarding executive compensation, the Compensation Committee seeks input and specific recommendations from our Chief Executive Officer regarding the performance and compensation for executive officers other than the Chief Executive Officer. The Vice President of Human Resources may also recommend equity plan guidelines for all employees, compensation adjustments, plan design or policy changes and provide other information, as necessary, to the Compensation Committee.
The Compensation Committee engaged Compensia, an independent management compensation consulting firm, in June 2006 to assist with the development of our executive compensation programs, Board of Director compensation and employee equity compensation. In connection with the development of the 2007 executive compensation program, Compensia reviewed, analyzed and presented to the Compensation Committee competitive market data and alternative compensation strategies. Compensia has continued to assist with respect to our 2008 program.
Compensia generally attends meetings of the Compensation Committee and also communicates with the Compensation Committee outside of meetings. Compensia reports to the Compensation Committee rather than to management, although Compensia may meet with management from time to time for purposes of gathering information that management may provide to the Compensation Committee. Currently, Compensia does not provide any other services to Packeteer and receives compensation only with respect to the services provided to the Compensation Committee. The Compensation Committee has authority under its charter to retain, approve fees for and terminate advisors, consultants and agents as it deems necessary to assist in the fulfillment of its responsibilities.
Our Board of Directors has determined that each current member of the Compensation Committee satisfies the additional independence requirements for our Compensation Committee members set forth in the charter of the Compensation Committee. On January 24, 2007, the Board of Directors approved revisions to the charter setting forth new independence standards for Compensation Committee members. In anticipation of these changes, Mr. Elliott, a member of the Compensation Committee during 2006, resigned on January 4, 2007. Mr. Elliott rejoined the Compensation Committee during October 2007, consistent with the new independence standards for Compensation Committee members.
For more information on our Compensation Committee and its philosophy, please refer to the section entitled “Compensation Discussion and Analysis.” The Report of the Compensation Committee is included immediately following the Compensation Discussion and Analysis.
Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee functions under a charter that is available on our website at:http://www.packeteer.com/company/investors/corpgov.cfm.The primary functions of the Corporate Governance and Nominating Committee include: (i) identifying and selecting or recommending director nominees for each election of directors; (ii) developing and recommending to the Board of Directors criteria for selecting qualified director candidates; (iii) considering committee member qualifications, appointment and removal, (iv) recommending codes of conduct and compliance mechanisms applicable to Packeteer; and (v) providing oversight in the evaluation of the Board of Directors and each committee.
Director Nominations
When considering the nomination of directors for election at an annual meeting, the Corporate Governance and Nominating Committee reviews annually the results of an evaluation performed by the Board of Directors, and the needs of the Board of Directors for various skills, experience or other characteristics. The Corporate Governance and Nominating Committee’s assessment of the Board of Directors’ needs includes issues of diversity, age, skills such as an understanding of technology, finance, marketing, manufacturing and international business, and expected contributions to the Board of Directors.
When reviewing a potential candidate for nomination as director, including an incumbent who intends to stand for re-election, the Corporate Governance and Nominating Committee considers the perceived needs of the Board of Directors, the candidate’s relevant background, experience, skills and expected contributions, and the qualification standards established from time to time by the Corporate Governance and Nominating Committee. With
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respect to such standards, it is the Corporate Governance and Nominating Committee’s goal to assemble a Board of Directors that has a diversity of experience at policy-making levels in business, government, education and technology, and in areas that are relevant to our global activities. In addition, the Corporate Governance and Nominating Committee believes that members of the Board of Directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of our stockholders. They must have an inquisitive and objective perspective and mature judgment. They must also have experience in positions with a high degree of responsibility and be leaders in the companies or institutions with which they are affiliated. In addition to the benefits of diverse viewpoints, the Corporate Governance and Nominating Committee may also take into account the benefits of a constructive working relationship among directors. Members of the Board of Directors are expected to rigorously prepare for, attend, and participate in all Board of Directors and applicable committee meetings. Other than the foregoing, there are no stated criteria for director nominees, although the Corporate Governance and Nominating Committee may also consider such other factors as it may deem, from time to time, are in the best interests of Packeteer and our stockholders.
The Corporate Governance and Nominating Committee considers candidates for directors proposed by directors, management or stockholders, and evaluates any such candidates against the criteria and pursuant to the policies and procedures set forth above. If the Corporate Governance and Nominating Committee believes that the Board of Directors requires additional candidates for nomination, it engages, as appropriate, a third party search firm to assist in identifying qualified candidates. As part of the nominating process, all incumbent directors and non-incumbent nominees are required to submit a completed form of directors’ and officers’ questionnaire and all incumbent directors may be required to participate in a self-assessment process. The nomination process may also include interviews and additional background and reference checks for non-incumbent nominees, at the discretion of the Corporate Governance and Nominating Committee.
In addition, stockholders may recommend or nominate directors for election at an annual meeting, provided the advance notice requirements set forth in our Bylaws have been met. Candidates recommended by stockholders will be evaluated against the same criteria and pursuant to the same policies and procedures applicable to the evaluation of candidates proposed by directors or management.
Communications with Directors
Any stockholder who wishes to contact our Chairman of the Board of Directors or any of the other members of the Board of Directors may do so in writing by mail to: Chairman of the Board of Directors,c/o Corporate Secretary, Packeteer, Inc., 10201 North De Anza Boulevard, Cupertino, California 95014; or by email to our Corporate Secretary:dyntema@packeteer.com. The Corporate Secretary shall maintain a log of such communications and transmit as soon as practicable such communications to the identified director addressee(s), unless there are safety or security concerns that mitigate against further transmission of the communication, as determined by the Corporate Secretary in consultation with our corporate counsel. The Board of Directors or individual directors so addressed shall be advised of any communication withheld for safety or security reasons as soon as practicable.
Code of Business Conduct and Ethics
The Board of Directors has adopted a Code of Business Conduct and Ethics, which outlines the principles of legal and ethical business conduct under which we do business. The Code of Business Conduct and Ethics is applicable to all of our directors, officers and employees. The Code is available athttp://www.packeteer.com/company/investors/corpgov.cfm.Any substantive amendment or waiver of the Code relating to executive officers or directors will be made only after approval by a committee comprised of a majority of our independent directors and will be promptly disclosed on our website within four business days.
Corporate Governance Principles
In July 2006, we adopted Corporate Governance Principles that address the role of the Board of Directors, composition of the Board of Directors, criteria for Board of Directors membership, the policy for Director stock ownership, and other Board of Directors governance matters. These principles are available on our website athttp://www.packeteer.com/company/investors/corpgov.cfm.
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Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee for 2007 were Messrs. Krause (Chairman), Van Camp and Elliott. Except for Mr. Elliot, who served as President and Chief Executive Officer of Packeteer from April 1996 until his retirement in May 2002, none of the members of the Compensation Committee have ever been employees or officers of Packeteer.
During 2007, no member of the Compensation Committee had any relationship with us requiring disclosure under Item 404 ofRegulation S-K and none of our executive officers served on the compensation committee (or its equivalent) or board of directors of another entity any of whose executive officers served on our Compensation Committee or Board of Directors.
For information on the compensation paid to the members of the Board of Directors, please see the section entitled “Compensation of Directors” below.
Compensation of Directors
The following table sets forth information concerning the compensation earned during 2007 by each person who served as a director during 2007:
Fees Earned | ||||||||||||
or Paid in | Option Awards | |||||||||||
Cash(2) | (3)(4)(5) | Total | ||||||||||
Name(1) | ($) | ($) | ($) | |||||||||
Steven J. Campbell | 32,000 | 90,764 | 122,764 | |||||||||
Craig W. Elliott | 24,000 | 90,764 | 114,764 | |||||||||
Joseph A. Graziano | 46,000 | 90,764 | 136,764 | |||||||||
L. William Krause | 44,000 | 90,764 | 134,764 | |||||||||
Bernard F. (Bud) Mathaisel | 32,000 | 113,453 | 145,453 | |||||||||
Gregory E. Myers | 32,000 | 108,142 | 140,142 | |||||||||
Peter Van Camp | 28,000 | 90,764 | 118,764 |
(1) | See the Summary Compensation Table for disclosure related to Dave Côté, who is also our Chief Executive Officer and President. Mr. Côté is our only employee director and does not receive any additional compensation for his services as a member of our Board of Directors. | |
(2) | See narrative below for a description of our standard cash compensation arrangements for directors in 2007. | |
(3) | See narrative below for a description of our standard equity compensation arrangements for directors in 2007. | |
No initial option grants were awarded in 2007. Each annual option granted in 2007 under the Automatic Option Grant Program then in effect had an exercise price per share equal to the closing price per share on the Nasdaq Global Select Market on the grant date, and has a maximum term of ten years, subject to earlier termination should the optionee cease to serve as a member of the Board of Directors. Each annual option granted to a non-employee director in 2007 under the Automatic Option Grant Program then in effect was immediately exercisable for all the shares subject to the option, but any shares purchased under the option are subject to repurchase by us, at the exercise price paid per share, upon the optionee’s cessation of service on the Board of Directors prior to vesting in those shares. The shares subject to each annual option granted will vest in a series of two equal annual installments upon the optionee’s completion of each year of service as a member of the Board of Directors over the two-year period measured from the option grant date. The shares subject to each annual option granted in 2007 to a non-employee director under the Automatic Option Grant Program then in effect will immediately vest in full upon a change in control or ownership as described in the 1999 Plan or upon the optionee’s death or disability while a member of the Board of Directors. | ||
(4) | Dollar amount of compensation expense related to stock options recognized for financial statement reporting purposes in accordance with FAS 123(R). The assumptions used in the calculation of this amount are included in Note 7 to our Consolidated Financial Statements included in our Annual Report onForm 10-K for the year ended December 31, 2007. |
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(5) | For each non-employee member of our Board of Directors, below is the aggregate grant date fair value of each option award granted to each non-employee member of our Board of Directors in 2007 computed in accordance with FAS 123(R) and the aggregate number of option awards outstanding on December 31, 2007. Assumptions used in the calculation of the grant date fair value are included in Note 7 to our Consolidated Financial Statements included in our Annual Report onForm 10-K for the year ended December 31, 2007. |
Option Awards | Aggregate Grant | Option Awards | ||||||||||
Granted in 2007 | Date Fair Value | Outstanding | ||||||||||
Name | (#) | ($) | (#) | |||||||||
Steven J. Campbell | 15,000 | 89,333 | 101,000 | |||||||||
Craig W. Elliott | 15,000 | 89,333 | 475,000 | |||||||||
Joseph A. Graziano | 15,000 | 89,333 | 101,000 | |||||||||
L. William Krause | 15,000 | 89,333 | 94,500 | |||||||||
Bernard F. (Bud) Mathaisel | 15,000 | 89,333 | 75,000 | |||||||||
Gregory E. Myers | 15,000 | 89,333 | 45,000 | |||||||||
Peter Van Camp | 15,000 | 89,333 | 110,000 |
Director Compensation Policy
2007 Cash and Equity Compensation
For 2007, each non-employee member of the Board of Directors was eligible to receive cash compensation in 2007 as follows:
• | an annual retainer of $20,000, payable at the rate of $5,000 per quarter; | |
• | for each member of the Audit Committee, an additional annual retainer of $12,000, payable at the rate of $3,000 per quarter; for each member of the Compensation Committee, an additional annual retainer of $8,000, payable at the rate of $2,000 per quarter; and for each member of the Corporate Governance and Nominating Committee, an annual retainer of $6,000, payable at the rate of $1,500 per quarter; and | |
• | for the chair of the Audit Committee, an additional annual retainer of $8,000, payable at the rate of $2,000 per quarter; for the chair of the Compensation Committee, an additional annual retainer of $6,000, payable at the rate of $1,500 per quarter; and for the chair of the Corporate Governance and Nominating Committee, an annual retainer of $4,000, payable at the rate of $1,000 per quarter. |
Under the Automatic Option Grant Program for non-employee directors in effect in 2007 under the 1999 Plan, our non-employee directors were eligible to receive option grants in 2007 as follows:
• | for each individual who first joined the Board of Directors as a non-employee director, an automatic grant, at the time of such initial election or appointment, of an initial option to purchase 30,000 shares of our Common Stock, provided such person was not previously in our employ; and | |
• | for each incumbent who was to continue to serve as a non-employee director after the date of the annual stockholders meeting, whether or not such individual was standing for re-election at that annual meeting, an automatic grant, on the date of that annual meeting, of an option to purchase 15,000 shares of our Common Stock. |
No initial option grants were awarded in 2007. Each annual option granted in 2007 under the Automatic Option Grant Program then in effect has an exercise price per share equal to the closing price per share on the Nasdaq Global Select Market on the grant date, and has a maximum term of ten years, subject to earlier termination should the optionee cease to serve as a member of the Board of Directors. Each annual option granted to a non-employee director in 2007 under the Automatic Option Grant Program then in effect is immediately exercisable for all the shares subject to the option, but any shares purchased under the option are subject to repurchase by us, at the exercise price paid per share, upon the optionee’s cessation of service on the Board of Directors prior to vesting in those shares. The shares subject to each annual option granted in 2007 will vest in a series of two equal annual installments upon the optionee’s completion of each year of service as a member of the Board of Directors over the two-year period measured from the option grant date. The shares subject to each annual option granted in 2007 will
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immediately vest in full upon a change in control or ownership as described in the 1999 Plan or upon the optionee’s death or disability while a member of the Board of Directors.
