NII Holdings DEF 14A 2007
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
NII HOLDINGS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
NII Holdings, Inc.
10700 Parkridge Boulevard, Suite 600
Reston, VA 20191
April 13, 2007
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 16, 2007
We will hold the Annual Meeting of Stockholders of NII Holdings, Inc. (the Company or NII Holdings) on May 16, 2007, at 10:00 a.m. local time at the Sheraton Reston Hotel, 11810 Sunrise Valley Drive, Reston, Virginia 20191 (703-620-9000).
The purpose of the Annual Meeting is to consider and take action on the following:
1. Election of three directors, John Donovan, Steven P. Dussek and Steven M. Shindler, each for a three-year term ending 2010;
2. Ratification of the appointment of PricewaterhouseCoopers LLP as the Companys independent registered public accounting firm for fiscal year 2007; and
3. Any other business that properly comes before the Annual Meeting and any adjournments thereof.
Stockholders of record as of April 6, 2007 can vote at the Annual Meeting. This proxy statement, the accompanying proxy card, and the 2006 Annual Report on Form 10-K are being mailed or otherwise distributed to you on or about April 13, 2007. Please vote before the Annual Meeting in one of the following ways:
1. Use the toll-free number shown on your proxy card (if eligible);
2. Visit the website shown on your proxy card to vote via the Internet (if eligible); or
3. Complete, sign, date and return the enclosed proxy card in the enclosed postage-paid envelope.
Your vote is very important. Please vote before the meeting using one of the methods above to ensure that your vote will be counted. Your proxy may be revoked at any time before the vote at the Annual Meeting by following the procedures outlined in the accompanying proxy statement.
By Order of the Board of Directors,
Steven M. Shindler
Chief Executive Officer and
Chairman of the Board of Directors
GENERAL INFORMATION ABOUT PROXIES AND VOTING
These proxy materials are delivered in connection with the solicitation by our board of directors of proxies to be voted at our annual meeting, which is to be held at the Sheraton Reston Hotel, 11810 Sunrise Valley Drive, Reston, Virginia 20191 at 10:00 a.m. local time on Wednesday May 16, 2007 (the Annual Meeting). On or about April 13, 2007, we commenced mailing this proxy statement and the enclosed form of proxy to our stockholders entitled to vote at the meeting.
At the annual meeting, stockholders will be asked to:
Our Board of Directors solicits the accompanying proxy for use at the Annual Meeting. Giving your proxy means that you authorize the persons indicated on the proxy card to vote your shares at the Annual Meeting in the manner you direct. If you sign, date and return the enclosed proxy card but do not specify how to vote, your shares will be voted (1) for the election of the nominees designated below to serve for three-year terms ending 2010, (2) for ratification of the appointment of PricewaterhouseCoopers LLP as the Companys independent registered public accounting firm for fiscal year 2007 and (3) at the discretion of the persons indicated on the proxy card, on all other matters that may properly come before the Annual Meeting or any adjournments thereof. A stockholder has the power to revoke his or her proxy or change his or her vote at any time before the proxy is voted at the Annual Meeting. You can revoke your proxy or change your vote in one of four ways:
If you choose any of the first two methods, you must take the described action no later than the beginning of the Annual Meeting. If you choose the third method, you may be asked to present documents for the purpose of establishing your identity as a NII Holdings stockholder. Before the Annual Meeting, any written notice of revocation should be sent to NII Holdings, Inc., 10700 Parkridge Boulevard, Suite 600, Reston, Virginia 20191, Attention: Vice President, Regulatory Affairs and Secretary. Any notice of revocation that is delivered at the Annual Meeting should be hand delivered to our Vice President, Regulatory Affairs and Secretary before a vote is taken. Once voting on a particular matter is completed at the Annual Meeting, you will not be able to revoke your proxy or change your vote as to that matter. If your shares are held in street name by a broker, bank or other financial institution, you must contact that institution to change your vote.
Stockholders whose shares are registered in the name of a bank or brokerage firm may be eligible to vote through the Internet or by telephone. The enclosed proxy card provides instructions for eligible stockholders. Stockholders who do not own shares through a broker and stockholders who own shares through a broker, but whose proxy card does not mention information about Internet or telephone voting, should complete the enclosed paper proxy card and return it in the enclosed postage-paid envelope. Signing and returning the proxy card or submitting the proxy via the Internet or by telephone does not affect your right to revoke your proxy or to vote in person at the Annual Meeting.
The cost of soliciting proxies for the Annual Meeting will be borne by us. We have hired Georgeson Shareholder Communications, Inc. to help us send out the proxy materials and solicit proxies on behalf of the Board of Directors. Georgesons fee for this service is $7,000 plus expenses. In addition, certain of our officers and regular employees, without additional compensation, may use their personal efforts, by telephone or otherwise, to obtain proxies. We may also reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses in forwarding proxy materials to the beneficial owners of shares of common stock.
Every stockholders vote is important. Accordingly, you should sign, date and return the enclosed proxy card, vote via the Internet or by telephone, or provide instructions to your broker or other nominee whether or not you plan to attend the annual meeting in person.
Our Board of Directors has established the close of business on April 6, 2007, as the record date for determining stockholders entitled to receive notice of and to vote on proposals at the Annual Meeting or any adjournment or postponement of the Annual Meeting. Only holders of record of our common stock on the record date are entitled to vote at the Annual Meeting. Holders of common stock on the record date are entitled to one vote per share on each matter voted upon at the Annual Meeting. As of the record date, there were 162,517,913 shares of common stock outstanding. A complete list of stockholders entitled to vote at the Annual Meeting will be available for examination at the time and place of the Annual Meeting.
A quorum is necessary for the transaction of business at the Annual Meeting. A quorum exists when holders of a majority of the total number of issued and outstanding shares of common stock that are entitled to vote at the Annual Meeting are present in person or by proxy. At the Annual Meeting, inspectors of election will determine the presence of a quorum and tabulate the results of the voting by stockholders. The inspectors will treat valid proxies marked abstain or proxies required to be treated as broker non-votes as present for purposes of determining whether there is a quorum at the Annual Meeting. A broker non-vote occurs when a broker or nominee holding shares for a beneficial owner votes on one proposal, but does not vote on another proposal because the broker or nominee does not have discretionary voting power and has not received instructions from the beneficial owner of the shares. Abstentions with respect to any matter will have the same effect as a vote against that proposal.
A plurality of the votes of the holders of the common stock present at the Annual Meeting, in person or represented by proxy, and entitled to vote on the election of directors, is required for the election of directors. This means that the nominees for director who receive the greatest number of votes cast will be elected. All other matters will require the approval of a majority of the votes of the record holders present at the meeting, in person or represented by proxy, and entitled to vote on such matters.
Management and the Board of Directors are not aware of any matters to be presented for action at the Annual Meeting other than the matters stated in the Notice of Annual Meeting of Stockholders. If any such matter requiring a vote of the stockholders should properly come before the Annual Meeting, unless otherwise instructed, it is the intention of the persons named in the proxy card to vote such proxy in accordance with their best judgment.
ELECTION OF DIRECTORS
Our Amended and Restated Bylaws set our Board of Directors at nine members divided into three classes, with each class having three directors. Our Board currently consists of nine members. The three-year terms of each class are staggered so that the term of one class expires at each Annual Meeting. The Board of Directors, upon the recommendation of the Nominating Committee, has nominated John Donovan, Steven P. Dussek and Steven M. Shindler, each of whom is an incumbent director, for reelection to the board for three-year terms ending 2010.
If any nominee is unable to serve as a director, the persons named in the enclosed proxy reserve the right to vote for a lesser number of directors or for a substitute nominee designated by our Board of Directors, to the extent consistent with our Restated Certificate of Incorporation and our Amended and Restated Bylaws. All of the nominees listed above have consented to be nominated and to serve if elected. We do not expect that any nominee will be unable to serve.
John Donovan, (46), has served as a director on the board of NII Holdings since February 2006. Mr. Donovan has been the Executive Vice President, Worldwide Sales and Services, with Verisign, Inc. since November 2006. Prior to that, Mr. Donovan was the Chairman and Chief Executive Officer of inCode, a wireless and technology consulting firm since 2000. Prior to joining inCode, he was a partner with Deloitte Consulting.
Steven P. Dussek, (50), has served as a director on the board of NII Holdings since 1999. He has been President and Chief Executive Officer of Dobson Communications Corporation, a wireless telecommunications company, since 2005 and a member of the board of directors of Dobson Communications Corporation since November 2006. From 1999 until 2000, Mr. Dussek was the chief executive officer of NII Holdings. Mr. Dussek was the president and chief operating officer of NII Holdings from March 1999 until September 1999. From 1996 until 2002, Mr. Dussek served in various senior management positions with Nextel Communications, most recently as executive vice president and chief operating officer. From 1995 to 1996, Mr. Dussek served as vice president and general manager of the northeast region for the PCS division of AT&T Wireless Services. From 1993 to 1995, Mr. Dussek served as senior vice president and chief operating officer of Paging Networks, Inc., a paging company.
