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Opnext 10-K 2009 Documents found in this filing:Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
Amendment No. 1
For the fiscal year ended March 31, 2009
Commission file number 001-33306
Opnext, Inc.
(Exact name of registrant as specified in its charter)
(510) 580-8828
(Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
None Securities registered pursuant to Section 12(g) of the Exchange Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act of 1933. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No
þ
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No
o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
As of September 30, 2008, the aggregate market value of the registrant’s voting and
non-voting common equity held by non-affiliates of the registrant was approximately $85,041,161,
based upon the closing sales price of the registrant’s common stock as reported on the Nasdaq Stock
Market on September 30, 2008 of $4.59 per share.
As
of July 27, 2009, 88,656,447 shares of the registrant’s common stock were outstanding.
Table of Contents
EXPLANATORY NOTE
Opnext, Inc. (“Opnext,” “we,” “us” or the “Company”) is filing this Amendment No. 1 to our
Annual Report on Form 10-K (the “Form 10-K/A”) for the fiscal year ended March 31, 2009, as
originally filed with the Securities and Exchange Commission (the “SEC”) on June 15, 2009 (the
“Original Form 10-K”), to add information required in Part III of our Original Form 10-K. There are
no changes to the disclosures in the Original Form 10-K, except that this Form 10-K/A amends and
restates, in their entirety, Items 10 through 14 of Part III, and Item 15 of Part IV, of the
Original Form 10-K. This Form 10-K/A does not reflect any events that occurred after the
date of our Original Form 10-K. Accordingly, there are no modifications or updates to our previously reported
disclosures as presented in the Original Form 10-K, except for Parts III
and IV thereof, as referenced above.
The information in Part III referred to above was to be incorporated into our Original Form
10-K by reference to our 2009 Notice of Annual Meeting of Stockholders and Proxy Statement. Our
Proxy Statement will not, however, be filed with the SEC within 120 days after the end of our
fiscal year, March 31, 2009, and we are therefore filing this Form 10-K/A so that such information
is incorporated within the required time period.
Additionally, we are revising Item 15 to incorporate by reference the exhibits we filed with
our Original Form 10-K and to include Exhibits 31.1, 31.2, 32.1 and 32.2, the certifications by our
principal executive officer and principal financial officer, which, as required by Rule 12b-15 of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed as exhibits to this
Form 10-K/A.
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Part III
Our Executive Officers and Directors
The following sets forth information as to persons who currently serve as our directors and
executive officers:
Charles J. Abbe. Mr. Abbe joined the Company’s Board of Directors (the “Board”) in January
2009. Mr. Abbe served as president, chief operating officer and a director of JDS Uniphase
Corporation from February 2000 until his retirement in June 2001. He served as president and chief
executive officer of Optical Coating Laboratory, Inc. (OCLI) from April 1998 until it merged with
JDS Uniphase in February of 2000. In 1996, Mr. Abbe joined OCLI as vice president and general
manager of its principal operating unit. From 1990 to 1996, he served in several positions of
increasing responsibility, including senior vice president, electronics sector, at Raychem
Corporation. Mr. Abbe practiced business consulting with McKinsey & Company in San Francisco from
1971 to 1989, serving the last seven years as a senior partner. Mr. Abbe holds a Master’s degree in
Business Administration from Stanford University, as well as a Master’s and a Bachelor’s degree in
chemical engineering from Cornell University. Mr. Abbe has been a director of CoSine
Communications, Inc. since 2000 and a director of Cymer, Inc. since 2003.
Harry L. Bosco. Mr. Bosco has served as a member of the Company’s Board since November 2000
and was appointed Chairman of the Board on April 1, 2009. Mr. Bosco served as our President and
Chief Executive Officer from November 2000 until his retirement from the Company as an officer and
employee on March 31, 2009. Mr. Bosco served in various management, engineering and executive
positions at Lucent Technologies, AT&T and Bell Laboratories from 1965 until October 2000,
including as Optical Networking Group President. Mr. Bosco holds an Associate of Science and
Bachelor of Science in Electrical Engineering from Pennsylvania State University/Monmouth
University and a Master’s degree in Electrical Engineering from Polytechnic Institute of New York.
Mr. Bosco has been a director of Arris, Inc. since 2002.