2008 Cash and Equity Compensation
Beginning in 2008, each non-employee member of the Board of Directors will be eligible to receive cash compensation in a year as follows:
• | an annual retainer of $35,000, payable at the rate of $8,750 per quarter; | |
• | for each member of the Audit Committee, an additional annual retainer of $12,000, payable at the rate of $3,000 per quarter; for each member of the Compensation Committee, an additional annual retainer of $8,000, payable at the rate of $2,000 per quarter; and for each member of the Corporate Governance and Nominating Committee, an annual retainer of $6,000, payable at the rate of $1,500 per quarter; and | |
• | for the non-employee chair of the Board of Directors, an additional annual retainer of $10,000, payable at the rate of $2,500 per quarter; for the chair of the Audit Committee, an additional annual retainer of $20,000, payable at the rate of $5,000 per quarter; for the chair of the Compensation Committee, an additional annual retainer of $14,000, payable at the rate of $3,500 per quarter; and for the chair of the Corporate Governance and Nominating Committee, an annual retainer of $10,000, payable at the rate of $2,500 per quarter. |
Under the Non-Employee Director Grant Program for non-employee directors under the 1999 Plan (which beginning in 2008 fully replaced the Automatic Option Grant Program that was in effect in 2007), our non-employee directors will be eligible to receive equity awards in a year as follows:
• | for each individual who first joins the Board of Directors as a non-employee director, an automatic grant, on the date of such initial election or appointment, of a restricted stock unit award for 16,500 shares of our Common Stock, provided such person was not previously in our employ; and | |
• | for each incumbent who is to continue to serve as a non-employee director after the date of each annual stockholders meeting (beginning with the 2008 annual stockholders meeting), whether or not such individual was standing for re-election at that particular annual meeting, an automatic grant, on the date of that annual meeting, of a restricted stock unit award for 8,300 shares of our Common Stock. |
Each initial award of restricted stock units granted under the Non-Employee Director Grant Program will vest in a series of three equal annual installments upon the participant’s completion of each year of service as a member of the Board of Directors over the three year period measured from the date of grant of the restricted stock unit award. Each annual award of restricted stock units granted under the Non-Employee Director Grant Program will vest upon the participant’s completion of a year of service as a member of the Board of Directors over the one year period measured from the date of grant of the restricted stock unit award. The shares subject to each restricted stock unit award granted under the Non-Employee Director Grant Program will immediately vest in full upon a change in control or ownership as described in the 1999 Plan or upon the optionee’s death or disability while a member of the Board of Directors.
Additional Benefits Provided to Our Directors
Under the terms of indemnification agreements that we enter into with each of our directors, we are obligated to indemnify each director against certain claims and expenses for which the director might be held liable in connection with past or future service on the Board of Directors. In addition, our Certificate of Incorporation provides that, to the greatest extent permitted by the Delaware General Corporation Law, its directors shall not be liable for monetary damages for breach of fiduciary duty as a director.
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REPORT OF THE AUDIT COMMITTEE
The following is the report of the Audit Committee with respect to Packeteer’s audited financial statements for the year ended December 31, 2007, which include the consolidated balance sheets as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity and comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2007, and the notes thereto.
The Audit Committee oversees Packeteer’s financial reporting process on behalf of the Board of Directors, reviews the financial information issued to stockholders and others, including a discussion of the quality, not just the acceptability of the accounting principles, the reasonableness of significant judgments and the clarity of discussions in the financial statements, and monitors the systems of internal control and the audit process. Management has the primary responsibility for the financial statements and the reporting process, including internal control systems. KPMG LLP is responsible for expressing an opinion as to the conformity of our audited financial statements with generally accepted accounting principles.
Review with Management
The Audit Committee has reviewed and discussed Packeteer’s audited financial statements with management.
Review and Discussions with Independent Registered Public Accounting Firm
The Audit Committee has discussed with KPMG LLP, the Company’s independent registered public accounting firm, the matters required to be discussed by Statement on Auditing Standards 114, (The Auditor’s Communication with Those Charged with Governance) as adopted by the Public Company Accounting Oversight Board in Rule 3600T.
The Audit Committee has received from the auditors a formal written statement describing all relationships between the auditors and Packeteer that might bear on the auditors’ independence consistent with Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), discussed with the auditors any relationships that may impact their objectivity and independence, and satisfied itself as to the auditors’ independence.
Conclusion
Based upon the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the Company’s audited financial statements be included in its Annual Report onForm 10-K for the year ended December 31, 2007.
SUBMITTED BY THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Steven J. Campbell
Joseph A. Graziano, Chairman
Bernard F. (Bud) Mathaisel
Gregory E. Myers
Steven J. Campbell
Joseph A. Graziano, Chairman
Bernard F. (Bud) Mathaisel
Gregory E. Myers
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information known to us with respect to the beneficial ownership of our Common Stock as of April 1, 2008 of (i) each beneficial owner of 5% or more of the outstanding shares of our Common Stock; (ii) each director or director nominee; (iii) each of the Named Executive Officers (as defined below); and (iv) all of our directors and executive officers as a group.
Common Stock | ||||||||
Number of Shares | Percent of | |||||||
Name of Beneficial Owner(1) | Beneficially Held(2) | Class(3) | ||||||
Royce & Associates, LLC(4) | 4,049,700 | 11.11 | ||||||
1414 Avenue of the Americas New York, NY 10019 | ||||||||
Elliot Management Corp.(5) | 3,559,117 | 9.8 | ||||||
712 5th Avenue New York NY 10019 | ||||||||
FMR LLC(6) | 3,280,825 | 9.0 | % | |||||
82 Devonshire Street Boston MA 02109 | ||||||||
Wellington Management Company, LLP(7) | 2,140,700 | 5.9 | ||||||
75 State Street Boston, MA 02109 | ||||||||
Tamro Capital Partners LLC(8) | 2,040,323 | 5.6 | ||||||
1660 Duke Street, Suite 200 Alexandria, VA 22314 | ||||||||
Dave Côté(9) | 726,805 | 2.0 | % | |||||
Steven J. Campbell(10) | 434,396 | 1.2 | % | |||||
Craig W. Elliott(11) | 500,150 | 1.4 | % | |||||
Joseph A. Graziano(12) | 268,500 | * | ||||||
L. William Krause(13) | 92,000 | * | ||||||
Bernard F. Mathaisel(14) | 78,500 | * | ||||||
Gregory E. Myers(15) | 27,500 | * | ||||||
Peter Van Camp(16) | 107,500 | * | ||||||
Manuel R. Freitas(17) | 195,943 | * | ||||||
Nelu Mihai(18) | 117,455 | * | ||||||
Greg Pappas(19) | 127,764 | * | ||||||
David C. Yntema(20) | 392,141 | 1.1 | ||||||
Arturo Cázares | 0 | * | ||||||
Alan Menezes | 0 | * | ||||||
All directors and officers as a group (14 persons)(21) | 3,069,559 | 7.9 |
* | Less than 1%. | |
(1) | Except as otherwise indicated, the address of each person listed on the table isc/o Packeteer, Inc., 10201 North De Anza Boulevard, Cupertino, California 95014. | |
(2) | The persons named in this table have sole voting and/or investment power with respect to all shares of Common Stock shown as beneficially owned by them unless as otherwise noted below. Under the rules of the Securities and Exchange Commission, a person is deemed to be the beneficial owner of shares that can be acquired by such person by exercise of options within 60 days of the record date of this Information Statement. | |
(3) | Calculated on the basis of 36,476,323 Common Stock outstanding as of April 1, 2008, provided that any additional shares of Common Stock that a stockholder has the right to acquire within 60 days after April 1, 2008 are deemed to be outstanding for the purpose of calculating that stockholder’s percentage beneficial |
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ownership. Such shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. | ||
(4) | Based on a Schedule 13G filed with the SEC on February 4, 2008. | |
(5) | Based on a Schedule 13D filed with the SEC as of March 5, 2008. Includes 1,423,647 Ellington Management Company, LLP had the shared power to vote or to direct the vote. shares owned by Elliott Associates, L.P. and 2,135,470 shares owned by Elliott International, L.P. Subsequent to April 1, 2008, these shares were acquired by Blue Coat. | |
(6) | Based on a Schedule 13G filed with the SEC on February 13, 2008, amending the statement on Schedule 13G previously filed by FMR Corp., the predecessor of FMR LLC FMR amending . 13G previously filed by FMR Corp., the predecessor of FMR LLC. | |
(7) | Based on a Schedule 13G filed with the SEC on February 14, 2008. Includes 1,372,200 shares as to which Wellington Management Company, LLP had the shared power to vote or to direct the vote. | |
(8) | Based on a Schedule 13G filed with the SEC on February 14, 2008. Includes 1,324,644 shares as to which Tamro Capital Partners LLC had sole voting power. | |
(9) | Includes 1,806 shares held by Mr. Côté and 724,999 shares subject to stock options exercisable within 60 days of April 1, 2008. | |
(10) | Includes 340,896 shares held by the Steven J. Campbell Rev Trust DTD 5/22/2000, of which Mr. Campbell is trustee, and 93,500 shares subject to stock options exercisable within 60 days of April 1, 2008. | |
(11) | Includes 24,650 shares held by the Craig W. Elliot & Lisa A. Elliott TR Elliott Family Revocable Trust UA 11/09/99, of which Mr. Elliott is trustee, 467,500 shares subject to stock options exercisable within 60 days of April 1, 2008, and 8,000 shares held by the Elliott Children’s Trust for the benefit of Mr. Elliott’s minor children, of which Wells Fargo is trustee. | |
(12) | Includes 175,000 shares held by Mr. Graziano and 93,500 shares subject to stock options exercisable within 60 days of April 1, 2008. | |
(13) | Includes 5,000 shares held by Mr. Krause and 87,000 shares subject to stock options exercisable within 60 days of April 1, 2008. | |
(14) | Includes 11,000 shares held by Mr. Mathaisel and 67,500 shares subject to stock options exercisable within 60 days of April 1, 2008 | |
(15) | Includes 5,000 shares held by Mr. Myers and 22,500 shares subject to stock options exercisable within 60 days of April 1, 2008. | |
(16) | Includes 5,000 shares held by Mr. Van Camp and 102,500 shares subject to stock options exercisable within 60 days of April 1, 2008. | |
(17) | Includes 944 shares held by Mr. Freitas and 194,999 shares subject to stock options exercisable within 60 days of April 1, 2008. | |
(18) | Includes 1,806 shares held by Mr. Mihai and 113,749 shares subject to stock options exercisable within 60 days of April 1, 2008. | |
(19) | Includes 11,306 shares held by Mr. Pappas and 116,458 shares subject to stock options exercisable within 60 days of April 1, 2008. | |
(20) | Includes 34,434 shares held by the David C. Yntema Trust, of which Mr. Yntema is trustee, and 357,707 shares subject to stock options exercisable within 60 days of April 1, 2008. | |
(21) | Includes 627,647 shares held directly or indirectly by such individuals and 2,441,912 shares subject to stock options exercisable within 60 days of April 1, 2008. |
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview
The Compensation Committee is empowered to discharge the Board’s responsibilities relating to compensation and benefits for our executive officers. The Compensation Committee seeks to set compensation and benefits such that the total compensation paid to our executive officers is reasonable, competitive and reflective of corporate and individual performance.