Steven M. Shindler, (44), has been a director on the board of NII Holdings since 1997, chief executive officer since 2000 and chairman of the board since 2002. Mr. Shindler also served as executive vice president and chief financial officer of Nextel Communications from 1996 until 2000. From 1987 to 1996, Mr. Shindler was an officer with Toronto Dominion Bank, a bank where he was a managing director in its communications finance group.
Our Board of Directors recommends that the holders of common stock vote FOR incumbent directors John Donovan, Steven P. Dussek and Steven M. Shindler.
Carolyn Katz, (45), has served as a director on the board of NII Holdings since 2002. Ms. Katz has been an independent consultant, providing advisory services to communications companies, since 2001. She was a principal at Providence Equity Partners, a private equity firm specializing in media and telecommunications, from 2000 to 2001. From 1984 to 2000, Ms. Katz worked for Goldman Sachs, an investment bank, and most recently as managing director. Ms. Katz is on the board of directors of American Tower Corporation, a provider of wireless and broadcast communications infrastructure.
Donald E. Morgan, (38), has served as a director on the board of NII Holdings since 2002. Mr. Morgan is the founder of, and has been a managing partner with, Brigade Capital Management LLC since March 2006. From 2001 to March 2006, he had been senior managing director and co-head of the Fixed Income-High Yield Division of MacKay Shields LLC 2001 and had held other positions with MacKay Shields since 1997. Prior to joining MacKay Shields, Mr. Morgan was a high yield analyst with Fidelity Management & Research, an affiliate of the mutual fund company, where he worked from 1994 to 1997.
George A. Cope, (45), has served as a director on the board of NII Holdings since July 2004. A Canadian citizen, Mr. Cope currently serves as President and Chief Operating Officer of Bell Canada Corporation. From 2000 to 2005, he was executive vice president of TELUS Corp. and president and chief executive officer of TELUS Mobility. From 1987 to 2000, he served as president and chief executive officer of Clearnet Communications. Prior to joining Clearnet, Mr. Cope served as vice president, Corporate Development at Lenbrook, Inc., a distributor of electronic components, audio and two-way radio products.
Neal P. Goldman, (37), has served as a director on the board of NII Holdings since 2002. Mr. Goldman joined Brigade Capital Management LLC as a partner in January 2007. From 2001 to June 2006, Mr. Goldman was a managing director in the High Yield Division of MacKay Shields LLC. Prior to joining MacKay Shields LLC he was a principal in the Special Situations Group of Banc of America Securities from 1999 to 2001. He was previously with Salomon Smith Barney, an investment bank, from 1995 to 1999 where he last served as a vice president on the High Yield Trading Desk. Mr. Goldman also serves as a director on the board of Catalyst Paper Corporation.
Charles M. Herington, (47), has served as a director on the board of NII Holdings since September 2003. He has been Senior Vice President, Latin America of Avon Products, Inc., a global beauty company, since February 2006. Prior thereto, he was the president and chief executive officer of AOL Latin America since 1999. From 1998 until 1999, he served as president of Revlon America Latina. From 1990 through 1997, he held a variety of senior management positions with PepsiCo Restaurants International. Mr. Herington is on the board of directors of Molson Coors Brewing Company (formerly Adolph Coors Company), and ADVO, Inc.
John W. Risner, (47), has served as a director on the board of NII Holdings since 2002. He is currently the President of The Childrens Tumor Foundation, which he joined in 2002. From 1997 to 2002, he served as senior vice president portfolio manager at AIG/SunAmerica Asset Management, a money management firm. Prior to that, Mr. Risner was vice president-senior portfolio manager at Value Line Asset Management, a money management firm, where he worked from 1991 to 1997.
Our business and affairs are managed under the direction of the Board of Directors in accordance with the Delaware General Corporation Law and our Restated Certificate of Incorporation and Amended and Restated Bylaws. Members of the Board of Directors are kept informed of our business through discussions with management, by reviewing materials provided to them, and by participating in meetings of the Board of Directors and its committees. The corporate governance practices that we follow are summarized below.
The Board of Directors has determined that eight of its nine current members are independent as defined by The Nasdaq Stock Market (Nasdaq) listing standards, including the following: George A. Cope, John Donovan, Steven P. Dussek, Neal P. Goldman, Charles M. Herington, Carolyn Katz, Donald E. Morgan and John W. Risner. In making that determination, the Board of Directors did not consider any relationships other than those described below in Certain Relationships and Related Transactions. The Audit Committee, Compensation Committee and Nominating Committee are composed entirely of independent directors.
The Board of Directors has approved a Code of Business Conduct and Ethics for our directors, chief executive officer, chief financial officer, principal financial and accounting officers, officers and employees, and each of our subsidiaries and controlled affiliates. The Code of Business Conduct and Ethics addresses such topics as protection and proper use of our assets, compliance with applicable laws and regulations, accuracy and preservation of records, accounting and financial reporting, conflicts of interest and insider trading. A current copy of our Code of Business Conduct and Ethics may be viewed free of charge on the Investor Relations link of our website at the following address: www.nii.com and may also be obtained by writing to us at NII Holdings, Inc. 10700 Parkridge Boulevard, Suite 600, Reston, Virginia 20191, Attention: Investor Relations.
Only the Board of Directors or the Audit Committee may consider a waiver of the Code of Business Conduct and Ethics for an executive officer or director. If a provision of the Code of Business Conduct and Ethics is materially modified, or if a waiver of the Code of Business Conduct and Ethics is granted to a director or executive officer, we will post a notice of such action on the Investor Relations link of our website at the following address: www.nii.com.
During 2006, each member of the Board of Directors attended at least 75% of the aggregate meetings (during the periods for which they served) of the Board of Directors and the committees on which they served. In addition to attending meetings, directors also fulfill their responsibilities by attending, in person or telephonically, sessions at which they are briefed about the status of particular matters, by review of our reports to directors, by visits to our facilities, and by correspondence and telephone conferences with our executive officers and others regarding matters of interest and concern to us.
We encourage members of the Board of Directors to attend the Annual Meeting. Each of the directors then serving on the Board of Directors other than Ms. Katz attended the 2006 Annual Meeting of Stockholders.
It is the practice of our Board of Directors to have executive sessions where non-employee directors meet on an informal basis at the beginning or end of each regularly scheduled meeting of the Board of Directors. During these executive sessions, directors can meet with and question our employees outside the presence of employee directors or management.
Committees of the Board
The standing committees of the Board of Directors are the Audit Committee, the Compensation Committee, the Finance Committee and the Nominating Committee. Membership on the Board of Directors and each standing committee, as of April 13, 2007, was as follows:
The Audit Committee assists the Board of Directors in its oversight of the quality and integrity of our financial statements and related disclosures and our accounting, auditing, and reporting practices. The Audit Committees
role includes discussing with management our processes to manage business and financial risk, and for compliance with significant applicable legal, ethical, and regulatory requirements. The Audit Committee is responsible for the appointment, replacement, compensation, and oversight of the independent registered public accounting firm engaged to prepare or issue audit reports on our financial statements and for the oversight of our internal audit function. The Audit Committee relies on the expertise and knowledge of management and the internal auditors in carrying out its oversight responsibilities. The specific responsibilities in carrying out the Audit Committees oversight role are delineated in the written charter last amended by the Board in February 2006. A current copy of the Audit Committee Charter may be viewed free of charge on the Investor Relations link of our website at the following address: www.nii.com and may also be obtained by writing to us at NII Holdings, Inc. 10700 Parkridge Boulevard, Suite 600, Reston, Virginia 20191 Attention: Investor Relations.
The Board of Directors, in its business judgment, has determined that all of the members of the Audit Committee are independent as defined by regulations of the Securities and Exchange Commission and the Nasdaq listing standards. The Board of Directors has also determined that all of the members of the Audit Committee have sufficient knowledge in financial and auditing matters to serve on the Audit Committee and that Steven P. Dussek, Carolyn Katz and John W. Risner each qualifies as an audit committee financial expert as defined by regulations of the Securities and Exchange Commission.
The Audit Committee is authorized to engage or consult from time to time, as appropriate, at our expense, independent legal counsel and other experts and advisors it considers necessary, appropriate or advisable in the discharge of its responsibilities.
The primary responsibilities of the Compensation Committee are to:
The Compensation Committee is authorized to engage or consult from time to time, as appropriate, at our expense, consultants, independent legal counsel and other experts and advisors it considers necessary, appropriate or advisable in the discharge of its responsibilities. The Compensation Committee operates under a written charter. A current copy of the Compensation Committee Charter may be viewed free of charge on the Investor Relations link of our website at the following address: www.nii.com and may also be obtained by writing to us at NII Holdings, Inc. 10700 Parkridge Boulevard, Suite 600, Reston, Virginia 20191 Attention: Investor Relations. All members of our Compensation Committee are independent, as defined in the Nasdaq listing standards.