Gilles Bouchard. Mr. Bouchard served as our Chief Operating Officer from November 2007 until
April 2009 and was recently appointed as our President, Chief Executive Officer and a member of the
Board on April 1, 2009. Mr. Bouchard served in various management, engineering, and senior
management roles at Hewlett-Packard Company (“HP”) from 1989 until 2006, most recently as
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management, engineering, and senior management roles at Hewlett-Packard Company (“HP”) from 1989 until 2006,
most recently as
Executive Vice President of Global Operations and a member of HP’s Executive Council from 2004 to
2006. Prior to joining HP, Mr. Bouchard held various roles at IBM’s research and storage division.
Mr. Bouchard holds a Bachelor’s degree in Engineering from École Centrale de Lyon and a Master of
Science from University of California-Berkeley.
Michael C. Chan. Mr. Chan has served as our Executive Vice President of Business Development
and Product Portfolio Management since January 2001 and as President of Opnext Subsystems, Inc.
since April 1, 2009. Mr. Chan spent more than 18 years with Lucent Technologies, AT&T and Bell
Laboratories. Mr. Chan’s most recent position at Lucent Technologies was as Chief Strategy Officer
for the Optical Networking Group and prior to that he served as Chairman and President of Lucent
Technologies (China) Co., Ltd. Mr. Chan holds a Bachelor of Arts in Physics from Brandeis
University and a Master of Science in Operations Research from Columbia University, and is a
graduate of the Wharton Advanced Management Program, University of Pennsylvania.
Kendall W. Cowan. Mr. Cowan joined the Board in March 2007 and currently serves as Chairman of
the Audit Committee. Mr. Cowan serves as Chairman and Chief Executive Officer of The Cowan Group,
LLC, an investment and consulting firm, Cowan Holdings, Inc., and is a shareholder and board member
of several privately owned businesses. In addition, Mr. Cowan serves as a board member and chairman
of the audit committee of DBSD North America, Inc., a provider of satellite and terrestrial
wireless service, and as a board member of Lea County Bancshares, Inc. Mr. Cowan was the Chief
Financial Officer of Alamosa Holdings, Inc., a wireless telephone network operator, from December
1999 until February 2006. He became a partner in an international public accounting firm in 1983,
and from January 1986 until September 1993, he was a partner at Coopers & Lybrand. He received his
Bachelors in Business Administration in accounting in 1976 from Texas Tech University. He is a
Certified Public Accountant and a member of both the American Institute of Certified Public
Accountants and the Texas Society of Certified Public Accountants.
Shrichand Dodani. Mr. Dodani has served as Senior Advisor since April 2009. Previously, Mr.
Dodani served as President of Opnext Subsystems, Inc. f/k/a StrataLight Communications Inc. from
the date of its acquisition on January 9, 2009. Prior to such acquisition, from 2006 to January
2009, Mr. Dodani held the positions of CEO and President at StrataLight Communications, Inc. Prior
to joining StrataLight, Mr. Dodani was an Entrepreneur in Residence at Artiman Ventures. From
April 2001 to July 2005, he held several executive positions at Intel, including business
development in the Consumer Electronics Group and general management in the Communications Group.
Mr. Dodani was the President and CEO at VxTel, a Silicon Valley Voice-over-IP silicon and software
start-up that was acquired by Intel. Before VxTel, Mr. Dodani was Vice President, Engineering and
Operations, at Carrier Access Corporation, with responsibility for engineering, product
development, manufacturing and market introduction activities. Prior to Carrier Access, he served
as an executive with major computer and communications companies such as Nortel, Alcatel, ADC
Telecommunications and Computer Automation. Mr. Dodani holds a Bachelor’s degree in Physics from
Gujarat University, India and a Master’s of Computer Science from the University of Texas at Dallas
and Masters of Administrative Science from the University of Texas at Dallas.
Atsushi (James) Horiuchi. Mr. Horiuchi has served as Senior Vice President of Global Sales
since February 2008. Prior to that, Mr. Horiuchi served as our Vice President of North America
Sales from April 2003 until February 2008 and as our Director of North America Sales from 2001
until 2003. Mr. Horiuchi has more than 24 years of experience in sales, research and development,
manufacturing, and senior management in both the Japan and U.S., including more than ten years of
experience in the fiber optics industry. Prior to joining the Company, Mr. Horiuchi was Product
Marketing Manager — Fiberoptics Department at Infineon Technologies from 1999 until 2001 and
Product Marketing Manager — Optics at Hitachi Semiconductor America from 1998 until 1999. Mr.