Philosophy and Objectives
The Compensation Committee believes that the most effective executive compensation program is one that delivers compensation opportunities at levels generally consistent with market competitive practice, but provides for differentiated levels of actual compensation based on individual and company performance. Further, the Compensation Committee believes in creating a strong alignment between the interests of our executives and our stockholders by linking a significant portion of executive compensation to growth in the market value of our stock. We operate in a very competitive industry and are located in Silicon Valley where competition for executives is intense. Therefore, we have the additional objective of offering compensation programs that preserve our ability to attract and retain superior executives and providing competitive compensation to key employees relative to the compensation paid to similarly situated executives of our peer companies.
While the Compensation Committee and management review competitive market practices identified through the benchmarking exercise described below, we do not target compensation to specific, predetermined market levels. In determining appropriate base salary levels for each executive, the Compensation Committee evaluates competitive market data along with individual performance, expected contribution and experience and overall company performance. Short-term incentive opportunities are designed so that on-target performance relative to our business plan will result in cash compensation in the middle of the competitive range, with the opportunity to do better or worse based on actual results. Long-term incentives are designed to balance rewards for generating positive shareholder returns and for achieving longer-term operational goals. Longer-term operational objectives are set so that achievement of the goals will out-perform industry peers.
Compensation Process
The Compensation Committee generally begins each annual process in the fall and finalizes new compensation arrangements in January of the following year. The Compensation Committee typically meets at regular and special meetings with our Vice President of Human Resources, a representative of the Compensation Committee’s compensation consultant and outside legal counsel.
Role of the Compensation Consultant
The Compensation Committee engaged Compensia, an independent management compensation consulting firm, in June 2006 to assist with the development of our executive compensation programs. In connection with the development of the 2007 executive compensation program, Compensia reviewed, analyzed and presented to the Compensation Committee competitive market data and alternative compensation strategies. Compensia has continued to assist with respect to our 2008 program.
Role of Management
In making its decisions, the Compensation Committee seeks input and specific recommendations from our Chief Executive Officer regarding the performance and compensation for executive officers other than the Chief Executive Officer. The Vice President of Human Resources may also recommend equity plan guidelines for all employees, compensation adjustments, plan design or policy changes and provide other information, as necessary, to the Compensation Committee.
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Performance Review Process
The Compensation Committee reviews the performance of all executives, including the Chief Executive Officer, annually. In reviewing the performance of the Chief Executive Officer, the Committee solicits feedback from the other non-executive members of the Board and from the Chief Executive Officer’s direct reports. For the other executives, the Chief Executive Officer provides the Compensation Committee with a review of each individual’s performance and contributions over the past year.
Competitive Market Study
In making annual compensation decisions, the Compensation Committee requests that Compensia evaluate compensation elements relative to a peer group of publicly-traded networking and technology industry companies of similar size and organizational scope. The peer group of companies is reviewed annually by the Committee to ensure that the comparators are reasonable from a business and size perspective. The companies comprising the peer group for 2007 are:
Blue Coat Systems | MRV Communications | Secure Computing | ||
Extreme Networks | NetScout Systems | Sierra Wireless | ||
F5 Networks | Novatel Wireless | SonicWALL | ||
Foundry Networks | Riverbed Technology | Websense |
In addition to data collected from the public filings of the Companies in the peer group , Compensia also considers supporting data from industry compensation surveys and data from its proprietary database. The consultant consolidates the various data sets into a single market study that is representative of the peer group pay practices, which is then used by management and the Compensation Committee as a single reference point in reviewing and setting compensation.
Compensation Elements
In order to align executive compensation with our compensation philosophy, our executive officer compensation package contains three primary elements: base salary, cash bonuses and equity-based awards. In addition, we provide our executive officers a variety of benefits that are available generally to all salaried employees in the geographic location in which they are based. Each component of our executive compensation program is designed to reward different aspects of performance. The Compensation Committee sets executive officer base salary compensation at a level that it believes enables us to attract and retain strong executive talent. Our short-term incentive compensation program is designed to provide short-term incentives to our executives through cash bonus awards. Pay-outs, if earned, are made on a semi-annual basis and are determined based upon our achievement of designated corporate financial goals, including revenue and operating income results, compared to our financial plan for the related period. Our long-term incentive compensation program is designed primarily to provide long-term performance incentives and retention value through equity-based awards that reward our executives for increasing stockholder value over time. The elements of our executive compensation package generally do not differentiate between the executives listed in the Summary Compensation Table below, referred to in this Information Statement as our Named Executive Officers, and our other executive officers, with the exceptions of severance benefits payable to our Chief Executive Officer and Chief Financial Officer and certain change in control benefits payable to our Chief Executive Officer.
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Compensation Mix
A significant percentage of total compensation is incentive-based. Below is a depiction of the target mix of elements in the 2007 compensation packages for our Chief Executive Officer and Named Executive Officers approved by the Compensation Committee at the beginning of 2007. The Compensation Committee determines the allocation between the various compensation elements on an annual basis, after reviewing information provided by its consultant. There is no pre-established plan or target for such allocation. Rather, the Compensation Committee establishes an annual policy based on its goal to align our executive compensation program with relevant strategic objectives.
Base Salary
Our executive base salaries are based upon individual and company performance and the individual’s expected contribution and experience, as well as the annual evaluation of the market study. In the process of determining base compensation for 2007, the Compensation Committee considered data prepared by its consultant reflecting that, on average, our executive base salaries generally trailed the median of the market study by 8% at the end of 2006. In determining the base salary increase for the Chief Executive Officer, the Compensation Committee considered the competitive market data, the Company’s performance in 2006 and feedback gathered during the performance review process. For the other named executive officers, the Compensation Committee considered the same factors as they did for the Chief Executive Officer, as well as the performance of each executive’s area of responsibility and the Chief Executive Officer’s salary increase recommendation. Effective January 2007, each of our executive officers received an increase in base salary from 2006 which ranged between 2.2% and 10.7%.
Short Term Incentive Compensation
Semi-Annual Awards
Our short term incentive compensation is structured as a performance-based cash bonus plan. The cash bonuses for all of our executive officers are based on an assigned target incentive rate, expressed as a percentage of each officer’s annual base salary. The cash bonuses are awarded on the basis of our performance by comparing our actual revenue and operating income results against the approved 2007 business plan revenue and operating income goals established semi-annually by the Board of Directors. The Compensation Committee believes revenue and operating income to be the best measures of financial success and believes that performance at or above revenue and operating income goals will ultimately translate into improved stockholder value. The revenue and operating income goals for 2007 performance represented a considerable stretch beyond our corresponding results for 2006. Although the Compensation Committee realized that achievement of the 2007 goals would be challenging, it also believed that the goals were appropriate based the 2007 business plan.
If earned, bonuses are paid semi-annually and are based on the assigned target incentive amount for the applicable six month period. The target incentive amount for each such period is equal to one-half of the officer’s
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annual base salary multiplied by the target incentive rate. For example, if the officer’s annual base salary is $100,000 and the target incentive rate is 50%, then in each semi-annual period the target incentive amount would be $25,000. The bonus actually earned for each semi-annual period is adjusted upward or downward based on our actual revenue and operating income performance in comparison to a revenue goal and operating income goal. Our Compensation Committee believes that semi-annual cash bonuses are reasonable and effective tools for incentivizing executive performance to achieve our financial performance goals.
For all executive officers, 67% of the aggregate bonus earned for a period is based on achievement of the revenue goal and the remaining 33% is based on achievement of the operating income goal. The Compensation Committee chose revenue as the primary metric in order to incentivize and reward revenue growth, and selected positive operating income as a secondary metric in order to encourage fiscal responsibility. For each semi-annual period, we must achieve at least 80% of our revenue goal and positive operating income in order for executives to receive any bonus. Achievement of both goals at target levels results in a semi-annual bonus payment equal to the target incentive amount for the period. The threshold for a minimum payment under the revenue component is 80% of the revenue goal. At this level of performance, such minimum payment is 50% of the target amount payable under the revenue component. Achievement of the revenue goal in excess of 80% will increase the amount payable under the revenue component on a linear basis, subject to a performance cap of 120% resulting in a maximum payment equal to 150% of the target amount payable under the revenue component. The threshold for a minimum payment under the operating income component is 95% of the operating income goal. At this level of performance, such minimum payment is 50% of the target amount payable under the operating income component. Any achievement of the operating income goal above 100% will not increase the amount payable under the operating income component beyond the target level payment.
In setting target incentive rates for 2007, the Compensation Committee determined that our Chief Executive Officer’s target incentive rate did not provide a compensation opportunity consistent with that of Chief Executive Officers at our peer companies and that pre-existing target incentives for each of our executives were within the appropriate range with the exception of our Chief Financial Officer and the Vice President of Engineering, whose target incentive rate increased from 40% to 50%. Our Chief Executive Officer’s target incentive rate was increased from 70% to 100%.
Based upon the above, the 2007 executive compensation elements approved by the Compensation Committee for the Named Executive Officers, and the target incentive amounts actually earned by such persons under the 2007 performance-based cash bonus plan, were as follows:
2007 Base | 2007 Annual | |||||||||||||||||
Salary | Target | 2007 Annual | ||||||||||||||||
Rate | Incentive | Incentive | ||||||||||||||||
(Annualized) | 2007 Target | Amount | Award Earned | |||||||||||||||
Officer Name | Position | ($) | Incentive Rate | ($) | ($)(1) | |||||||||||||
Dave Côté | CEO & President | 415,000 | 100 | % | 415,000 | 205,675 | ||||||||||||
David C. Yntema | Chief Financial Officer | 290,000 | 50 | % | 145,000 | 71,862 | ||||||||||||
Manuel R. Freitas | VP Operations and Customer Support | 235,000 | 40 | % | 94,000 | 46,587 | ||||||||||||
Nelu Mihai | VP Engineering | 250,000 | 50 | % | 125,000 | 61,950 | ||||||||||||
Greg Pappas | VP Human Resources | 215,000 | 40 | % | 86,000 | 42,622 | ||||||||||||
Former Officers: | ||||||||||||||||||
Arturo Cázares | VP Worldwide Sales | 235,000 | 90 | %(2) | 52,875 | (2) | (2) | |||||||||||
Alan Menezes | VP Marketing | 230,000 | 40 | % | 92,000 | (3) |
(1) | Reflects annual target incentive earned for 2007 performance. During the first half of 2007, no bonuses were earned as we did not achieve our minimum financial targets during that period. For the second half of 2007, bonuses were earned based upon the Company’s achievement of positive operating income and 99.5% of the revenue goal. Actual bonus compensation for performance in the second half of 2007 was paid in early 2008. |
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(2) | Our formula for determining Mr. Cázares’ short-term incentive compensation differed from other executive officers as indicated below as it was intended to emphasize performance of the sales organization and reward him for this performance against our revenue goals: |
(a) | Mr. Cázares’ Annual Target Incentive Amount of $52,875 represents 25% of his Target Incentive Rate multiplied by his base salary rate and was intended to be a cash bonus to be based on our achievement of the operating income goal and to be paid semi-annually. Mr. Cázares was no longer an employee effective April 30, 2007, however, and was therefore ineligible to receive a bonus under our performance-based cash bonus plan for either the semi-annual period ended June 30 or December 31, 2007. | |
(b) | In addition to the Annual Target Incentive Amount, Mr. Cázares was eligible to earn short-term incentive compensation under the sales commission plan in an amount equal to 75% of the Target Incentive Rate multiplied by his base salary, or $158,625. For 2007, Mr. Cázares earned $96,134 under the sales commission plan. |
For payments made to Mr. Cázares’ in connection with his departure, please see the Summary Compensation Table below. | ||
(3) | Mr. Menezes was no longer an employee effective September 17, 2007 and was therefore ineligible to receive a bonus under our performance-based cash bonus plan for the semi-annual period ended December 31, 2007. For payments made to Mr. Menezes in connection with his departure, please see the Summary Compensation Table below. |
Other Bonus Payments
We may also grant one time performance bonuses based on individual contributions and responsibilities rather than financial metrics. During 2007, no such performance bonuses were granted.