The Nominating Committee develops qualifications for director candidates and recommends to the Board of Directors persons to serve as our directors. The Nominating Committee operates under a written charter adopted by the Board in April 2004. A current copy of the Nominating Committee Charter may be viewed free of charge on the
Investor Relations link of our website at the following address: www.nii.com and may also be obtained by writing to us at NII Holdings, Inc. 10700 Parkridge Boulevard, Suite 600, Reston, Virginia 20191 Attention: Investor Relations. All members of the Nominating Committee are independent, as defined in the Nasdaq listing standards.
The Nominating Committee has set forth guidelines for the evaluation of potential nominees. These guidelines set forth standards by which potential nominees are to be evaluated, including the following:
It is the policy of the Nominating Committee also to consider candidates recommended by stockholders. Stockholders entitled to vote for the election of directors may submit candidates for consideration if we receive written notice, in proper form, for each such recommended nominee. If the notice is not written and in proper form, then the Nominating Committee cannot consider the nominee. To be in proper form, the notice must include (1) each nominees written consent to be named as a nominee and to serve, if elected, (2) the name and address of the stockholder making the nomination and evidence of share ownership pursuant to the requirements of Rule 14a-8 of the Securities and Exchange Commission relating to stockholder proposals, and (3) information about the person nominated for election conforming with the Securities and Exchange Commissions biographical requirements for directors. All stockholder nominations should be sent to:
Vice President, Regulatory Affairs and Secretary
NII Holdings, Inc.
10700 Parkridge Boulevard, Suite 600
Reston, Virginia 20191
The Board of Directors established a standing Finance Committee in February 2004. The members of the Finance Committee previously served on the Companys ad hoc pricing committee, which was created to approve the specific terms of various financing transactions. The primary responsibilities of the Finance Committee are to consult with and provide guidance to management with respect to our capital requirements and financing efforts. The Board of Directors may also delegate its power to the Finance Committee to approve the pricing and other terms of various financing transactions.
Stockholders may communicate directly with the Board of Directors. All communications should be directed to our Vice President, Regulatory Affairs and Secretary at the address below and should prominently indicate on the outside of the envelope that it is intended for the Board of Directors, or for non-management directors. If no party is specified, the communication will be forwarded to the entire Board of Directors. Each communication intended for the Board of Directors and received by the Vice President, Regulatory Affairs and Secretary will be forwarded to the specified party following its clearance through normal security procedures used for regular mail. The communication will not be opened, but rather will be forwarded unopened to the intended recipient. Stockholder communications to the Board of Directors should be sent to:
Vice President, Regulatory Affairs and Secretary
NII Holdings, Inc.
10700 Parkridge Boulevard, Suite 600
Reston, Virginia 20191
The Compensation Committee of the Board of Directors is responsible for the development, oversight and implementation of our compensation program for executive officers, including our chief executive officer, our chief financial officer and each of our three other most highly compensated executive officers who earned more than $100,000 in total compensation for services, who we refer to as the named executive officers, and in that role annually reviews and establishes the compensation of our executive officers. The Compensation Committee is committed to a philosophy that links a significant portion of each executives compensation to corporate performance. That philosophy guides the Compensation Committees discussions and determinations with respect to executive compensation.
The Compensation Committees primary goals in structuring compensation for executives are to attract, motivate and retain qualified and experienced executives and to provide executives with meaningful financial rewards for superior performance. To achieve these goals, the Compensation Committee seeks to provide a mix of annual and long-term compensation that will align the short- and long-term interests of our executives with those of the company and our stockholders. In 2006, the Compensation Committee approved an executive compensation program that consisted of base salaries, an annual cash bonus plan with payouts based on performance against defined targets and long-term equity incentive awards of stock options and restricted stock.
A discussion of the principles, objectives, components, analyses and determinations of the Compensation Committee with respect to executive compensation are included in the Compensation Discussion and Analysis that follows this Committee report. The specific decisions of the Compensation Committee regarding the compensation of named executive officers are reflected in the compensation tables and narrative that follow the Compensation Discussion and Analysis.
The Compensation Committee has reviewed the Compensation Discussion and Analysis included in this report and discussed it with our management. Based on this review and discussion, the Compensation Committee recommended that the Compensation Discussion and Analysis be included in our annual report on Form 10-K or proxy statement for the 2007 annual meeting of stockholders.
No member of the Compensation Committee is a current or former officer of us or any of our subsidiaries, except that Steven P. Dussek served as our chief executive officer from 1999 until 2000 and as our president and chief operating officer from March 1999 until September 1999. In addition, there are no compensation committee interlocks with other entities with respect to any such member.
Compensation Discussion and Analysis
The Compensation Committee of our Board of Directors reviews and establishes the salary and other compensation of our executive officers, including the named executive officers, and provides oversight of our equity based compensation programs for other employees. The Compensation Committee consists entirely of non-employee, independent members of our Board of Directors and operates under a written charter approved by the Board of Directors, a copy of which is available on the Investor Relations link of our website at the following address: www.nii.com. In 2006, the Compensation Committee engaged a consultant, Mercer Consulting, to advise it with respect to matters relevant to its decisions regarding executive compensation. Information on the
Compensation Committees processes and procedures for the consideration and determination of executive and director compensation is included under the caption Governance of the Company Compensation Committee.
In making its determinations relating to executive compensation, the Compensation Committee has followed a philosophy that links a significant portion of each executives compensation to corporate performance. That approach focuses on an executives total compensation, including cash and non-cash compensation, from all sources. The principal objectives of our compensation program are to:
As described in more detail below, our executive compensation program consists of the following principal components:
These components of executive compensation are used together to strike an appropriate balance between cash and stock compensation and between short-term and long-term incentives. This program is designed to ensure that a significant portion of each executives total compensation is tied both to our annual and long-term performance and to the creation of stockholder value. In particular, we believe that short-term annual cash incentive compensation for each executive should be tied directly to corporate performance for the fiscal year, including the achievement of identified goals as they pertain to the corporation as a whole and, in some cases, to the business units for which an executive is personally responsible and accountable. The short-term annual incentive generally provides that if the targeted goals are reached, the executive will receive a bonus in an amount that is defined as a percentage of the executives base salary, while performance that exceeds or falls below the targeted goals results in higher or lower levels of bonus compensation. In contrast, we believe that the value of long-term incentive compensation should be tied directly to long-term corporate performance as reflected in increases in the value of our shares.
We differentiate compensation among the members of the executive team based on each executives position and responsibility, with executives at higher compensation levels having a greater percentage of their total cash compensation tied to corporate performance. Accordingly, executives with greater roles and responsibilities associated with achieving our performance targets bear a greater proportion of the risk that those goals are not achieved and receive a greater proportion of the reward if our performance targets are met or surpassed. In addition, as an executives position and responsibility increases, the long-term incentive compensation component of executive compensation becomes more significant because our most senior executives have the greatest influence on our strategic performance over time.
Our current compensation program does not provide for the reduction or recovery of payments and awards made to our executives in the event that our financial statements were to be restated in the future in a manner that would have impacted the size or payment of the award at the time of payment. In the future, we may consider the adoption of a policy regarding recovery of payments or awards to our executives.
The Compensation Committee annually, or more frequently, reviews our executive compensation program. In the course of that review, the Compensation Committee takes into consideration, among other things, the recommendations made by the chief executive officer (with respect to the compensation of executives other than the chief executive officer), recommendations of our human resources professionals and the advice and recommendations of its executive compensation consultant. At each board meeting, the Compensation Committee provides a report to the full Board of Directors regarding significant executive compensation matters.
In determining the compensation of our executive officers, the Committee evaluates total overall compensation, as well as the mix of the three key compensation components: base salary, annual cash incentive payments and long-term equity incentives. In evaluating and determining both the aggregate amount of each executives total compensation and the mix of the components, the Committee uses a number of factors including the following:
With respect to comparative industry data, the Compensation Committee reviews executive salaries and evaluates compensation structures and the financial performance of comparable companies in a designated peer group established by the Compensation Committee, with assistance from its executive compensation consultants. The peer group used for comparison purposes focuses principally on high performing public companies selected from the NASDAQ 100 and includes those in the telecommunications or related industries and companies that are similar to us in size in terms of revenues, assets or other characteristics and complexity or companies with similar market capitalizations and other characteristics.
In 2006, twenty companies were selected by the Compensation Committee as the peer group for purposes of collecting comparative industry market data. This peer group was used by the Compensation Committee to analyze our compensation policies and structure in relation to the peer companies financial performance and compensation structures. The following companies were included in the peer group:
The financial performance measures used by the Compensation Committee to evaluate our performance in comparison to the performance of peer companies included revenue growth, return on invested capital, and return on assets, return on equity and total stockholder return. In making these comparisons, the financial performance measure receiving the greatest consideration from the Compensation Committee in relation to peer performance and executive compensation was total stockholder return. In its review, the Compensation Committee found that our total stockholder return for 2005 exceeded the 90th percentile of the peer group.
The executive compensation program consists of three principal components: base salary, annual bonuses and long-term equity incentives with the long-term equity incentive component allocated between grants of restricted stock and nonqualified stock options. We also provide retirement and welfare benefits that include participation in our 401(k) savings plan, our health, dental and vision plans and various insurance plans, including disability and life insurance.