Horiuchi holds an M.B.A. from Santa Clara University.
Shinjiro Iwata. Mr. Iwata joined the Board in May 2009. Mr. Iwata serves as Vice President
and Executive Officer, CEO of Service and Global Business, Information and Telecommunication
Systems Group of Hitachi, Ltd. Mr. Iwata began his career at Hitachi, Ltd., in 1972 in the Overseas
Business Department and has held numerous key positions within the company. In 1996, Mr. Iwata was
named Business Planning Department Manager for Hitachi’s Information Systems Group, which is one of
the largest business segments of Hitachi, Ltd. Mr. Iwata subsequently joined Hitachi Data Systems
in 1997 as an Executive Vice President in the storage line of business and served in such capacity
until August 2000. He then returned to Hitachi, Ltd. in
August 2000 and served as the General Manager of Hitachi’s
Global Business Development Division until August 2001. From there he
returned to Hitachi Data Systems in September 2001
as CEO until March 2006. Most recently, he served as Executive Vice President of Hitachi Global Storage
Technologies, Inc. until March 2009, with responsibility for various fields, such as sales, operations, logistics,
marketing, and business planning. Mr. Iwata is a native of Hyogo, Japan, and holds a Bachelor’s
degree in Engineering from Waseda University.
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Tadayuki Kanno. Mr. Kanno has served as President of the Modules and Devices Business Unit
and Executive Vice President of
Opnext Japan, Inc. since April 2008. Prior to that, Mr. Kanno served as Senior Vice President of
Opnext Japan, Inc. from May 2004 until April 2008 and as President of Opnext Japan, Inc. from May
2002 until May 2004. Mr. Kanno joined Hitachi, Ltd. in 1979 and served in various management and
executive positions at Hitachi Ltd. until 2002. Prior to joining Opnext, Mr. Kanno was General
Manager of Optical Transmission Systems, Telecommunications Division at Hitachi, Ltd. Mr. Kanno
holds a Bachelor of Engineering in Electronics from Yamagata University and a Master of Engineering
in Electronics from Yamagata University Graduate School of Engineering.
Isamu Kuru. Dr. Kuru joined the Board in March 2007. Dr. Kuru held a number of positions in
both the U.S. and Japan from 1962 until his retirement in 2005. Dr. Kuru was the President and
Representative Director of NEXNET, Inc., Japan, a wireless network operator, from 2002 until 2005.
From 1990 until 2001, Dr. Kuru served in a number of positions at Motorola, Inc., specifically as
Senior Vice President, Motorola, Inc., and President and Representative Director, Motorola Japan.
He also had a distinguished career spanning 28 years with Toshiba Corporation in both Japan and the
U.S, where he served in a number of positions including general manager of new business strategy,
general manager of the semiconductor engineering center, and group executive of the technology
semiconductor group. Dr. Kuru holds an undergraduate degree in Electrical Engineering and PhD in
Electrical Engineering from Kyoto University. He has also been engaged in research at Stanford
University, Sheffield University and completed the Advanced Management Program at Harvard
University.
David Lee. Dr. Lee joined the Board in 2000 and serves as Co-Chairman of the Board and
Chairman of the Nominating/Corporate Governance Committee. He is a co-founder and Managing General
Partner of Clarity Partners, LP, a private equity firm based in Beverly Hills, California. Prior to
the formation of Clarity Partners, Dr. Lee co-founded Global Crossing, Ltd., a global broadband
communication services provider, serving as President and Chief Operating Officer from 1997 until
2000, as well as a member of the board of directors from 1997 until 2001. From 1989 until 1997, Dr.
Lee was a Managing Director at Pacific Capital Group, a private equity firm. Prior to joining
Pacific Capital Group, Dr. Lee was Group Vice President of Finance and Acquisitions at TRW
Information Systems Group. He has also held various executive positions at Comsat, a satellite
communications company, and practiced public accounting at Arthur Andersen LLP. Dr. Lee is the
Chairman of the Board of Overseers of the University of Southern California, Keck School of
Medicine. Dr. Lee is a trustee of The J. Paul Getty Trust, the California Institute of Technology,
and the University of Southern California and a director of Trust Company of the West, an
investment management firm. Dr. Lee is a graduate of McGill University and holds a Doctorate in
Physics with a minor in Economics from the California Institute of Technology.