Long-Term Incentive Compensation
Annual Equity Program
Through 2006, our long-term incentive compensation program included only stock options subject to time based vesting. During the latter part of 2006, the Compensation Committee began working with its consultant to consider adjustments in our long-term incentive compensation approach. Starting in 2007, the Compensation Committee modified the long-term incentive compensation program to include a combination of stock options subject to time based vesting and performance share awards subject to vesting based upon long-term financial performance. When determining the appropriate allocation between these awards, the Compensation Committee sought to achieve a balance between the Company’s primary focus on share value appreciation represented by option awards and the secondary focus on long-term revenue and operating income performance represented by performance share awards. For 2007, this goal resulted in a mix of award types in which the annual stock option award generally constitutes approximately 65% of the aggregate target award, and the performance share award (if vested at target levels as described below) generally constitutes approximately 35% of the aggregate target award.
Option Awards
The Compensation Committee utilizes stock option awards with the objective of providing executives with compensation tied to improvements in the market price of our Common Stock. These grants are designed to align the interests of the executive officer with those of the stockholders and provide each individual with a significant incentive to manage Packeteer from the perspective of an owner with an equity stake in the company. For 2007, annual grants were approved at our regularly scheduled Board of Directors meeting on January 24, 2007. Each option permits the officer to acquire shares of our Common Stock at a price per share equal to the closing price per share of our Common Stock as reported on Nasdaq Global Select Market on January 24, 2007. Contingent upon the officer’s continued employment, one-quarter of the options vest after 12 months following the grant date and the balance vest monthly over the following three years. Accordingly, the option will provide a return to the executive officer only if the officer remains employed by us during the vesting period, and then only if the market price of the shares appreciates over the option term.
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The size of the option award granted to each executive officer in 2007 was set by the Compensation Committee at a level that was intended to create a meaningful opportunity for stock ownership based upon the individual’s current position, the individual’s personal performance in recent periods, the individual’s potential for future responsibility and promotion over the option term, comparison of award levels in prior years and comparison of award levels earned by executives at our peer companies and similarly-sized companies in our broad industry group. The Compensation Committee also took into account the number of unvested options held by the executive officer in order to maintain an appropriate level of retention value for that individual. The relative weight given to each of these factors varied from individual to individual. The Compensation Committee also reviewed compensation survey data for Packeteer’s industry prepared and analyzed by its consultant. In January 2007, the Compensation Committee approved a stock option award for the Chief Executive Officer of 100,000 shares, and awards for executive officers ranging from 40,000 shares to 75,000 shares.
The Compensation Committee may also grant additional option awards under the Company’s 1999 Stock Incentive Plan or 1999 Plan. On July 27, 2007, the Compensation Committee approved supplemental retention stock option grants to executive officers in amounts ranging from 40,000 to 50,000 shares. The Chief Executive Officer was not awarded any stock options. The Compensation Committee determined to make these grants after separate discussions with the Vice President of Human Resources and non-employee members of the Board of Directors regarding executive performance, morale and retention issues. Given the competitive nature of the Silicon Valley, the purpose of the grants was to help maintain sufficient executive team continuity in order to facilitate the Company’s recovery from below plan results.
All stock option awards to our employees, including executive officers, have been granted at fair market value on the date of grant and are reflected in our consolidated financial statements. We do not have any program, plan or obligation that requires us to grant equity compensation on specified dates. However, we typically schedule a Compensation Committee meeting and make annual grants on the date of our regular Board of Directors meeting in January of each year, as well as on the hire date for new employees.
Performance Share Awards
The Compensation Committee utilizes performance share awards with the objective of incentivizing current executive officers to accomplish the Company’s long-term revenue and operating income objectives. Each performance share awarded represents the right to receive one share of our Common Stock following the end of a three-year performance period, subject to applicable vesting terms. The right vests based on the achievement of a specific revenue growth rate and average annual operating margin goals and continued employment of the executive through a specified vesting date following the end of the performance period. The Compensation Committee, in determining the applicable performance share metrics, considered market data, peer group information, industry reports, and the Company’s business model relative to operating income. If our performance against these financial measures falls below certain minimum levels, no performance shares will vest. If our performance against these measures is at target levels, our executives will vest in the target number of shares subject to the awards, which range from 20,000 to 50,000. If our performance against these financial measures exceeds target levels, the number of performance shares vesting will exceed 100% of the target number of shares, subject to a maximum of 250%. When it established the 2007 performance share program, the Compensation Committee believed that the metrics it established for vesting of the performance share awards would be a challenge for the Company, but achievable. The Company did not record any compensation expense for 2007 with respect to the performance share awards.
Compensation Committee Philosophy on Change in Control and Severance Benefits
In July 2006, the Compensation Committee approved certain change in control benefits for our executives and certain additional severance benefits for Dave Côté, our Chief Executive Officer, and David C. Yntema, our Chief Financial Officer. For a summary and quantification of the change in control and the severance benefits, please see the discussion under the section entitled “Executive Compensation — Potential Payments upon a Termination or Change in Control” below. The Compensation Committee determined to provide change in control arrangements in order to mitigate some of the risk that exists for executives working in an environment where there is a meaningful likelihood that we may be acquired. Our change in control and severance arrangements are intended to attract and
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retain qualified executives who may have attractive alternatives absent these arrangements. The change in control arrangements are also intended to mitigate a potential disincentive to consideration and execution of an acquisition, particularly where the services of these executive officers may not be required by the acquirer.
In developing the terms of the agreements, the Compensation Committee, with the help of its consultant, evaluated the practices of the peer group in July 2006. Approximately 85% of the companies in such peer group disclosed that they had provided change in control benefits to executive officers, and the Compensation Committee designed this policy to be conservative relative to the practices in this peer group. Similarly, the Compensation Committee determined that severance benefits for our Chief Executive Officer and Chief Financial Officer were appropriate for these positions based on competitive market data provided by its consultant. While the Compensation Committee determined that it was appropriate to approve change in control and severance benefits for our executives, it awarded benefits that it believes are aligned at the lower end of the spectrum of competitive practices. For example, accelerated vesting of equity awards only occurs in limited circumstances, such as a termination or resignation in specified circumstances following a change in control or if awards are not assumed by the acquiring or successor company in a change of control. Only two of our executive officers, our Chief Executive Officer and Chief Financial Officer, are entitled to severance benefits other than those relating to a change in control. Separately, cash payments awarded in connection with any qualified termination or resignation are determined as a multiple of base salary alone, rather than multiples of base salary and bonus. No gross up for excise taxes are payable in connection with severance or change in control benefits. Additionally, the Compensation Committee believes that the terms “cause” and “resignation for good reason” in our change in control and severance benefit arrangements and our performance award agreements are carefully defined to support reasonable transition considerations and our goal of retaining our executives through an acquisition.
Other Benefits
Executive officers are eligible to participate in all of our employee benefit plans, such as our 1999 employee stock purchase plan; medical, dental, vision, group life, disability, and accidental death and dismemberment insurance; and our 401(k) plan, in each case on the same basis as other employees. Except in limited circumstances, it is our policy not to provide any special perquisites or benefits to executive officers.
Tax Considerations
The Compensation Committee considers the impact of Section 162(m) of the Internal Revenue Code in determining the mix of elements of executive compensation. This section limits the deductibility of non-performance based compensation paid to each of our Named Executive Officers to $1 million annually. The stock options and performance share awards granted to our executive officers under our 1999 Plan are intended to be treated under current federal tax law as performance-based compensation exempt from the limitation on deductibility. Salaries and bonuses paid under our annual bonus program do not qualify as performance-based compensation for purposes of Section 162(m). The Compensation Committee intends to consider the impact of Section 162(m) on the deductibility of future executive compensation, but reserves the right to provide for compensation to executive officers that may not be fully deductible.
COMPENSATION COMMITTEE REPORT
We, the Compensation Committee of the Board of Directors of Packeteer, have reviewed and discussed the Compensation Discussion and Analysis contained in its Information Statement for the year ended December 31, 2007 with management. Based on such review and discussion, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report onForm 10-K for the year ended December 31, 2007.
THE COMPENSATION COMMITTEE
L. William Krause, Chairman
Craig W. Elliott
Peter Van Camp
L. William Krause, Chairman
Craig W. Elliott
Peter Van Camp
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Summary Compensation Table
The following table sets forth information concerning the compensation earned during the years ended December 31, 2007 and 2006 by our Chief Executive Officer, our Chief Financial Officer, our three other most highly-compensated executive officers and two former executive officers who would have been included among the three other most highly compensated executive officers had they continued to serve as executive officers through December 31, 2007. These individuals are referred to in this Information Statement as our “Named Executive Officers.”