Each of the three principal components of executive compensation is designed to reward and provide incentives to executives consistent with our overall philosophy on executive compensation. These components and the rationale and methodology for determining the absolute and relative amounts of each component are described below. As described in more detail below, the value of the total compensation to be paid to our executives was set by the Compensation Committee at levels that are comparable to the total compensation paid by the peer group to executives in similar positions and with similar levels of experience. Consistent with the Compensation Committees view that a greater portion of our executives compensation should be at risk, the base salary and annual bonus components were generally a smaller portion, and the long-term equity incentives were a relatively larger portion, of total compensation than was the case for the peer group. The Compensation Committee uses grants of restricted stock as a long term retention incentive that is attributable to a number of years rather than a component of annual compensation for the particular year of grant, although as described below the portion of the value of current or previous grants of restricted stock allocable to the year is taken into account in determining annual compensation for that year.
In determining the total compensation of our executive officers and the mix of the principal components of executive compensation within the total compensation range, the Compensation Committee takes into account the overall philosophy on executive compensation described above as well as additional factors such as the competitive environment, historic compensation levels of the executive and similarly situated executives and the compensation levels contemplated by the companys annual budget. In 2006, the process for making those determinations generally involved the following steps:
As a result of this process, the sum of the values of the base salary, the target bonus amount, the value of the restricted stock grants allocable to the year and the fair market value of the option grant were generally within the total compensation target range for the executive officer for that year. Specific information on the amounts and types of compensation earned by the named executive officers during 2006 can be found in the Summary Compensation Table and other tables and narrative disclosures following this discussion.
Our base salary philosophy is to provide reasonable current income to our named executive officers in amounts that will attract and retain qualified individuals with a broad, proven track record of performance. Thus our objective is to provide base salaries that, taken together with the other components that make up the total compensation package, are competitive relative to total compensation paid to executives holding similar positions at comparable companies within the peer group selected by the Compensation Committee. In 2006, the Compensation Committee determined that executive base salaries for executives other than Mr. Shindler should be targeted at levels consistent with the historic compensation levels with adjustments that reflect customary annual increases that were consistent with our budget for base salary increases. In the case of Mr. Shindler, the base salary for 2006 reflected an increase to bring his base salary within the range of base compensation for similarly situated executives based on the peer group and other external analyses. Base salaries are reviewed annually and adjustments are made as required in light of the comparable compensation of executives in the peer group and to recognize outstanding individual performance, expanded duties or to address changes in the competitive marketplace. Incremental amounts paid to executives who work outside the United States to compensate them for the additional costs and other obligations relating to those assignments such as amounts paid for security services, housing costs and travel costs are not taken into consideration in determining base salary and are not used in calculating the annual bonus as described below.
The annual base salaries for our named executive officers for 2006 (effective from April 1, 2006 through March 31, 2007) and the percentage change from 2005 are as follows:
The adjustments to annual base salary were generally consistent with the approach used in 2005 and reflect the Compensation Committees overall philosophy of placing less emphasis on the base salary and annual bonus components of compensation, which are paid in cash, and to weight the at risk long-term equity incentive components of total compensation more heavily.
Annual Bonus Incentives
Executives have the opportunity to earn an annual bonus up to a predetermined percentage of base salary based on achievement of defined operating unit or consolidated corporate performance goals. In addition to promoting the achievement of corporate performance goals, the bonus awards are designed to align the interests of senior management as a team to achieve specified common corporate objectives. Consistent with our annual incentive compensation plan, the Compensation Committee, in consultation with our senior executives, designs the annual bonus program to provide incentives to achieve the corporate performance goals established by our Board of Directors.
In 2006, cash bonuses were paid to all of our executive officers for the achievement of certain corporate financial and operating targets relating to our 2006 fiscal year (the 2006 Bonus Plan). In March 2006, the Compensation Committee determined that the two financial and operating targets for 2006 would be achieving defined levels of consolidated operating income before depreciation and amortization and consolidated net subscriber additions. In the case of executive officers who were responsible for operations in one or more countries, the operating targets were based on a combination of both consolidated and specific country goals with the country goals given more weight. The bonus criteria, each of which was weighted, also included a discretionary component for officers based at our headquarters and a component based on the completion of defined management succession planning activities. The minimum achievement required to qualify for a bonus was 80% of the specified target performance goals under the 2006 Bonus Plan. The maximum payout of a bonus was based on the achievement of 120% of the specified target performance goals under the 2006 Bonus Plan. In the case of the executives based at our headquarters, 90% of the bonus amount is determined using a formula that is directly based on the percentage of the target performance goals achieved on a consolidated basis with the remaining 10% determined at the discretion of the compensation committee. For executive officers who were responsible for operations in one or more countries, 75% of the bonus amount is determined using a formula that is directly based on the percentage of target performance goals achieved for the specific country, 15% is determined based on the percentage of target performance goals achieved on a consolidated basis and the remaining 10% is determined at the discretion of the compensation committee.
The 2006 Bonus Plan was designed to provide incentive bonuses that would reward executives for superior achievement and be competitive as compared to bonuses paid by the peer group established by the Compensation Committee, while being consistent with the Committees views on the appropriate levels of total compensation. The performance measures and the target amounts used for the 2006 Bonus Plan were initially developed and
recommended by our senior executives based on their assessment of our 2006 operating and financial goals. These proposals were evaluated by the Compensation Committee, with the input of its outside compensation consultants, in light of the Compensation Committees overall compensation philosophy of placing greater weight on the at risk components of compensation and our short and long term strategies and goals. This review resulted in the Compensation Committees determination that 2006 incentive bonuses for the named executive officers should be targeted at the following percentages of base salary for each of the named executive officers: Mr. Shindler 80%; Mr. Siliezar 60%; Mr. van Gemert 60%; Mr. Felipe 50% and Mr. Foyo 50%.
To determine bonus amounts earned by our executive officers during the plan year, the Compensation Committee meets following the fiscal year end to review our financial and operating performance as compared to the applicable performance measures and to discuss performance factors and other criteria related to the award of bonuses. The Compensation Committee considers but is not bound by the recommendations of executive officers, including the chief executive officer, with respect to the payment or amounts of bonuses to executives.
On a consolidated basis, the company achieved 103% of the performance target for operating income before depreciation and amortization and 117% of the performance target for net subscriber additions. Based on these results, the achievement of the specific country goals and the application of the discretionary component described above, the named executives bonus payouts under the 2006 Bonus Plan ranged from 101% to 114% of the target bonus amounts, which were based on predetermined percentages of base salary as described above. Based on the foregoing, the bonuses awarded to the named executive officers for 2006 and the percentage changes from 2005 were as follows:
The percentages of annual base salary used to determine the 2006 annual bonus targets were consistent with those used in 2005. Accordingly, the change in the bonus amounts paid in 2006 relative to 2005 was primarily due to a combination of the increases in the executive officers base salaries and our performance in 2006 in comparison to the 2006 operating targets.
Long-Term Equity Incentives
The Compensation Committee provides equity-based incentives to executives through the 2004 Incentive Compensation Plan, which permits the grant of stock options, stock appreciation rights, stock awards, performance stock awards, incentive awards and stock units. Long-term equity incentives generally have been made available to executives in the form of grants of restricted stock and nonqualified stock options. These awards provide executives with an opportunity to accumulate shares of our common stock and directly link an executives compensation opportunities with the creation of value that benefits our stockholders. Stock option grants require stock price appreciation in order for executives to realize any benefit, thus directly aligning executive and stockholder interests. The Compensation Committee assigns a value to the grant of stock options based on the Black-Scholes-Merton option-pricing model using assumptions consistent with those we use in calculating the compensation expense attributable to such grants under Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment, or SFAS 123R. For purposes of this analysis, we use the full 10 year term as the expected life of the option so our calculations generate an assumed value that is higher than the value that is used to calculate the expense pursuant to SFAS 123R. Restricted stock awards provide a similar alignment of interests while providing a substantial retention incentive through their vesting terms. The Compensation Committee also employs multiyear vesting of equity incentives, which focuses executives on consistent long-term growth in stockholder value and requires executives to remain employed with us for extended periods to receive the full benefit of the awards.
In April 2006, the Compensation Committee considered the long-term equity incentives available under the 2004 Incentive Compensation Plan and granted non-qualified stock options and restricted stock grants to our
executive officers. The Compensation Committee relied heavily on the use of stock options because of the performance nature of options. Restricted stock was also chosen as a component of equity compensation to be used as a multi-year retention tool based on the fact that a large number of grants of restricted stock made in 2004, the most significant previous grant, are scheduled to vest in April 2007. In making the restricted stock grants in 2006, the Compensation Committee intended to continue these retention benefits over a multi-year period with the expectation that restricted stock grants in these amounts would not be made on an annual basis. Consistent with our overall compensation philosophy described above, the number of stock options and restricted stock awards granted to individual executives also reflected the executives position and responsibilities with us.