Robert J. Nobile. Mr. Nobile has served as our Senior Vice President of Finance since March
2001 and as our Chief Financial Officer since February 2007. Mr. Nobile served in various financial
positions throughout his career, his most recent at Kodak Polychrome Graphics, a global joint
venture between Eastman Kodak and Sun Chemical, where he held the position of Senior Vice President
of Business Integration from July 2000 until February 2001, and before that as Senior Vice
President and Chief Financial Officer from January 1998 until June 2000. Mr. Nobile holds a
Bachelor’s degree in Accounting from St. John’s University and is a Certified Public Accountant.
Kei Oki. Mr. Oki has served as Executive Vice President and President of Opnext Japan, Inc.
since April 2004. Mr. Oki joined Hitachi, Ltd. in 1971 and served in various management and
executive positions at Hitachi, Ltd. until 2004; his most recent position was as Executive Project
Manager at Information and Telecommunication Systems, International Sales Division. Mr. Oki holds a
Bachelor of Arts in Economics from Keio University.
Justin J. O’Neill. Mr. O’Neill has served as Senior Vice President and General Counsel since
May 2007. From January 2004 until April 2007, Mr. O’Neill was Of Counsel with the Los Angeles
office of Latham & Watkins LLP. Prior to joining Latham & Watkins LLP, Mr. O’Neill was an Assistant
General Counsel at Global Crossing, Ltd., a global broadband communications services provider, from
March 1999 until September 2003, and prior to that he was an attorney in the New York office of
Simpson Thacher & Bartlett LLP from 1994 until 1999. Mr. O’Neill has a Bachelor’s degree from Brown
University and a J.D. from Columbia Law School.
Ryuichi Otsuki. Mr. Otsuki joined the Company’s Board in December 2005. He is currently the
Executive General Manager, Global Business Planning & Operations Division of Hitachi, Ltd. and has
held various positions at Hitachi, Ltd. from 1981 until the present, including Vice President,
Business Planning and Coordination, PC Servers at Hitachi Data Systems and Hitachi PC Corporation
as well as many functions within the Global Business Planning and Operation Division. Mr. Otsuki
graduated from Nagoya University School of Law.
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John F. Otto, Jr. Mr. Otto joined the Board in February 2007 and currently serves as Chairman
of the Compensation Committee. An investment banker by training, Mr. Otto’s career has extended
over 30 years and included various positions, including Managing Director at Merrill Lynch & Co.,
Senior Managing Director at Bear Stearns & Co., Inc. and Managing Director at Salomon
Brothers/Salomon Smith Barney/Citigroup, from which he retired in
2002. He has been a Principal
of Waterfront Partners, LLC, a private equity investment firm, since
2003. Mr. Otto is a graduate of Boston
College and holds an M.B.A. degree from Columbia University Graduate
School of Business. Mr. Otto is not related to Philip F. Otto.
Philip F. Otto. Mr. Otto joined the Company’s Board in January 2009. Mr. Otto served as
chief executive officer and director at Schilling Robotics, Inc., a privately held manufacturer of
subsea control systems, remotely operated vehicles and other high technology equipment for offshore
oil and gas exploration and production from February 2008 through June 2009. In 2006 and 2007, Mr.
Otto was president, chief executive officer and director of Optical Communication Products, Inc., a
fiber optic component supplier, until its acquisition by Oplink Communications Inc. in 2007. From
2003 to 2006 and earlier from 1998 to 1999, Mr. Otto was a corporate strategic and financial
advisor providing financial, strategic and business development services to technology and
growth-oriented companies and investors. From 2000 to 2003, Mr. Otto was the chairman and chief
executive at MedioStream, Inc., a multi-media software company. Prior to that, Mr. Otto served as
chief financial officer of California Microwave from 1975 to 1981 and later as chairman and chief
executive officer from 1992 to 1997. From 1989 to 1991, Mr. Otto served as the chief financial
officer of General Cellular Corporation, until its acquisition by Western Wireless Corp., and from
1986 to 1988, he was the founder and chief executive officer of Technology Investment Associates
and Netline Communications Corp. Mr. Otto holds a Bachelor’s degree from the Yale School of
Engineering and a Master’s degree with concentration in marketing and financial management from
Harvard Business School. Mr. Otto is not related to John F.