2007 SUMMARY COMPENSATION TABLE
�� | ||||||||||||||||||||||||||||||||
Non-Equity | ||||||||||||||||||||||||||||||||
Incentive | ||||||||||||||||||||||||||||||||
Stock | Option | Plan | All Other | |||||||||||||||||||||||||||||
Name and | Salary | Bonus | Awards | Awards | Compensation | Compensation | Total | |||||||||||||||||||||||||
Principal Position | Year | (1)($) | (2)($) | (3) | (4)($) | (2)($) | (5)($) | ($) | ||||||||||||||||||||||||
Dave Côté | 2007 | 415,000 | — | — | 839,187 | 205,675 | 2,134 | 996 | ||||||||||||||||||||||||
President and Chief | 2006 | 375,000 | — | — | 1,022,105 | 212,223 | 1,929 | 1,611,257 | ||||||||||||||||||||||||
Executive Officer | ||||||||||||||||||||||||||||||||
David C. Yntema | 2007 | 290,000 | — | — | 501,117 | 71,862 | 4,148 | 867,127 | ||||||||||||||||||||||||
Chief Financial Officer | 2006 | 265,000 | 7,500 | — | 425,510 | 85,698 | 3,785 | 787,493 | ||||||||||||||||||||||||
Manuel R. Freitas | 2007 | 235,000 | — | — | 380,299 | 46,587 | 2,154 | 664,040 | ||||||||||||||||||||||||
Vice President Operations and Customer Support | 2006 | 225,000 | 14,089 | (6) | — | 425,510 | 72,762 | 2,060 | 739,421 | |||||||||||||||||||||||
Nelu Mihai(7) | 2007 | 250,000 | — | 478,981 | 61,950 | 1,228 | 792,159 | |||||||||||||||||||||||||
Vice President, Engineering | 2006 | 215,256 | 7,500 | — | 477,363 | 69,554 | 1,084 | 770,757 | ||||||||||||||||||||||||
Greg Pappas | 2007 | 215,000 | — | — | 392,936 | 42,622 | 674 | 651,232 | ||||||||||||||||||||||||
Vice President Human Resources | 2006 | 195,000 | — | — | 373,398 | 69,061 | 374 | 637,833 | ||||||||||||||||||||||||
Former Officers: | ||||||||||||||||||||||||||||||||
Arturo Cázares | 2007 | 174,468 | (8) | — | — | 475,670 | — | 127,640 | (9) | 775,518 | ||||||||||||||||||||||
Former Vice President Worldwide Sales | 2006 | 387,993 | (10) | 6,000 | — | 692,037 | 25,875 | 492 | 1,112,397 | |||||||||||||||||||||||
Alan Menezes(11) | 2007 | 144,782 | — | — | 643,307 | — | 73,410 | (12) | 861,499 | |||||||||||||||||||||||
Former Vice President Marketing |
(1) | Unless otherwise noted, reflects the annual base salaries paid to the Named Executive Officers in the indicated year. | |
(2) | Performance-based bonuses are generally paid under our performance-based cash bonus plan and the amounts of such bonuses are reported under the Non-Equity Incentive Plan Compensation column. Additional discretionary bonuses awarded by the Compensation Committee, if any, are reported under the Bonus column. Unless otherwise noted, the amounts reported under the Bonus column represent discretionary cash bonuses awarded to several executive officers for contributions made during 2006 in connection with the acquisition and integration of Tacit Networks. These discretionary bonuses were approved by the Compensation Committee on January 31, 2007. | |
(3) | It was estimated at December 31, 2007 that no shares would ultimately vest and no related compensation expense was recorded during 2007. See Note 7 of the Notes to the Consolidated Financial Statements included with our Annual Report onForm 10-K for the year ended December 31, 2007 for additional information. | |
(4) | Dollar amount of compensation expense related to stock options recognized for financial statement reporting purposes in accordance with FAS 123(R). The assumptions used in the calculation of these amounts are included in Note 7 to our Consolidated Financial Statements included in our Annual Report onForm 10-K for the year ended December 31, 2007. | |
(5) | Unless otherwise noted, represents premiums paid for group term life insurance benefits. | |
(6) | Represents (a) $6,000 in a discretionary cash bonus for performance related to the Tacit acquisition and (b) $8,089 in an additional discretionary bonus awarded to Mr. Freitas in recognition of additional management duties he performed in 2005 and 2006 while we were searching for a Vice President, Engineering. |
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This additional discretionary bonus was awarded by the Chief Executive Officer pursuant to authority granted by our Compensation Committee. | ||
(7) | Mr. Mihai commenced employment with Packeteer in January 2006. | |
(8) | Represents (a) $78,334 in annual salary and (b) $96,134 in commissions earned in 2007. | |
(9) | Includes $349 in premiums paid for group term life insurance benefits while Mr. Cázares was our employee and $27,114 of accrued vacation pay. Mr. Cázares resigned his employment with us effective April 30, 2007 and pursuant to a separation agreement, Mr. Cázares received $97,917 in severance and $2,260 in COBRA benefits. For more information regarding Mr. Cázares’ separation agreement, see the section entitled “Potential Payments upon Termination or Change in Control — Benefits Paid to Former Officers upon Separation.” | |
(10) | Represents (a) $230,000 in annual salary and (b) $157,993 in commissions earned in 2006. | |
(11) | Mr. Menezes commenced employment with Packeteer in February 2007. | |
(12) | Includes $430 in premiums paid for group term life insurance benefits while Mr. Menezes was our employee and $1,712 of accrued vacation pay. Mr. Menezes resigned his employment with us effective September 17, 2007 and pursuant to a separation agreement, Mr. Menezes received $67,083 in severance and $4,185 in COBRA benefits. For more information regarding Mr. Menezes’ separation agreement, see the section entitled “Potential Payments upon Termination or Change in Control — Benefits Paid to Former Officers upon Separation.” |
Grants of Plan-Based Awards
The following table sets forth certain information with respect to stock and option awards and other plan-based awards granted during the years ended December 31, 2007 to our Named Executive Officers:
GRANTS OF PLAN-BASED AWARDS
All Other | ||||||||||||||||||||||||||||||||||||||||
Option | Grant Date | |||||||||||||||||||||||||||||||||||||||
Awards: | Exercise or | Fair | ||||||||||||||||||||||||||||||||||||||
Number of | Base | Value of | ||||||||||||||||||||||||||||||||||||||
Estimated Future Payouts Under | Estimated Future Payouts Under | Securities | Price of | Stock and | ||||||||||||||||||||||||||||||||||||
Non-Equity Incentive Plan Awards(1) | Equity Incentive Plan Awards(2) | Underlying | Option | Option | ||||||||||||||||||||||||||||||||||||
Grant | Threshold | Target | Maximum | Threshold | Target | Maximum | Options | Awards | Awards | |||||||||||||||||||||||||||||||
Name | Date | ($)(3) | ($) | ($)(4) | (#)(5) | (#) | (#)(6) | (#)(7) | ($/Sh) | ($)(8) | ||||||||||||||||||||||||||||||
Dave Côté | 1/24/2007 | 139,025 | 415,000 | 554,025 | ||||||||||||||||||||||||||||||||||||
1/24/2007 | 28,125 | 50,000 | 125,000 | 621,000 | ||||||||||||||||||||||||||||||||||||
1/24/2007 | 100,000 | 12.78 | 657,906 | |||||||||||||||||||||||||||||||||||||
David C. Yntema | 1/24/2007 | 48,575 | 145,000 | 193,575 | ||||||||||||||||||||||||||||||||||||
1/24/2007 | 22,500 | 40,000 | 100,000 | 496,800 | ||||||||||||||||||||||||||||||||||||
1/24/2007 | 75,000 | 12.78 | 493,430 | |||||||||||||||||||||||||||||||||||||
7/27/2007 | 40,000 | 7.16 | 150,469 | |||||||||||||||||||||||||||||||||||||
Manuel R. Freitas | 1/24/2007 | 31,490 | 94,000 | 125,490 | ||||||||||||||||||||||||||||||||||||
1/24/2007 | 11,250 | 20,000 | 50,000 | 248,400 | ||||||||||||||||||||||||||||||||||||
1/24/2007 | 40,000 | 12.78 | 263,163 | |||||||||||||||||||||||||||||||||||||
7/27/2007 | 40,000 | 7.16 | 150,469 | |||||||||||||||||||||||||||||||||||||
Nelu Mihai | 1/24/2007 | 41,875 | 125,000 | 166,875 | ||||||||||||||||||||||||||||||||||||
1/24/2007 | 14,063 | 25,000 | 62,500 | 310,500 | ||||||||||||||||||||||||||||||||||||
1/24/2007 | 50,000 | 12.78 | 328,954 | |||||||||||||||||||||||||||||||||||||
7/27/2007 | 50,000 | 7.16 | 188,086 | |||||||||||||||||||||||||||||||||||||
Greg Pappas | 1/24/2007 | 28,810 | 86,000 | 114,810 | 11,250 | 20,000 | 50,000 | 248,400 | ||||||||||||||||||||||||||||||||
1/24/2007 | 40,000 | 12.78 | 263,163 | |||||||||||||||||||||||||||||||||||||
7/27/2007 | 40,000 | 7.16 | 150,469 | |||||||||||||||||||||||||||||||||||||
Former Officers: | ||||||||||||||||||||||||||||||||||||||||
Arturo Cázares(9) | 1/24/2007 | 0 | 58,750 | 58,750 | ||||||||||||||||||||||||||||||||||||
1/24/2007 | 14,063 | 25,000 | 62,500 | 310,500 | ||||||||||||||||||||||||||||||||||||
1/24/2007 | 50,000 | 12.78 | 328,954 | |||||||||||||||||||||||||||||||||||||
Alan Menezes(10) | 2/14/2007 | 30,820 | 92,000 | 122,820 | ||||||||||||||||||||||||||||||||||||
2/14/2007 | 185,000 | 12.94 | 1,232,215 | |||||||||||||||||||||||||||||||||||||
7/27/2007 | 40,000 | 7.16 | 150,469 |
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(1) | We award short term incentive compensation under our performance-based cash bonus plan as described under the section entitled “Compensation Discussion and Analysis — Short Term Incentive Compensation — Semi-Annual Awards.” The amounts under the Threshold, Target and Maximum columns assume that identical performance levels are achieved in both semi-annual periods. The actual amount paid to each Named Executive Officer in 2007 under the performance-based cash bonus plan is set forth above in the Summary Compensation Table under the Non-Equity Incentive Plan Compensation column. | |
(2) | We award long term incentive compensation in the form of performance share awards as described under the section entitled “Compensation Discussion and Analysis — Long Term Incentive Compensation — Performance Share Awards.” It was estimated at December 31, 2007 that no shares would ultimately vest and no related compensation expense was recorded during 2007. See Note 7 of the Notes to the Consolidated Financial Statements included with our Annual Report onForm 10-K for the year ended December 31, 2007 for additional information. | |
(3) | Assumes achievement of 80% of the revenue goal and positive operating income at a level less than 95% of the operating income goal for both semi-annual periods. See the section entitled “Compensation Discussion and Analysis — Short Term Incentive Compensation — Semi-Annual Awards” for more information. | |
(4) | Assumes achievement of 120% of revenue goal and 100% of the operating income goal for both semi-annual periods. See the section entitled “Compensation Discussion and Analysis — Short Term Incentive Compensation — Semi-Annual Awards” for more information. | |
(5) | Assumes achievement of revenue and operating income goals at minimum levels for vesting of performance shares at a rate of 56.25% of the target number of shares. See the section entitled “Compensation Discussion and Analysis — Long Term Incentive Compensation — Performance Share Awards” for more information. | |
(6) | Assumes achievement of revenue and operating income goals at maximum levels for vesting of performance shares at a rate of 250% of the target number of shares. See the section entitled “Compensation Discussion and Analysis — Long Term Incentive Compensation — Performance Share Awards” for more information. | |
(7) | Options to purchase our Common Stock vest and become exercisable at the rate of: (a) 25% of the shares upon completion of 12 months of service following the date of grant and (b) the remainder of the shares in 36 equal monthly installments upon completion of each additional month of service thereafter. See the section entitled “Executive Compensation — Potential Payments upon a Termination or Change in Control” for a description of applicable acceleration features. | |
(8) | Reflects the grant date fair value of each equity award in accordance with FAS 123(R). The assumptions used in the calculation of this amount are included in Note 7 to our Consolidated Financial Statements included in our Annual Report onForm 10-K for the year ended December 31, 2007. | |
(9) | Mr. Cázares was no longer an employee effective April 30, 2007 and was therefore ineligible to receive a bonus under our performance-based cash bonus plan for either the semi-annual period ended June 30 or December 31, 2007. For other payments made to Mr. Cázares’ in connection with his departure, please see the Summary Compensation Table above. Additionally, the performance share award and unvested options to purchase 370,000 shares of our common stock held by Mr. Cázares were cancelled. | |
(10) | Mr. Menezes was no longer an employee effective September 17, 2007 and was therefore ineligible to receive a bonus under our performance-based cash bonus plan for either the semi-annual period ended June 30 or December 31, 2007. For other payments made to Mr. Menezes in connection with his departure, please see the Summary Compensation Table above. Additionally, unvested options to purchase 225,000 shares of our common stock held by Mr. Menezes were cancelled. |
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Outstanding Equity Awards at Year-End
The following table sets forth certain information with respect to the unexercised options held by our Named Executive Officers as of December 31, 2007:
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2007