The 2006 stock option awards to executive officers vest 25% per year for four years on each anniversary of the date of grant. The stock options were granted at the closing market price on the date of grant and expire after ten years. The 2006 restricted stock awards contain delayed vesting in two 50% increments over a four year period. The first 50% of the award will vest on the third anniversary of the date of the award, and the remaining 50% will vest on the fourth anniversary of the date of the award. The vesting of the stock options and restricted stock is not conditioned on any individual performance of the executive or on our financial or operating performance. Additional information regarding specific grants made to the named executive officers is included in the Grants of Plan-Based Awards table following this discussion.
With the exception of the restricted stock grants, which are designed to provide a multi-year incentive, the determination of the amounts of the equity-based grants were determined by the Compensation Committee consistent with its compensation philosophy of providing a total annual compensation package for 2006 that is consistent with the levels used by the peer companies and did not take into account the value realized by the executive officers with respect to prior equity incentive grants.
Our practice with respect to the timing of long-term incentive awards has been to make grants of nonqualified stock options and/or awards of restricted stock to executives once each year in late April, which has historically coincided with our annual meeting of stockholders and previously scheduled meetings of the Board of Directors and various committees, including the Compensation Committee. Non-employee directors also typically received annual grants of stock options in connection with the April board meetings. In the future, we expect to continue the practice of making grants of options and/or awards of restricted stock at our regular Board of Directors and committee meetings scheduled in April of each year notwithstanding that our annual meeting of stockholders may be held at a later date. Awards of stock options or other equity incentives to new officers and directors occur at the time of the persons appointment or election as an officer or director. In addition, our chief executive officer may grant, under authority delegated to him by the Compensation Committee, a limited number of stock options (not to exceed 10,000 shares in any single grant and 100,000 shares in the aggregate) to employees who are not executive officers. Pursuant to the 2004 Equity Plan, the exercise price of all stock options is not lower than the closing market price of our stock on the date of grant.
In 2006, the Board and committee meeting at which the equity grants were made occurred on April 26, 2006. Consistent with our historic practice, grants of nonqualified stock options and awards of restricted stock to executives and directors for 2006 were made by the Compensation Committee on April 26, 2006. With the exception of Mr. Goldman, who received grants of stock options and restricted stock on June 28, 2006 when certain restrictions on accepting equity grants imposed by his former employer expired, non-employee directors serving on the Board of Directors as of the annual meeting of stockholders also received grants of stock options and restricted stock on April 26, 2006. The exercise price of these stock options for each grant was the closing market price on the date of grant.
We also follow a practice of disclosing our financial results for the first quarter of the fiscal year following the April Board meeting at which those results are discussed. The 2006 first quarter earnings release was made publicly available on April 27, 2006. Although the members of the Compensation Committee were aware of the impending release of information relating to first quarter results at the time grants of stock options were made, the Compensation Committee did not use such information in determining the amount of the awards to be made
to executives and directors for that fiscal year nor did the Compensation Committee withhold the making of grants to confer a benefit on the recipient of a grant or avoid a loss in value of a grant.
We are aware that the release of our quarterly financial results may have an impact on the market price of our common stock, and therefore the value of the option grant, depending on whether the information is favorable or unfavorable. However, we believe that the April Board of Directors meeting is an appropriate time during the year to make option grants and that a consistent application of our option granting practices from year to year regardless of the content of the first quarter earnings release is also appropriate. The stock options granted by the Compensation Committee are designed to create incentives for the creation of long-term stockholder value and contain delayed vesting provisions that prevent recipients of stock options from taking advantage of short-term fluctuations in the market price of our common stock.
We have not planned in the past, nor do we plan in the future, to time the release of material non-public information for the purpose of affecting the value of executive compensation. We do not have a practice of setting the exercise price of options based on the stock price on any date other than the grant date, nor do we use a formula or any other method to select a price based on a period before, after or surrounding the grant date. Nonqualified stock options are granted at the closing price of our common stock on the date of grant.
In October 2004, we adopted an executive target ownership program that requires our executive officers to attain designated stock ownership levels, and therefore maintain a vested interest in our equity performance. Over a five-year period, the executives covered by the program are expected to reach the targeted ownership levels based on specific share targets per executive officer level. The types of stock ownership that qualify toward the ownership requirement under our policy include direct stock ownership, vested options where the exercise price is lower than the fair market value of our common stock and vested restricted stock. The penalty for non-compliance of our policy may include a discontinuation of future equity grants until compliance is achieved.
The program required that Mr. Shindler reach a targeted stock ownership level with a value equal to two times his base salary by December 31, 2006. For the remaining executive officers, the program required the executive reach a targeted stock ownership level equal to his or her base salary by December 31, 2006. All of the named executive officers met these requirements as of December 31, 2006. For Mr. Shindler, the program requires that he reach a targeted stock ownership level with a value equal to four times his base salary by December 31, 2007 and equal to five times his base salary by December 31, 2009. For the remaining executive officers, the program requires the executive reach a targeted stock ownership level equal to two times his base salary by December 31, 2007 and equal to three times his base salary by December 31, 2009.
The share targets for the named executive officers and the percentage of the target attained at December 31, 2006, based on the base salary levels paid in 2006 and the closing price of our common stock on the Nasdaq Global market on December 29, 2006 of $64.44 are as follows:
Our corporate policy that applies to trading in our stock by executives restricts the hedging by the named executive officers of the economic risk of ownership of our common stock.
Section 162(m) of the Internal Revenue Code imposes a limitation on the deductibility of nonperformance-based compensation in excess of $1 million paid to named executive officers of public companies. As noted above,
the Compensation Committee has implemented a compensation program that links a substantial portion of each executives compensation to performance. We intend to qualify executive compensation for deductibility under Section 162(m) if doing so is consistent with our best interests and the interests of our stockholders. Since our corporate objectives may not always be consistent with the requirements of full deductibility, it is conceivable that we may enter into compensation arrangements in the future under which payments are not deductible under Section 162(m). We currently believe that we should be able to continue to manage our executive compensation program for the named executive officers to preserve the related federal income tax deductions, although individual exceptions may occur.
Our executives who are eligible may participate at their election in our 401(k) retirement savings plan that provides employees with an opportunity to contribute a portion of their cash compensation to the plan on a tax-deferred basis to be invested in specified investment options and distributed upon their retirement. Consistent with the 401(k) plan, we match 100% of each employees contributions to the 401(k) plan up to a maximum of 4% of the employees base salary. The employer matching contribution vests based on the employees years of service. Our matching contribution for 2006 for named executive officers was $36,506 in the aggregate.
Our Board of Directors has not adopted any plans for the deferral of executive compensation or for the payment of defined benefits or pensions based on an executives salary and/or years of service. In addition, we have not adopted a supplemental executive retirement plan or other excess plan that pays benefits to highly compensated executives whose salaries exceed the Internal Revenue Services maximum allowable salary for qualified plans.
We previously adopted two severance plans that provide for the payment of severance benefits to employees, including our executive officers, if their employment is terminated in specified circumstances. One plan provides for the payment of severance benefits if the officers employment is terminated without cause for certain reasons and the other plan provides for the payment of severance benefits if the officers employment is terminated without cause, or if the officer terminates his or her employment with good reason, in connection with a change of control. The two severance plans are mutually exclusive. These arrangements have been in place for several years and were not modified in 2006. While the Compensation Committee generally does not take into account the potential payments to executives under our severance plans, including termination and change of control arrangements, in performing its annual evaluation of the total compensation that may be realized by our executive officers, the Compensation Committee believes that the terms of these arrangements are generally consistent with those offered by similarly situated companies including those in the peer group. A description of the terms of our severance plans, the specific circumstances that trigger payment of benefits, an estimate of benefits payable upon the occurrence of those triggering events and other information relating to such plans can be found below under the caption Executive Compensation Potential Payments under Severance Plans.
In the table below and discussion that follows it, we summarize the compensation earned during 2006 by our chief executive officer, our chief financial officer and each of our three other most highly compensated executive officers who earned more than $100,000 in total compensation for services rendered in all capacities during 2006. We refer to these individuals in this proxy statement as the named executive officers.
For Mr. Foyo, the amount in this column includes an employer 401(k) matching contribution in the amount of $8,800, and includes payments made with respect to routine comprehensive annual physical examinations and related expenses in the amount of $28,903, a housing allowance, utilities reimbursements, a foreign services differential, tax gross ups including amounts payable with respect to Medicare taxes due with respect to the foreign service related payments and personal travel costs reimbursements to Mr. Foyo as follows:
We have not entered into an employment or similar agreement with any of the named executive officers. All compensation that we pay to our named executive officers, other than the foreign service differential and related payments, is determined as described above in our Compensation Discussion and Analysis section.
We made the awards of restricted stock and grants of stock options under our 2004 Incentive Compensation Plan.