Otto, Jr.
William F. Smith. Mr. Smith joined the Board in April 2009. Mr. Smith has been at AT&T since
February 1979, and presently serves as President, Local Network Operations at AT&T where he is responsible
for all local network-related operations across AT&T’s domestic footprint, including construction
and engineering, installation and maintenance, U-verse field operations, mobility construction and
maintenance, and operations planning since March 2008. From October
2007 to March 2008, Mr. Smith was Vice President
Shared Services, in charge of mass market and enterprise operations, corporate real estate,
procurement, regional wireline planning, and business planning and
integration and Senior Vice President of Network Operations in the
Southeast from January 2007 to October 2007. Before joining
AT&T, Mr. Smith served as Chief Technology Officer for BellSouth, responsible for setting the
overall technology direction for BellSouth’s core infrastructure. In that position, he was
responsible for network and operations technology, internet protocol applications, next generation
strategy, and BellSouth Entertainment, LLC. A native of Asheville, N.C., Mr. Smith graduated with
honors from North Carolina State University at Raleigh in 1979, and is on the Board of Advisors for
the graduate school there. He is the former Chairman of the Board of the Make a Wish Foundation of
Georgia and Alabama and has served on several other non-profit boards.
Naoya Takahashi. Dr. Takahashi resigned from the Board in May 2009. He joined the Company’s
Board in June 2006 and served as Chairman of the Board until his resignation as Chairman on April
1, 2009. Dr. Takahashi presently serves as Representative Executive Vice President and Executive
Officer at Hitachi, Ltd., in charge in Information Business, Research & Development and Information
Systems, Hitachi Group Chief Technology Officer, Hitachi Group Chief Innovation Officer and
Hitachi Group Chief Information Security Officer. Since joining Hitachi in 1973, Dr. Takahashi has
held a number of positions, playing key roles in marketing, research and development and business
management. Dr. Takahashi holds a Bachelor’s degree and a Master’s degree in electrical engineering
from Keio University in Japan. He also holds a PhD in Information Engineering from Keio University
and served as a visiting scholar at the Computer Systems Laboratory, Stanford University.
Tammy
L. Wedemeyer. Ms. Wedemeyer has served as our Vice President
of Human Resources
since January 2001 and Corporate Secretary since May 2005. Ms. Wedemeyer spent more than ten years
at Lucent Technologies in a variety of business management roles, most recently as Senior
Operations Manager of the Optical Networking Group. Ms. Wedemeyer holds an Associate of Arts in
Administration from Brookdale Community College.
Audit Committee
The Audit Committee is a standing committee of the Board. Effective April 1, 2009, the Audit
Committee consists of Mr. Kendall W. Cowan, Mr. John F. Otto, Jr. and Mr. Charles J. Abbe, with Mr.
Cowan serving as Chairman of the Audit Committee. For the period beginning April 1, 2008 and
ending March 31, 2009, the Audit Committee consisted of Mr. Kendall W. Cowan, Mr. John F. Otto Jr.
and Dr. Isamu Kuru, with Mr. Cowan serving as Chairman of the Audit Committee. All members of the
Audit Committee
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meet the membership requirements of The Nasdaq Stock Market LLC (“NASDAQ”), including the
requirements regarding financial literacy and financial sophistication, and the Board has
determined that each member is independent under the listing standards of NASDAQ and the rules of
the Securities and Exchange Commission (the “SEC”) regarding audit committee membership. The Board
also has further determined that Mr. Cowan is an “audit committee financial expert” as defined by
the SEC.
The Audit Committee has sole authority for the appointment, compensation and oversight of the
work of the independent registered public accounting firm, and responsibility for reviewing and
discussing, prior to filing or issuance, with management and the independent registered public
accounting firm our audited consolidated financial statements included in our Annual Report on Form
10-K and, when appropriate, our earnings press releases and other filings with the SEC. Our
internal audit control function is tasked with critical supervision over the key areas of our
business and financial controls and reports directly to our Audit Committee.