Option Awards(1) | Stock Awards | ||||||||||||||||||||||||
Equity Incentive | |||||||||||||||||||||||||
Equity Incentive | Plan Awards: | ||||||||||||||||||||||||
Number of | Number of | Plan Awards: | Market or Payout | ||||||||||||||||||||||
Securities | Securities | Number of Unearned | Value of Unearned | ||||||||||||||||||||||
Underlying | Underlying | Shares, Units or | Shares, Units or | ||||||||||||||||||||||
Unexercised Options | Unexercised Options | Other Rights That | Other Rights That | ||||||||||||||||||||||
(#) | (#) | Option Exercise | Option Expiration | Have Not Vested | Have Not Vested | ||||||||||||||||||||
Name | Exercisable(2) | Unexercisable(3) | Price ($) | Date(4) | (#)(5) | ($)(6) | |||||||||||||||||||
Dave Côté | 350,000 | 0 | 3.50 | 10/7/2012 | |||||||||||||||||||||
37,500 | 0 | 8.36 | 1/22/2013 | ||||||||||||||||||||||
122,395 | 2,605 | 19.40 | 1/28/2014 | ||||||||||||||||||||||
100,625 | 37,375 | 14.00 | 1/26/2015 | ||||||||||||||||||||||
52,708 | 57,292 | 9.51 | 1/25/2016 | ||||||||||||||||||||||
0 | 100,000 | 12.78 | 1/24/2017 | 28,125 | 173,250 | ||||||||||||||||||||
David C. Yntema | 30,000 | 0 | 48.06 | 1/26/2010 | |||||||||||||||||||||
30,000 | 0 | 16.88 | 1/29/2011 | ||||||||||||||||||||||
43,541 | 0 | 4.71 | 10/22/2011 | ||||||||||||||||||||||
110,000 | 0 | 8.36 | 1/22/2013 | ||||||||||||||||||||||
39,166 | 834 | 19.40 | 1/28/2014 | ||||||||||||||||||||||
43,750 | 16,250 | 14.00 | 1/26/2015 | ||||||||||||||||||||||
23,958 | 26,042 | 9.51 | 1/25/2016 | ||||||||||||||||||||||
0 | 75,000 | 12.78 | 1/24/2017 | ||||||||||||||||||||||
0 | 40,000 | 7.16 | 7/27/2017 | 22,500 | 138,600 | ||||||||||||||||||||
Manuel R. Freitas | 45,000 | 0 | 12.00 | 5/24/2010 | |||||||||||||||||||||
30,000 | 0 | 16.88 | 1/29/2011 | ||||||||||||||||||||||
39,166 | 834 | 19.40 | 1/28/2014 | ||||||||||||||||||||||
43,750 | 16,250 | 14.00 | 1/26/2015 | ||||||||||||||||||||||
11,458 | 26,042 | 9.51 | 1/25/2016 | ||||||||||||||||||||||
0 | 40,000 | 12.78 | 1/24/2017 | ||||||||||||||||||||||
0 | 40,000 | 7.16 | 7/27/2017 | 11,250 | 69,300 | ||||||||||||||||||||
Nelu Mihai | 78,854 | 91,146 | 9.51 | 1/25/2016 | |||||||||||||||||||||
0 | 50,000 | 12.78 | 1/24/2017 | ||||||||||||||||||||||
0 | 50,000 | 7.16 | 7/27/2017 | 14,063 | 86,625 | ||||||||||||||||||||
Greg Pappas | 85,937 | 79,063 | 8.35 | 11/7/2015 | |||||||||||||||||||||
0 | 40,000 | 12.78 | 1/24/2017 | ||||||||||||||||||||||
0 | 40,000 | 7.16 | 7/27/2017 | 11,250 | 69,300 | ||||||||||||||||||||
Former Officers: | |||||||||||||||||||||||||
Arturo Cázares(7) | — | — | — | — | |||||||||||||||||||||
Alan Menezes(8) | — | — | — | — | |||||||||||||||||||||
(1) | Options vest and become exercisable at the rate of: (a) 25% of the shares upon completion of 12 months of service measured from the date of grant and (b) the remainder of the shares in 36 equal monthly installments upon completion of each additional month of service thereafter. See the section entitled “Executive Compensation — Potential Payments upon a Termination or Change in Control” for a description of applicable acceleration features. |
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(2) | Represents stock options that are fully vested and unexercised as of December 31, 2007. Stock options become exercisable only as they vest | |
(3) | Represents stock options that remain unvested and unexercisable as of December 31, 2007. | |
(4) | Each option expires ten years after the date of grant. | |
(5) | Represents the number of shares subject to performance share awards that would vest if our performance against relevant corporate measures for the performance period is at threshold levels. See the section entitled “Compensation Discussion and Analysis — Long-Term Incentive Compensation — Performance Share Awards” for more information. | |
(6) | Valued at the $6.16 closing market price of our Common Stock at December 31, 2007. | |
(7) | In connection with Mr. Cázares’ resignation from employment with us effective April 30, 2007, his fully unvested performance share award and unvested options to purchase 370,000 shares of our Common Stock held by Mr. Cázares were cancelled. | |
(8) | In connection with Mr. Menezes’ resignation from employment with us effective September 17, 2007, unvested options to purchase 225,000 shares of our Common Stock held by Mr. Menezes were cancelled. |
Option Exercises and Stock Vested
The following table sets forth certain information concerning option exercises by our Named Executive Officers during the year ended December 31, 2007:
OPTION EXERCISES AND STOCK VESTED
Option Awards | ||||||||
Number of Shares | Value Realized on | |||||||
Name | Acquired on Exercise (#) | Exercise ($)(1) | ||||||
Dave Côté | 57,000 | 556,371 | ||||||
David C. Yntema | 0 | 0 | ||||||
Manuel R. Freitas | 40,459 | 191,310 | ||||||
Nelu Mihai | 5,000 | 20,111 | ||||||
Greg Pappas | 0 | 0 | ||||||
Former Officers: | ||||||||
Arturo Cázares | 0 | 0 | ||||||
Alan Menezes | 0 | 0 |
(1) | Based on the difference between the market price of our Common Stock on the date of exercise and the exercise price. |
Potential Payments upon Termination or Change in Control
Corporate Transaction in which Options and Performance Share Awards are Not Assumed
Each outstanding option granted under our 1999 Plan, including options held by our Named Executive Officers, will automatically vest in full upon a “corporate transaction” if the option is not assumed or otherwise continued in effect by the successor corporation or replaced with an equivalent cash incentive program. In addition, the vesting of the target number of shares subject to each such performance share award granted to our Named Executive Officers in January 2007 will accelerate in full upon a “corporate transaction” if the award is not assumed or continued by our successor or replaced by our successor with a substantially equivalent award.
Under the 1999 Plan and the agreements governing the performance share awards, a “corporate transaction” is generally defined as the occurrence of:
• | an acquisition of beneficial ownership of more than 50% of our outstanding voting stock by a stockholder-approved merger, |
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• | a merger in which voting stock is transferred to the persons who acquired control pursuant to either (i) the completion of a tender or exchange offer for more than 50% of our outstanding voting stock or (ii) a change in the majority of the Board of Directors effected through one or more contested elections for membership on the Board of Directors, or | |
• | a sale of substantially all of our assets. |
Estimated Benefit to our Named Executive Officers upon a Corporate Transaction in which Options and Performance Share Awards are Not Assumed
The following table provides an estimate of the incremental benefit our Named Executive Officers would receive from the accelerated vesting of their options and performance share awards upon a corporate transaction in which the options and performance share awards are not assumed or otherwise continued in effect or replaced by the successor, and assumes that the triggering event for such accelerated vesting occurred on December 31, 2007, the last business day of our most recently completed fiscal year. This table does not reflect the value of equity awards granted after December 31, 2007.
Value of | Value of | |||||||
Acceleration of | Acceleration of Vesting of | |||||||
Vesting of Options | Performance Shares | |||||||
Name | ($)(1) | ($)(2) | ||||||
Dave Côté | 0 | 308,000 | ||||||
David C. Yntema | 0 | 246,400 | ||||||
Manuel R. Freitas | 0 | 123,200 | ||||||
Nelu Mihai | 0 | 154,000 | ||||||
Greg Pappas | 0 | 123,200 |
(1) | Reflects 100% acceleration of vesting of options that were unvested on December 31, 2007. Value of acceleration is calculated as the difference between the closing market price per share of our Common Stock on December 31, 2007 of $6.16 and the exercise price per share of unvested options having an exercise price per share less than $6.16. | |
(2) | Reflects acceleration of vesting of 100% of the target performance share awards that were unvested at December 31, 2007. Value of acceleration is calculated using the closing market price per share of our Common Stock on December 31, 2007 of $6.16. |
Involuntary Termination or Resignation for Good Reason Following a Change in Control
Change of Control Agreements for Named Executive Officers Other than the Chief Executive Officer and Chief Financial Officer
In March 2007, we entered into Change in Control Agreements with each of our Named Executive Officers other than Dave Côté, our Chief Executive Officer, and David Yntema, our Chief Financial Officer, reflecting benefits that were initially approved by the Compensation Committee in July 2006. Pursuant to these Change in Control Agreements, if, during a “change in control period,” the Named Executive Officer is involuntarily terminated without “cause” or resigns for “good reason,” he will be entitled to the following benefits provided that he executes a release of claims:
• | a lump sum cash severance payment equal to 18 months of base salary; | |
• | continuation of health insurance, life insurance and long-term disability benefits for 12 months following termination; | |
• | accelerated vesting in full of any outstanding stock option or other equity award that was granted with an exercise price equal to or greater than the fair market value of the underlying shares on the grant date; and | |
• | accelerated vesting of 50% of the then unvested portion of any outstanding restricted stock, restricted stock unit, performance share (other than the performance share awards discussed further below) or other |
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outstanding equity award that does not have an exercise price or that was granted with an exercise price less than fair market value of the underlying shares on the grant date. |
The following are summaries of terms defined in the Change in Control Agreements:
“Change in control” is generally defined as the occurrence of:
• | any acquisition of beneficial ownership of more than 50% of our outstanding voting stock; | |
• | an acquisition of Packeteer by merger; | |
• | a change in the majority of our Board of Directors effected through one or more contested elections for membership on the Board of Directors, or a Board Turn-over; or | |
• | a sale of substantially all of our assets. |
“Change in Control Period” means the period commencing upon the date of the change in control and ending on the date 12 months thereafter.
“Cause” for involuntary termination is generally defined as any of the following actions by the executive:
• | theft, dishonesty, misconduct, breach of fiduciary duty for personal profit, or falsification of any of our documents or records; | |
• | material failure to abide by our code of conduct or other policies; | |
• | misconduct that results in a required accounting restatement; | |
• | unauthorized use, misappropriation, destruction or diversion of any of our tangible or intangible assets or corporate opportunity; | |
• | any intentional act which has a material detrimental effect on our reputation or business; | |
• | repeated failure or inability to perform any reasonable assigned duties after written notice, and a reasonable opportunity to cure, such failure or inability; | |
• | any material breach of any employment, non-disclosure, non-competition, non-solicitation or other similar agreement which is not cured pursuant to the terms of such agreement; | |
• | failure to cooperate in a corporate investigation; or | |
• | conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation or moral turpitude, or which impairs the executive’s ability to perform his duties on our behalf. |
“Good reason” for resignation is generally defined as the occurrence, during a change in control period, of any of the following conditions without executive’s informed written consent, which condition remains in effect ten business days after executive’s written notice of such condition:
• | a material, adverse change in the executive’s title, duties or responsibilities; | |
• | a decrease in the executive’s base salary rate or target bonus amount; | |
• | a relocation of the executive’s work place that increases the executive’s regular commute by more than 50 miles one-way; or | |
• | a material breach by us or our successor of the agreement providing for change in control benefits following the consummation of a change in control. |
In addition to the foregoing benefits, each executive officer will continue to be indemnified to the fullest extent permitted by applicable law against liability arising out of his service as an officer and will be entitled to advancement of fees and expenses incurred to the fullest extent permitted by law. We or our successor will be required to continue coverage of the former executive officer under a policy of directors’ and officers’ liability insurance for six years.