The table above presents the fair value of option grants under SFAS 123R, as determined based on the Black-Scholes-Merton option-pricing model and the stated assumptions. The Black-Scholes-Merton option-pricing model, however, was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models such as the Black-Scholes-Merton model require the input of highly subjective assumptions, including the expected stock price volatility. We hired an independent consulting firm with expertise in this area to review our assumptions, methodology and calculations. The assumptions represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. Consequently, there is a risk that our estimates of the fair values of our stock option awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those stock option awards in the future. Certain stock option awards may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from the stock option award that is significantly in excess of the fair values originally estimated on the grant date and reported in our financial statements. Additionally, application of alternative assumptions could produce significantly different estimates of the fair value of stock option awards and consequently, the related amounts recognized in the consolidated statements of operations. Currently, there is no market-based mechanism or other practical application to verify the
reliability and accuracy of the estimates from option-pricing valuation models, such as Black-Scholes-Merton, nor is there a means to compare and adjust the estimates to actual values. Although the fair value of stock option awards is determined in accordance with SFAS 123R and Staff Accounting Bulletin Topic 14 (SAB 107) using the Black-Scholes-Merton option-pricing model, the fair value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction. Because employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, we believe that the existing models do not necessarily provide a reliable single measure of the fair value of the stock options granted to the named executive officers.
We do not have any pension plans or nonqualified deferred compensation plans.
In the table below and discussion that follows it, we summarize the grants of stock options and stock awards to each of the named executive officers during 2006. Our non-equity incentive bonus plan adopted for 2006 does not provide for payouts in fiscal years after 2006, and we historically have not issued any performance-based equity incentive plan awards.
Grants of Plan-Based Awards
Fiscal Year 2006
As disclosed in the table above, on April 26, 2006 we granted awards of restricted common stock to each of the name executive officers. Fifty percent of each award will vest on April 26, 2009, the third anniversary of the grant date, and the remaining 50% of each award will vest on April 26, 2010, the fourth anniversary of the grant date.
In addition, on April 26, 2006 we granted options to acquire shares of our common stock to each of the named executive officers. The exercise price for the options listed was the closing price of a share of our common stock, as reported on the Nasdaq Global Select Market, on April 26, 2006. The exercise price may be paid in cash, in shares of our common stock valued at fair market value on the date of exercise or pursuant to a cashless exercise procedure under which the optionee provides irrevocable instructions to a brokerage firm to sell the purchased shares and to remit to us, out of the sale proceeds, an amount equal to the exercise price plus all required withholding and other deductions.
The right to exercise the options granted will vest at a rate of 25% of the aggregate number of shares of our common stock covered by such options on each of the first four successive anniversary dates of the date of grant. The options expire ten years from the date of grant. An earlier expiration date may apply in the event of the optionees termination of employment, retirement, death or disability.
For information on how we determined the number of restricted stock awards and stock option grants for 2006, see the Compensation Discussion and Analysis section above.
The equity awards reflected in the table below include the number and value of stock options and restricted stock that remain outstanding as of December 31, 2006.
Outstanding Equity Awards at Fiscal Year-End 2006
In the table below, we list information on the exercise of options and the vesting of restricted stock during the year ended December 31, 2006.
The following table sets forth information as of December 31, 2006, with respect to compensation plans under which shares of our common stock are authorized for issuance.
We have arrangements with each of our named executive officers under our Change of Control Severance Plan that provide for payments and benefits if an executives employment is terminated in connection with the occurrence of certain events involving a change in control. In addition, we have an obligation to make payments and provide certain benefits to our named executive officers under our Severance Plan, 2002 Management Incentive Plan and 2004 Incentive Compensation Plan resulting from termination of employment upon the occurrence of certain events. The following is a summary of the payments that we or our successor may make under each of these arrangements.
Each of our named executive officers is covered by our Change of Control Severance Plan and our Severance Plan. The change of control plan provides for the payment of certain benefits if an executive officers employment is terminated by the company without cause or by the executive officer for good reason in connection with a change of control. No benefits are required to be paid unless the executive officers employment is terminated. The named executive officers are also entitled to severance benefits if their employment is terminated by the company in specified circumstances under the Severance Plan. Although the benefits under the Severance Plan apply without regard to whether any change of control has occurred or is pending, the benefits paid under the change of control plan are offset by any amounts paid under the Severance Plan. Each of the named executive officers has also received awards of stock options and restricted stock under the 2002 Management Incentive Plan and the 2004 Incentive Compensation Plan. Both of these plans contain provisions that may accelerate the vesting of awards made to a named executive officer under each plan if we terminate the executives employment with us or if the executive terminates his or her employment with us for good reason in connection with a change of control.
Except as noted below, we otherwise have not entered into any employment agreements or other arrangements that provide for benefits in connection with a termination of employment of our named executive officers. In the case of Mr. Felipe, we have agreed that he is entitled to benefits under the Severance Plan if he is involuntarily terminated other than for cause or if he resigns as a result of a substantial change to his duties and responsibilities or residence, and that his severance benefit in those circumstances will be a minimum of one year of base salary and
bonus, unless application of the Severance Plan would result in the payment of a greater amount. We have also agreed to provide Mr. Felipe with medical insurance for one year following his termination in those circumstances.
The following table shows the estimated amount of the payments to be made to each of the named executive officers upon termination of their employment in connection with a change of control under the Change of Control Severance Plan, their involuntary termination under the Severance Plan or upon their termination in connection with their death or disability. For purposes of calculating the value of the benefits, we have assumed that the triggering event for payment occurred under each of the arrangements as of December 31, 2006. The footnotes to the table contain an explanation of the assumptions made by us to calculate the payments, and the discussion that follows the table provides additional details on these arrangements.
Potential Payments upon Termination of Employment
The Change of Control Severance Plan provides that each named executive officer will receive a payment if a change of control, as defined below, occurs and he either is terminated without cause or resigns for good reason. Messrs. Shindler, Siliezar and van Gemert will be entitled to receive 250% of his annual base salary and target bonus at the date of his termination upon such an event, and Messrs. Felipe and Foyo will be entitled to receive 200% of such amounts, all as provided in the plan. Each named executive officer will be entitled to receive his payment under the plan in a lump sum within thirty days following his termination of employment.
We or the surviving entity will also pay the full premium cost of continued health care coverage for each named executive officer under the federal COBRA law in such a termination. We will make the COBRA payments up to the lesser of 18 months or the time at which the named executive officer is reemployed and is eligible to receive group health coverage benefits under another employer-provided plan. The payments may also cease for any of the reasons provided in the COBRA law.
In addition, in the event that any of the named executive officers incur any legal, accounting or other fees and expenses in a good faith effort to obtain benefits under the Change of Control Severance Plan, we or the surviving entity will reimburse the named executive officer for such reasonable expenses. The named executive officer will be entitled to receive a tax gross-up payment in the event that any payments made under the plan is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code.
A change of control will be deemed to occur under the plan when:
A named executive officer will receive compensation under the plan if:
The Severance Plan provides payments to a named executive officer in the event of an involuntary termination of employment, which includes termination due to job elimination, work force reductions, lack of work, a determination by us that the executives contributions no longer meet the needs of the business and any other reason determined by us. In the case of Mr. Felipe, we have agreed that he is entitled to benefits under the Severance Plan if he is involuntarily terminated other than for cause or if he resigns as a result of a substantial change to his duties and responsibilities or residence. Under the Severance Plan, each of the named executive officers will be entitled to a payment equal to 12 months of his annualized base salary, not including any bonus, incentive payments or commission payments. Each named executive officer other than Mr. Felipe will also receive a pro rata payment of his bonus based on the portion of the year that he was employed by us. In the case of Mr. Felipe, we have agreed that the payment with respect to his bonus will be for a full year and will not be prorated. We will pay the bonus to the named executive officer when we pay bonuses for the bonus plan year, and such bonus will be based on the achievement level of the named executive officers business unit for the year.
We will make a lump sum payment of the amount due under the Severance Plan to each named executive officer. We reserve the right to make the payments periodically for a period not to exceed 24 months. In order to receive payments under the Severance Plan, each named executive officer must:
The 2002 Management Incentive Plan covers grants to the named executive officers and certain other employees and consultants of certain incentives and rewards, including stock options, stock appreciation rights, restricted stock, deferred stock, performance shares and performance units. The 2002 Plan provides that our board of directors has the right, in its sole discretion, to cancel awards made under the 2002 Plan and pay the participant an amount equal to the benefit at such time of any awards under the 2002 Plan.
Under the 2002 Plan, a change of control occurs when:
The 2002 Plan provides us with discretion to make any payments or accelerate the vesting or payment of any award in the event of the death, disability or retirement of a named executive officer.
The 2004 Incentive Compensation Plan covers the grant of certain incentives and awards, including stock options, stock appreciation rights, stock, performance shares, incentive awards, stock units and dividend equivalent rights, to our employees, including the named executive officers. Under the 2004 Plan, if a change of control occurs
and the incentives and awards granted under the plan are not assumed by the surviving entity, or the employee is terminated within a certain period following a change of control, each outstanding award is treated as explained below. A change of control under the 2004 Plan is defined the same as in the Change of Control Severance Plan and the same events that trigger payments to the executive under the Change of Control Severance Plan trigger payments under the 2004 Plan, both as described above.
The 2004 Plan provides that the administrator of the plan shall determine what amounts will be payable to the named executive officer upon death, disability or retirement in the agreement under which awards are made under the plan.