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Pursuant to the Change in Control Agreements, each Named Executive Officer has agreed to continue to abide by the terms of our confidentiality and proprietary rights agreement and to non-solicitation of our employees and customers for 12 months following an involuntary termination of employment without cause or a resignation for good reason during a change in control period. The Change in Control Agreements have a three year term that will automatically be extended if it would otherwise expire during the period between a public announcement of a definitive agreement for a change in control and the earlier of the termination of such definitive agreement or twelve months following the change in control. The extended term will then automatically expire upon the earlier of such termination or twelve months following the change in control.
Severance and Change of Control Agreements for Chief Executive Officer and our Chief Financial Officer
In March 2007, we entered into a Severance and Change in Control Agreement with each of Messrs. Côté and Yntema, reflecting severance benefits that were initially approved by the Compensation Committee in July 2006.
These Severance and Change in Control Agreements supersede the severance and change in control provisions contained in Mr. Côté’s employment agreement and Mr. Yntema’s offer letter. Pursuant to these Severance and Change in Control Agreements, if, during a change in control period, Mr. Côté or Mr. Yntema is involuntarily terminated without cause or resigns for good reason, he will be entitled to the same benefits to which other executives are entitled under the Change in Control Agreements in the same circumstances, provided he executes a release of claims against us, except that Mr. Côté will be entitled to a lump sum cash severance payment equal to 24 months of base salary rather than 18 months. The Severance and Change in Control Agreements also contain the additional terms included in the Change in Control Agreements outlined above, and utilize the same definitions of “change in control,” “change in control period,” “cause” and “good reason.”
Performance Share Award Agreements for All Named Executive Officers
Pursuant to the terms of the agreements governing the performance share awards granted to our Named Executive Officers in January 2007, if a Named Executive Officer is involuntarily terminated without cause upon or within 12 months following a corporate transaction, the shares subject to the award will vest in a number equal to the target number of shares subject to the award multiplied by the greater of (i) 50% or (ii) the percentage of the performance period that has elapsed as of the Named Executive Officer’s termination date. Unlike the options held by Named Executive Officers, there will be no acceleration of vesting of the shares subject to the performance share awards in connection with a Named Executive Officer’s resignation for any reason. The performance share award agreements utilize the same definition of “cause” used in the Change in Control Agreements, but the definition of “corporate transaction” used in the 1999 Plan is utilized rather than the definition of “change of control” used in the Change of Control Agreements.
Estimated Benefits Payable to our Named Executive Officers upon Involuntary Termination or Resignation for Good Reason Following a Change in Control
The following table provides an estimate of the incremental benefits that would be paid or provided to a Named Executive Officer if such executive is involuntarily terminated without cause or resigns for good reason during a change in control period, subject to the limitations with respect to performance share awards described in the footnotes thereto, and assumes that the triggering event for such payments occurred on December 31, 2007. This table does not include the value of (i) any accrued benefits that were earned and payable as of that date, including bonuses deemed earned by the executive pursuant to the terms of the Change in Control Agreements, (ii) any
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accrued benefits that are generally available to salaried employees which do not discriminate in scope, terms or operation in favor of executive officers, or (iii) any equity awards granted after December 31, 2007.
Value of | ||||||||||||||||||||
Health, Life | Acceleration | |||||||||||||||||||
Insurance | Value of | of Vesting of | ||||||||||||||||||
Lump Sum Cash | and Long-Term | Acceleration of | Performance | Total | ||||||||||||||||
Payment | Disability Benefits | Vesting of | Shares | Payments | ||||||||||||||||
Name(1) | ($)(2) | ($)(3) | Options ($)(4) | ($)(5) | ($) | |||||||||||||||
Dave Côté | 830,000 | (6) | 14,527 | 0 | 154,000 | 998,527 | ||||||||||||||
David C. Yntema | 435,000 | 10,148 | 0 | 123,200 | 568,348 | |||||||||||||||
Manual R. Freitas | 352,500 | 10,136 | 0 | 61,600 | 424,236 | |||||||||||||||
Nelu Mihai | 375,000 | 14,522 | 0 | 77,000 | 466,522 | |||||||||||||||
Greg Pappas | 322,500 | 14,463 | 0 | 61,600 | 398,563 |
(1) | See the section entitled “Benefits Paid to Former Officers upon Separation” below for disclosure related to Mr. Cazares and Mr. Menezes. | |
(2) | Unless otherwise noted, consists of a lump sum cash payment equal to 18 months of 2007 base salary at the monthly base salary rate in effect immediately prior to the assumed termination date of December 31, 2007. | |
(3) | Consists of 12 months of continued health insurance, life insurance and long-term disability benefits. The value of these benefits is based on the premium cost as in effect on December 31, 2007. | |
(4) | Reflects 100% acceleration of vesting of options that were unvested on December 31, 2007. Value of acceleration is calculated as the difference between the closing market price per share of our Common Stock on December 31, 2007 of $6.16 and the exercise price per share of unvested options having an exercise price per share less than $6.16. | |
(5) | Reflects acceleration of vesting of 50% of the target performance share awards that were unvested at December 31, 2007. Value of acceleration is calculated using the closing market price per share of our Common Stock on December 31, 2007 of $6.16. Value would be recognized only upon an involuntary termination upon or within 12 months following a “corporate transaction” as defined in our 1999 plan and summarized under “Corporate Transaction in which Options and Performance Share Awards Are Not Assumed” above. There is no acceleration of vesting of performance share awards in connection with an executive’s resignation for any reason, or for an involuntary termination upon or within 12 months of an acquisition of beneficial ownership of more than 50% of our outstanding voting stock pursuant to a tender or exchange offer or a Board Turn-Over. | |
(6) | Consists of a lump sum cash payment equal to 24 months of 2007 base salary at the monthly base salary rate in effect immediately prior to the assumed termination date of December 31, 2007. |
Involuntary Termination Other than Following a Change of Control
Other than the Severance and Change in Control Agreements with our Chief Executive Officer and our Chief Financial Officer, we do not have arrangements with any of our Named Executive Officers providing for the payment of benefits upon the termination of employment by us other than within 12 months of our change in control. Pursuant to the Severance and Change in Control Agreements, each of Messrs. Côté and Yntema are entitled to the following cash severance payment from us if his employment is terminated by us without cause other than during a change in control period, provided that he executes a release of claims against us:
• | In the case of Mr. Côté, a lump sum cash severance payment equal to 12 months of his base salary; and | |
• | In the case of Mr. Yntema, a lump sum cash severance payment equal to nine months of his base salary. |
Estimated Benefits Payable to our Named Executive Officers upon Involuntary Termination Other than Following a Change in Control
The following table provides an estimate of the incremental benefits that would be paid to a Named Executive Officers if the executive is terminated by us without cause other than during a change in control period, and assumes
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that the triggering event for such payments occurred on December 31, 2007. This table does not include the value of (i) any accrued benefits that were earned and payable as of that date, including bonuses deemed earned by the executive pursuant to the terms of the Severance and Change in Control Agreements, or (ii) any accrued benefits that are generally available to salaried employees which do not discriminate in scope, terms or operation in favor of executive officers.
Lump Sum Cash | ||||
Name | Payment ($)(1) | |||
Dave Côté | 415,000 | |||
David C. Yntema | 217,500 |
(1) | Consists of a lump sum cash payment equal to 12 months of 2007 base salary in the case of Mr. Côté and nine months of 2007 base salary for Mr. Yntema, in each case at the monthly base salary rate in effect immediately prior to the assumed termination date of December 31, 2007. |
Options and Performance Share Awards Granted to our Executive Officers after December 31, 2007
In 2008, we granted stock options and performance share awards to our Named Executive Officers that are not included in the above tables. Unlike the stock options and similar to the 2007 performance share awards, the 2008 performance share awards are not covered by the Change in Control Agreements and Severance and Change in Control Agreements. Instead, pursuant to the terms of the agreements governing the 2008 performance share awards:
• | 50% of the target number of shares subject thereto will accelerate in vesting upon a corporate transaction that closes before February 28, 2009; | |
• | in the event of a corporate transaction that closes February 28, 2009 or later, (i) if the awards are not assumed, continued or replaced, 100% of the target number of shares subject thereto will accelerate in vesting; and (ii) if the awards are assumed, continued or replaced, and the executive is involuntarily terminated without cause upon or within 12 months following such transaction, a percentage of the Earned Performance Shares (as defined therein) subject thereto equal to the greater of (a) 50% or (b) the percentage of the period since the last vesting date to the final vesting date that has elapsed at the date of termination will vest. |
There will be no acceleration of vesting of the shares subject to the 2008 performance share awards in connection with an executive’s resignation for any reason. The performance share award agreements utilize the definition of “cause” used in the Change in Control Agreements, and the definition of “corporate transaction” used in the 1999 Plan.
Benefits Paid to Former Officers upon Separation
In April 2007, we entered into a separation agreement with Arturo Cázares, our former Vice President, Worldwide Sales, pursuant to which he resigned his employment with us effective April 30, 2007. The principal terms of the agreement provided for our continuation of Mr. Cázares’ base salary and a commission of $12,000 per month through September 30, 2007 in the aggregate amount of $97,917 and our payment of his COBRA premiums in the aggregate amount of $2,260. In September 2007, we entered into a separation agreement with Alan Menezes, our former Vice President, Marketing, pursuant to which he resigned his employment with us effective September 17, 2007. The principal terms of the agreement provided for our continuation of Mr. Menezes base salary through December 31, 2007 in the aggregate amount of $67,083 and our payment of his COBRA premiums in the aggregate amount of $4,185. In connection with the foregoing agreements, each of Messrs. Cázares and Menezes provided a release of any claims he may have had against us and acknowledged his continuing obligations under a proprietary information and inventions agreement with us not to use or disclose any of our confidential or proprietary information without prior written authorization from us.
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RELATED PARTY TRANSACTIONS
We have entered into indemnification agreements with each of our directors and officers and certain other employees that may, in some cases, be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. The indemnification agreements may require us, among other things, to indemnify the directors and officers against certain liabilities, other than liabilities arising from willful misconduct of a culpable nature, that may arise by reason of their status or service as directors or officers. These agreements also may require us to advance the expenses incurred by the directors and officers as a result of any proceeding against them as to which they could be indemnified. We have a directors’ and officers’ insurance policy to cover our obligations under these agreements.
In accordance with our Audit Committee charter, our Audit Committee is responsible for reviewing and approving the terms and conditions of any related party transactions. Review of any related party transaction would include reviewing each such transaction for potential conflicts of interests and other improprieties.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors and persons who beneficially own more than 10% of our Common Stock to file initial reports of beneficial ownership and reports of changes in beneficial ownership with the SEC. Such persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms filed by such person.
Based upon (i) the copies of Section 16(a) reports which we have received from such persons for their 2007 transactions in the Common Stock and their Common Stock holdings and (ii) the written representations received from one or more of such persons that no Form 5 reports were required to be filed by them for 2007, the Company believes that all reporting requirements under Section 16(a) for such year were met in a timely manner by its directors and executive officers and each holder of more than 10% of the outstanding Common Stock, except that each director submitted a Form 4 on August 21, 2007 for his annual option grant awarded on May 23, 2007.
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SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF BLUE COAT AND THE PURCHASER
DIRECTORS AND EXECUTIVE OFFICERS OF BLUE COAT
The name, current principal occupation or employment and material occupations, positions, offices or employment for the past five years of each director and executive officer of Blue Coat are set forth below. The business address of each director and officer is Blue Coat Systems, Inc., 420 North Mary Avenue, Sunnyvale, CA 94085. Unless otherwise indicated, each occupation set forth opposite an individual’s name refers to employment currently with Blue Coat.
Neither Blue Coat nor any of the directors and officers of Blue Coat listed below has, during the past five years, (i) been convicted in a criminal proceeding or (ii) been a party to any judicial or administrative proceeding that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, U.S. federal or state securities laws, or a finding of any violation of U.S. federal or state securities laws. All directors and officers listed below are citizens of the United States.
Directors of Blue Coat are identified by “D”. Executive officers of Blue Coat are identified by “EO”.
Current Principal Occupation or Employment | ||||||
Name | Age | and Five-Year Employment History | ||||
Brian M. NeSmith, EO, D | 46 | Mr. NeSmith has served as President, Chief Executive Officer and a director since March 1999. From December 1997 to March 1999, Mr. NeSmith served as Vice President of Nokia IP, Inc., a security router company, which acquired Ipsilon Networks, Inc., an IP switching company, where Mr. NeSmith served as Chief Executive Officer from May 1995 to December 1997. From October 1987 to April 1995, Mr. NeSmith held several positions at Newbridge Networks Corporation, a networking equipment manufacturer, including Vice President and General Manager of the VIVID group. Mr. NeSmith holds a B.S. in Electrical Engineering from the Massachusetts Institute of Technology. | ||||
David W. Hanna, D | 68 | Mr. Hanna has served as a director since October 1996 and as Chairman of the Board of Directors since February 2001. From December 1998 to March 1999, Mr. Hanna also served as interim President and Chief Executive Officer. Mr. Hanna has served as Chairman of the Board of Tropos Networks, Inc., a provider of metro-scale wireless mesh network systems, since January 2002 and also served as that company’s Chief Executive Officer from January 2002 to January 2004. Mr. Hanna also served as Chairman of the Board of Internet America, Inc., a provider of dial-up Internet access, from October 2004 to June 2005. From March 1998 to March 2000, Mr. Hanna served as President and Chief Executive Officer of Sage Software, Inc., a financial software company. Mr. Hanna served as President and Chief Executive Officer of State of the Art, Inc., a financial software developer, from November 1993 until March 1998. In addition, Mr. Hanna has served as Chairman, CEO and/or President of The Hanna Group since 1984; Hanna Capital Management since 1998; and Hanna Ventures since 1999. Mr. Hannah served as an officer in the U.S. Navy from February 1962 to February 1965. Mr. Hanna holds a B.S. in Business Administration from the University of Arizona. |
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Current Principal Occupation or Employment | ||||||
Name | Age | and Five-Year Employment History | ||||
James A. Barth, D | 64 | Mr. Barth has served as a director since January 2005. Since September 2007, Mr. Barth has been Chief Financial Officer and Vice President Business Development as a director of Proximex Corporation, a developer of intelligent surveillance management software. From September 2004 to September 2007, Mr. Barth was founder, Chief Executive Officer and a director of Proximex Corporation. From March 1999 to September 2004, Mr. Barth was Chief Financial Officer of NetIQ Corporation, a provider of integrated systems and security management software solutions. He was also Vice President and then Senior Vice President of Finance and Administration during this period. From November 1997 until it was sold to Sterling Software in March 1999, Mr. Barth served as Vice President and Chief Financial Officer of Interlink Computer Sciences, Inc., a developer of enterprise networking software designed for the IBM mainframe platform. From 1980 to November 1997, Mr. Barth served as Chief Financial Officer at several other high technology companies, including eleven years at Rational Software Corporation, a provider of integrated software tools. Mr. Barth holds a B.S. in Business Administration from the University of California at Los Angeles and is a certified public accountant. | ||||
Keith Geeslin, D | 55 | Mr. Geeslin has served as a director since June 2006. Mr. Geeslin has been a partner at Francisco Partners, a private equity firm, since January 2004. Prior to joining Francisco Partners, Mr. Geeslin spent 19 years with the Sprout Group. Mr. Geeslin joined Sprout in 1984, became a General Partner in 1988, and became Sprout’s Managing Partner in 2000. Earlier in his career, he was the general manager of a division of Tymshare, Inc., a provider of public computer and network services, and held various positions at its Tymnet subsidiary from 1980 to 1984. He was also previously a staff member of the U.S. Senate Commerce Committee. Mr. Geeslin serves on the board of directors of CommVault Systems, Inc., Hypercom Corporation and Synaptics Incorporated. Mr. Geeslin holds a B.S. in Electrical Engineering and an M.S. in Engineering and Economic Systems, both from Stanford University, as well as an M.A. in Philosophy, Politics and Economics from Oxford University. |
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Current Principal Occupation or Employment | ||||||
Name | Age | and Five-Year Employment History | ||||
Timothy A. Howes, D | 43 | Dr. Howes has served as a director since December 2005. Dr. Howes is Vice President and Chief Technology Officer of HP Software, a division of Hewlett Packard Co. He has held this position since September 2007. Prior to HP, he was co-founder of Opsware Inc., a data center automation software company, where he served as the Chief Technical Officer and in a number of senior executive roles from the company’s founding in September 1999 to its sale to HP in September 2007. Prior to co-founding Opsware, Dr. Howes served as Vice President of Technology at America Online, Inc., a global Internet and media company, from April 1999 to September 1999. From February 1998 to April 1999, Dr. Howes was Chief Technology Officer of the Server Product division at Netscape Communications, an Internet company. From April 1996 to February 1998, Dr. Howes was Principal Engineer and Architect of several server products at Netscape Communications. From September 1994 to April 1996, Dr. Howes was Project Director, Principal Investigator and Senior Systems Research Programmer at the University of Michigan. Dr. Howes holds a Ph.D. in computer science, a M.S.E. in Computer Science and Engineering, and a B.S.E. in Aerospace Engineering from the University of Michigan. | ||||
Betsy E. Bayha, EO | 57 | Ms. Bayha has served as Senior Vice President, General Counsel and Secretary since April 2007. Ms. Bayha previously served as Senior Vice President, General Counsel and Secretary of NetIQ Corporation, a provider of integrated systems and security management software solutions, from November 2001 to June 2006, when it was acquired by a consortium of private equity firms. Prior to joining NetIQ, Ms. Bayha was in private practice representing high technology corporations in licensing, corporate and litigation matters for more than 20 years. She was a partner at General Counsel Associates from November 1994 through October 2001, and was a partner at the international law firm of Coudert Brothers from December 1986 through October 1994. Ms. Bayha holds a J.D. from Harvard Law School, an M.A. in public administration from The Ohio State University and a B.A. in economics from Oakland University. | ||||
Kevin Biggs, EO | 49 | Mr. Biggs has served as Senior Vice President, Worldwide Sales since January 2007. Mr. Biggs joined Blue Coat from International Business Machines, Inc. (“IBM”), a manufacturer of computers and related products, where he held the position of Vice President of New Customer Acquisition from February 2004 to December 2006. Prior to that time, Mr. Biggs served as IBM’s Vice President of Worldwide Sales, IBM Data Management Division, from August 2002 to February 2004; as IBM’s Vice President of Software Sales, IBM Americas West, from April 2002 to August 2002; and as IBM’s Vice President of Software, IBM Latin America, from September 1998 to April 2002. Prior to these executive roles, Mr. Biggs held a number of sales management positions at IBM since joining IBM in 1980. Mr. Biggs holds a B.A. in both Economics and Mathematics from Drury University. |
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Current Principal Occupation or Employment | ||||||
Name | Age | and Five-Year Employment History | ||||
David A. de Simone, EO | 53 | Mr. de Simone has served as Senior Vice President of the Company since September 2003. He has served as Senior Vice President, Corporate Operations since May 2007. Previously Mr. de Simone served as Senior Vice President, Engineering from September 2003 to May 2007. From late 2002 to September 2003, Mr. de Simone worked as an independent consultant, providing technical assistance and executive coaching to several clients. From mid 2000 to late 2002, Mr. de Simone served as Vice President of Platform Development for Brocade Communications Systems, a provider of storage area networking products. From February 1989 to May 2000, Mr. de Simone held a number of positions with Tandem Computers, an enterprise computer systems and transaction processing company, and with Compaq Computer Systems, a global computer systems, storage and solutions company, subsequent to its acquisition of Tandem Computers. During the last several years of his tenure with both Compaq and Tandem, Mr. de Simone was Vice President of Clustering Technology, and earlier in his tenure with Tandem he was a Director of Engineering. Mr. de Simone has an additional 11 years of experience in a variety of engineering and operations roles. Mr. de Simone holds a B.S.E.E. from the University of California, Davis. | ||||
Bethany J. Mayer, EO | 46 | Ms. Mayer has served as Senior Vice President, Worldwide Marketing since June 2007. Previously Ms. Mayer served as Vice President of Business Planning and Marketing with JDS Uniphase Inc., an optical components company, from February 2007 to June 2007, and as the Chief Marketing Officer for Mirapoint Inc., an email and email security company, from March 2005 to February 2007. Ms. Mayer was Vice President of Marketing and Product Management for Vernier Networks, a network security company, from March 2004 to March 2005, and was Vice President of Product Marketing for Skystream Networks Inc., a video networking company, from March 2000 to March 2004. Prior to those positions, Ms Mayer held various marketing and product management positions at Cisco Systems, a networking technology company, from September 1993 to March of 2000. Ms. Mayer held various operations positions and engineering program positions at Apple Computer Inc., a computer technology company, from January 1990 to September 1993. Ms. Mayer held various positions in engineering program management at Lockheed Martin Inc., an aerospace defense company, from March 1983 to January 1990. Ms. Mayer holds a B.S. in political science from Santa Clara University. |
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Current Principal Occupation or Employment | ||||||
Name | Age | and Five-Year Employment History | ||||
Kevin S. Royal, EO | 44 | Mr. Royal has served as Senior Vice President and Chief Financial Officer since May 2005. From January 2002 to April 2005, Mr. Royal served as Chief Financial Officer of Novellus Systems, Inc, a provider of semiconductor manufacturing equipment. Mr. Royal joined Novellus in 1996 and held various senior finance positions, including Vice President Finance and Corporate Controller. Prior to Novellus, Mr. Royal worked for Ernst & Young LLP in their Northern California high technology practice for over 10 years. Mr. Royal received his Bachelor of Business Administration from Harding University and is a Certified Public Accountant in the State of California. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER
The name, current principal occupation or employment and material occupations, positions, offices or employment for the past five years of each director and executive officer of the Purchaser are set forth below. The business address of each director and officer is care of Blue Coat Systems, Inc., 420 North Mary Avenue, Sunnyvale, CA 94085. Neither the Purchaser nor any of the directors and officers of the Purchaser listed below has, during the past five years, (i) been convicted in a criminal proceeding or (ii) been a party to any judicial or administrative proceeding that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, U.S. federal or state securities laws, or a finding of any violation of U.S. federal or state securities laws. All directors and officers listed below are citizens of the United States.
Current Principal Occupation or Employment | ||||||
Name | Age | and Five-Year Employment History | ||||
Brian M. NeSmith | 46 | Mr. NeSmith has served as Chief Executive Officer and President and a director of Purchaser since April 2008. Please see above under “Directors and Executive Officers of Blue Coat” for current principal occupation with Blue Coat and for five year employment history. | ||||
Kevin S. Royal | 44 | Mr. Royal has served as Chief Financial Officer and Treasurer and a director of Purchaser since April 2008. Please see above under “Directors and Executive Officers of Blue Coat” for current principal occupation with Blue Coat and for five year employment history. | ||||
Betsy E. Bayha | 57 | Ms. Bayha has served as Vice President and Secretary and a director of Purchaser since April 2008. Please see above under “Directors and Executive Officers of Blue Coat” for current principal occupation with Blue Coat and for five year employment history. |
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