In the table and discussion below, we summarize the compensation paid to our non-employee directors in 2006.
Fiscal Year 2006
Each of our non-employee directors receives an annual retainer of $70,000. In addition, our non-employee directors receive the following annual retainer for serving on the following specified committees:
We pay all retainers in arrears in quarterly installments. We also reimburse directors for travel expenses incurred in connection with attending board, committee and stockholder meetings and for other related expenses. We do not provide any additional compensation to employees who serve as a director or a committee member. Some of our directors and, in one case, a family member of a director participate in our employee phone program that pays the cost of mobile phone services.
We have adopted a policy of granting to each non-employee director an option to purchase 15,000 shares of our common stock upon becoming a director. These options will vest 331/3% annually over a three year period and have an exercise price equal to the closing price of a share of our common stock, as reported on the Nasdaq Global Select Market, on the grant date. On February 14, 2006, the date that Mr. Donovan became a director, we granted Mr. Donovan options to purchase 15,000 shares of our common stock at an exercise price of $47.77 per share that will vest 331/3% annually over a three year period in accordance with our policy.
We have also adopted a policy to grant to each non-employee director an option to purchase 10,000 shares of our common stock as of the date of the annual meeting of our stockholders. These options will vest 25% annually over a four year period. On April 26, 2006, the date of our annual meeting of stockholders, we granted to each non-employee director, with the exception of Mr. Goldman, options to purchase 10,000 shares of our common stock at an exercise price of $60.77 per share. The options will vest 25% annually over a four year period in accordance with our policy.
In addition, we may grant additional stock options or restricted stock to non-employee directors. On March 8, 2006, when certain restrictions on accepting equity grants imposed by his former employer expired, we granted to Mr. Morgan options to purchase 15,000 shares of our common stock at an exercise price of $49.16 per share that will vest 331/3% annually over a three year period. On April 26, 2006, we granted to each non-employee director, with the exception of Mr. Goldman, a restricted stock award of 5,000 shares of our common stock that will vest entirely on April 26, 2009. On June 28, 2006, when certain restrictions on accepting equity grants imposed by his former employer expired, we granted to Mr. Goldman options to purchase 15,000 shares of our common stock at an exercise price of $52.28 per share that will vest 331/3% annually over a three year period, options to purchase 10,000 shares of our common stock at an exercise price of $52.28 per share that will vest 25% annually over a four year period, and restricted stock awards of 5,000 shares of our common stock that will vest entirely on June 28, 2009.
On July 21, 2006, we adopted a director target ownership program that requires our non-employee directors who receive stock options and/or restricted stock awards to attain certain stock ownership levels, and therefore maintain a vested interest in our equity performance. Over a five-year period, the directors covered by the program are expected to reach certain ownership levels based on specific share targets. The current target is for our non-employee directors to own a multiple of five times their base retainer. Our current base retainer is $70,000, thus our non-employee directors currently have a share ownership target of $350,000. Although this share ownership target is not required to be met for five years, five of our eight non-employee directors exceeded that target as of December 31, 2006. Under our policy, an increase in the base retainer will result in an increase in the ownership requirement. The types of stock ownership that qualify toward the ownership requirement under our policy include direct stock ownership, vested options where the exercise price is lower than the fair market value of our common stock and vested restricted stock. The penalty for non-compliance of our policy may include a discontinuation of future grants of stock options or restricted stock awards until the non-complying director becomes compliant.
The table below lists each person or group, as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, known by us to be the beneficial owner of more than 5% of our outstanding common stock as of April 1, 2007.
In the table and the related footnotes below, we list, as of April 1, 2007, except as otherwise stated, the amount and percentage of shares of our common stock that are deemed under the rules of the Securities and Exchange Commission to be beneficially owned by:
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file with the Securities and Exchange Commission initial reports of beneficial ownership and reports of changes in beneficial ownership of our equity
securities. Based solely upon a review of Forms 3, Forms 4 and Forms 5 furnished to us under Rule 16a-3(e) during 2006, and written representations of our directors and executive officers that no Forms 5 were required to be filed, we believe that all directors, executive officers and beneficial owners of more than 10% of our common stock have filed with the Securities and Exchange Commission on a timely basis all reports required to be filed under Section 16(a) of the Securities Exchange Act.
The Audit Committee of the Board of Directors reviews and approves or ratifies transactions involving the Company and related persons (directors and executive officers or their immediate family members, or shareholders owning five percent or more of our outstanding common stock) in accordance with the requirements of The NASDAQ Stock Market. In determining whether to approve or ratify a related party transaction, the Audit Committee evaluates whether the transaction is in the best interests of the Company taking into consideration all relevant factors, including as applicable the Companys business rationale for entering into the transaction and the fairness of the transaction to the Company. The Audit Committee generally seeks to consider and approve these transactions in advance where practicable, but may also ratify them after the transactions are entered into, particularly in instances where the transactions are entered into in the ordinary course of business (as was the case with the transactions with inCode described below) or if the transaction is on terms that are consistent with a policy previously approved by the Audit Committee or the Board of Directors (as was the case with the transactions involving the charter of our aircraft described below). In instances where the transaction is subject to renewal or if the Company has the right to terminate the relationship, the Audit Committee expects to periodically monitor the transaction to ensure that there are no changed circumstances that would render it advisable for the Company to amend or terminate the transaction.
Currently, the only related person transactions are the agreements with Nextel Communications, Inc. that were approved as part of our emergence from bankruptcy, the transactions with inCode, and the transactions involving the charter of our aircraft, all as described in more detail below. The Audit Committee approved these arrangements other than the transactions with Nextel Communications, Inc., which were approved by the bankruptcy court.
Upon our emergence from bankruptcy on November 12, 2002 under our confirmed plan of reorganization, Nextel Communications, Inc. directly or indirectly held 42,712,128 shares of our common stock. According to a Schedule 13G/A2 filed with the Securities and Exchange Commission on August 22, 2005, and giving effect to certain sale transactions of which we were aware, Nextel Communications had reduced its ownership as of December 31, 2005 to 14,712,128 shares of our common stock, which represented approximately 9.1% of our issued and outstanding shares of common stock on that date. On February 14, 2007, Nextel Communications filed a Schedule 13G/A3 reporting that it had sold all remaining shares of our common stock as of January 5, 2007. Because Nextel Communications may have held in excess of 5% of our outstanding common stock during 2006, they are deemed to be a related person.
The following are descriptions of other significant transactions consummated with Nextel Communications on November 12, 2002 under our confirmed plan of reorganization that continued to be effective during 2006.
On November 12, 2002, we and Nextel Communications entered into a spectrum use and build-out agreement. Under this agreement, certain of our subsidiaries committed to complete the construction of our network in the Baja region of Mexico in exchange for proceeds from Nextel Communications of $50.0 million. We recorded the $50.0 million as deferred revenues, and we are recognizing the revenue ratably over 15.5 years, the then remaining useful life of our licenses in Tijuana. As of December 31, 2006, we had recorded $39.2 million of deferred revenues related to this agreement. During the year ended December 31, 2006, we recognized $3.2 million in revenues related to this arrangement.
On November 12, 2002, we entered into a third amended and restated trademark license agreement with Nextel Communications, which superseded a previous trademark license agreement. Under the new agreement, Nextel Communications granted to us an exclusive, royalty-free license to use within Latin America, excluding Puerto Rico, certain trademarks, including but not limited to the mark Nextel. The license continues indefinitely unless terminated by Nextel Communications upon 60 days notice if we commit any one of several specified defaults and fail to cure the default within a 60 day period. Under a side agreement, until the sooner of November 12, 2007 or the termination of the new agreement, Nextel Communications agreed to not offer iDEN service in Latin America, other than in Puerto Rico, and we agreed to not offer iDEN service in the United States.
On February 14, 2006, we elected Mr. John Donovan, President and Chief Executive Officer of inCode, a wireless business and technology consulting company, to our Board of Directors in order to fill a vacancy. During 2006, we paid inCode approximately $349,100 to perform various consulting services for us.
Unlike many companies that own or lease a private aircraft, we have implemented a policy that generally limits the use of company owned or leased aircraft to company business purposes. However, we do make the company aircraft available for charter to employees at times when it is not in use for regular business purposes. We use charter revenue from our employees and from other sources as a way to offset the operating costs of our aircraft. In the event a charter is booked by one of our employees, the charter rate is the same as the established rate that applies to charters by unrelated parties. In 2006, Mr. Shindler, our chief executive officer, chartered our aircraft on several occasions at these commercial rates, which were in excess of $5,000 per hour of use of the aircraft, and paid us a total of $218,500 for such charters.
PricewaterhouseCoopers LLP has audited our consolidated financial statements for the fiscal years ended December 31, 2006 and December 31, 2005.
The following information is furnished with respect to the fees billed by our principal accountant for each of the last two fiscal years.
The aggregate amount of fees billed and expected to be billed to us by PricewaterhouseCoopers LLP for professional services rendered in connection with the audit of our annual financial statements for the fiscal years ended December 31, 2006 and December 31, 2005 were $10,228,000 and $7,204,000, respectively. Fees billed in 2005 related to the restatement of our 2003 and 2004 financial statements were approximately $65,000.
Expenses billed to us by PricewaterhouseCoopers LLP related to the years ended December 31, 2006 and 2005 were approximately $278,000 and $150,000, respectively. Additionally, expenses billed in 2005 related to the aforementioned restatement were approximately $37,000.
Audit fees consist of those fees rendered for the audit of our annual consolidated financial statements, audit of the effectiveness of internal controls over financial reporting, review of financial statements included in our quarterly reports and for services normally provided in connection with statutory and regulatory filings or engagements, such as comfort letters or attest services.
The aggregate amount of fees billed to us by PricewaterhouseCoopers LLP for professional services for assurance and related services that are reasonably related to the review of our financial statements and not reported under the heading Audit Fees above for the fiscal years ended December 31, 2006 and December 31, 2005 were $82,000 and $411,000, respectively. The fees billed by PricewaterhouseCoopers LLP included fees for consultations on accounting and reporting standards in 2005. Expenses billed to us by PricewaterhouseCoopers LLP related to the years ended December 31, 2006 and 2005 were $251 and $34,000, respectively.
The aggregate amount of fees billed to us by PricewaterhouseCoopers LLP for professional services for tax compliance, tax advice, tax planning, transfer pricing and expatriate tax services for the fiscal years ended December 31, 2006 and December 31, 2005 were $363,000 and $659,000, respectively. Tax fees consist of those fees billed by the independent registered public accounting firms tax department, except those services related to the audit. Expenses billed to us by PricewaterhouseCoopers LLP related to the years ended December 31, 2006 and 2005 were $400 and $1,000, respectively.
The aggregate amount of fees billed to us by PricewaterhouseCoopers LLP for services other than those described above for the fiscal years ended December 31, 2006 and December 31, 2005 were $15,000 and $13,000, respectively. All other fees are those fees billed for permitted services other than the services described above. There were no expenses billed to us by PricewaterhouseCoopers LLP related to the years ended December 31, 2005 and 2006.
It is the policy of the Audit Committee that our independent registered public accounting firm may provide only those services that have been pre-approved by the Audit Committee. Unless a type of service to be provided by the independent registered public accounting firm has received general pre-approval, it requires specific pre-
approval by the Audit Committee. The term of any general pre-approval is eighteen months from the date of pre-approval, unless the Audit Committee or a related engagement letter specifically provides for a different period. The Audit Committee will annually review and pre-approve the services that may be provided by the independent registered public accounting firm without obtaining specific pre-approval. The Audit Committee has delegated its pre-approval authority to Carolyn Katz, the chairwoman of the Audit Committee.
Requests or applications to provide services that require specific approval by the Audit Committee must be submitted to the Audit Committee by both the independent registered public accounting firm and our chief financial officer, treasurer or controller, and must include a joint statement as to whether, in their view, the request or application is consistent with the Securities and Exchange Commissions rules on auditor independence.
No portion of this Audit Committee Report shall be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, through any general statement incorporating by reference in its entirety the Proxy Statement in which this report appears, except to the extent that we specifically incorporate this report or a portion of it by reference. In addition, this report shall not be deemed to be filed under either the Securities Act or the Exchange Act.
The Board of Directors has adopted a written audit committee charter, which is available on the Investor Relations link of our website at the following address: www.nii.com. In addition, all members of our Audit Committee are independent, as defined in the Nasdaq listing standards.
The Audit Committee has reviewed and discussed our audited consolidated financial statements with our management and PricewaterhouseCoopers LLP, our independent registered public accounting firm. The Audit Committee has also discussed with our independent registered public accounting firm the matters required to be discussed pursuant to Statement on Auditing Standards No. 61, as amended, Communication with Audit Committees.
The Audit Committee has received and reviewed the written disclosures and the letter from PricewaterhouseCoopers LLP required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, that relates to the firms independence from our company and our subsidiaries and has discussed with PricewaterhouseCoopers LLP their independence.
In addition, the Audit Committee met with senior management periodically during 2006 and reviewed key initiatives and programs aimed at strengthening the effectiveness of our internal and disclosure control structure. As part of this process, the Audit Committee continued to monitor the scope and adequacy of our internal auditing program, reviewing staffing levels and steps taken to implement recommended improvements in internal procedures and controls. The Audit Committee also met to discuss with senior management our disclosure controls and procedures and the certifications by our chief executive officer and our chief financial officer, which are required for certain of our filings with the Securities and Exchange Commission. The Audit Committee met privately with our independent registered public accounting firm, our internal auditors and other members of our management, each of whom has unrestricted access to the Audit Committee.
Based on the review and discussions referred to above, the Audit Committee recommended to our Board of Directors that the audited financial statements be included in our annual report on Form 10-K for fiscal year 2006 filed with the Securities and Exchange Commission. By recommending to the Board of Directors that the audited financial statements be so included, the Audit Committee is not opining on the accuracy, completeness or presentation of the information contained in the audited financial statements.
PricewaterhouseCoopers LLP, independent registered public accounting firm, served as our independent registered public accounting firm for the fiscal year ended December 31, 2006, and has been selected by the Audit Committee to serve as our independent registered public accounting firm for the current fiscal year. Information concerning the fees paid to PricewaterhouseCoopers LLP is included in this proxy statement under the heading Audit Information. Representatives of PricewaterhouseCoopers LLP will be present at the Annual Meeting and available to respond to appropriate questions from stockholders and may make a statement if they so desire.
Although our Amended and Restated Bylaws do not require stockholder ratification or otherwise, as a matter of good corporate governance, the Board of Directors is requesting that stockholders ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2007.
The Board of Directors recommends that the stockholders vote FOR the Proposal for Ratification of the Appointment of PricewaterhouseCoopers LLP.
Proposals by stockholders intended to be presented at the 2008 Annual Meeting must be forwarded in writing and received at our principal executive office at 10700 Parkridge Boulevard, Suite 600, Reston, Virginia 20191 no later than December 13, 2007, directed to the attention of our Vice President, Regulatory Affairs and Secretary, for consideration for inclusion in our proxy statement for that Annual Meeting. Moreover, with respect to any proposal by a stockholder not seeking to have a proposal included in our proxy statement but seeking to have a proposal considered at the 2008 Annual Meeting, if that stockholder fails to notify our Vice President, Regulatory Affairs and Secretary in the manner set forth above no later than February 26, 2008, then the persons who are appointed as proxies may exercise their discretionary voting authority with respect to that proposal, if the proposal is considered at the 2008 meeting, even if stockholders have not been advised of the proposal in the proxy statement for the 2008 Annual Meeting. Any proposals submitted by stockholders must comply in all respects with the rules and regulations of the Securities and Exchange Commission then in effect and Delaware law.
To assure your representation and a quorum for the transaction of business at the Annual Meeting, we urge you to please complete, sign, date and return the enclosed proxy card promptly or otherwise vote by using the toll free number or visiting the website listed on the proxy card if you are eligible to do so.
OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006, INCLUDING FINANCIAL STATEMENTS, IS BEING MAILED TO STOCKHOLDERS WITH THIS PROXY STATEMENT. ADDITIONAL COPIES OF OUR 2006 ANNUAL REPORT ON FORM 10-K MAY BE OBTAINED WITHOUT CHARGE BY: (1) WRITING TO NII HOLDINGS, INC., 10700 PARKRIDGE BOULEVARD, SUITE 600, RESTON, VIRGINIA 20191, ATTENTION: VICE PRESIDENT, REGULATORY AFFAIRS AND SECRETARY, OR (2) BY CONTACTING OUR INVESTOR RELATIONS DEPARTMENT AT 703-390-5113. THE ANNUAL REPORT IS NOT PART OF THE PROXY SOLICITATION MATERIALS.
Annual Meeting Proxy Card
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
A Proposals The Board of Directors recommends a vote FOR the listed nominees and FOR the following proposals.
B Non-Voting Items
Change of Address Please print your new address below.
C Authorized Signatures This section must be completed for your vote to be counted. Date and Sign Below
Please sign exactly as name appears. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in corporations name by President or other authorized officer. If a partnership, please sign in partnerships name by authorized person.
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
Proxy NII Holdings, Inc.
This Proxy is Solicited on Behalf of the Board of Directors.
The undersigned hereby appoints Steven M. Shindler, Lo van Gemert, Gary Begeman, Robert J. Gilker, and Byron R. Siliezar, and each or any of them, proxies for the undersigned, with power of substitution, to vote all the shares of common stock of NII Holdings, Inc. held of record by the undersigned on April 6, 2007, at the Annual Meeting of Stockholders of NII Holdings, Inc. to be held at 10:00 a.m. on May 16, 2007, and at any adjournments thereof, upon the matters listed on the reverse side, as more fully set forth in the Proxy Statement, and for the transaction of such other business as may properly come before the Annual Meeting and at any adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED ON THE REVERSE SIDE BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL NOMINEES IN PROPOSAL I AND FOR PROPOSAL II.
PLEASE VOTE, DATE AND SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
(continued and to be DATED and SIGNED on reverse side)