Communication with the Board
Our annual meeting of stockholders provides an opportunity each year for stockholders to ask
questions of, or otherwise communicate directly with, members of the Board on appropriate matters.
In addition, stockholders may communicate with the Board through the Company’s Secretary by writing
to the Company at the following address: Chairman of the Board c/o Company Secretary, Opnext,
Inc., 46429 Landing Parkway, Fremont, California 94538. Copies of written communications received
at such address will be provided to the Board or the relevant director unless such communications
are considered, in the reasonable judgment of our Corporate Secretary, to be inappropriate for
submission to the intended recipient(s). Examples of stockholder communications that would be
considered inappropriate for submission to the Board include, without limitation, customer
complaints, solicitations, communications that do not relate directly or indirectly to our business
or communications that relate to improper or irrelevant topics.
Code of Ethics
The Board and management of the Company believe that good corporate governance is an important
component in enhancing investor confidence in the Company and increasing stockholder value. Our
company has established a Code of Business Conduct and Ethics that applies to our officers,
directors and employees, including our principal executive officer, principal financial officer and
principal accounting officer and controller or such person performing such function, which can be
accessed at our Company’s website at http://www.opnext.com under the heading “Investor
Relations, Corporate Governance.” The Code of Business Conduct and Ethics contains general
guidelines for conducting the business of our Company consistent with the highest standards of
business ethics, and is intended to qualify as a “code of ethics” within the meaning of Section 406
of the Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K. In addition, the Company has an
anonymous hotline to encourage employees to report questionable activities to our Internal Audit
and Legal Departments, and Audit Committee. Amendments to, or waivers
from, a provision of this Code of Business Conduct and Ethics that
apply to the Company’s directors or executive officers and
members of senior financial management may be made only by the Board
or a Board committee and will be promptly posted on the
Company’s website. In addition to the Code of Business Conduct and
Ethics, we have also instituted an insider trading policy which prohibits all employees and certain
family members from purchasing or selling any type of security, whether we or any other company is
the issuer of that security, while aware of material, non-public information relating to the issuer
of the security or from providing such material, non-public information to any person who may trade
while aware of such information. The insider trading policy also prohibits employees from engaging
in short sales with respect to our securities, purchasing or pledging our stock on margin and
entering into derivative or similar transactions with respect to our securities, such as puts,
calls, options, forward contracts, collars, swaps or exchange agreements. We also have procedures
that require trades by executive officers and directors to be pre-cleared by appropriate Opnext
personnel.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires
our executive officers and directors, and persons who own more than ten percent of a registered
class of our equity securities (collectively, “Reporting Persons”), to file reports of ownership
and changes in ownership of all equity and derivative securities with the SEC and with NASDAQ. SEC
regulations also require that a copy of all Section 16(a) forms filed with the SEC be furnished to
the Company by Reporting Persons. Based solely on our review of the reports filed by Reporting
Persons, and written representations from certain Reporting Persons that no other reports were
required for those persons, we believe that, during and with respect to the fiscal year ended March
31, 2009, the Reporting Persons met all applicable Section 16(a) filing requirements, except for
the following: (1) Mark Zapicchi, the Company’s Controller, filed one late Form 4 on October 22,
2008 in connection with options to acquire shares of our common stock granted on August 15, 2008.
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Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides information regarding the executive
compensation program for our Chief Executive Officer, our Chief Financial Officer and the three
executive officers (other than the Chief Executive Officer and Chief Financial Officer) who were
the most highly compensated executives of the Company during the fiscal year ended March 31, 2009
(the “Named Executive Officers” or “NEOs”). During the fiscal year ended March 31, 2009, these
individuals were:
The details of the compensation paid to and earned by our NEOs can be found in the
compensation tables and associated narrative disclosure beginning on
page 21 of this amendment.
This Compensation Discussion and Analysis describes the material elements of our executive
compensation program during the fiscal year ended March 31, 2009. It also provides an overview of
our executive compensation philosophy and objectives. Finally, it analyzes how and why the
Compensation Committee of our Board of Directors (the “Compensation Committee”) arrived at the
specific compensation decisions for our executive officers, including our NEOs, for the fiscal year
ended March 31, 2009.
Compensation Philosophy and Objectives
Our executive compensation program is based on an overarching pay for performance philosophy.
We have designed our compensation approach to provide total pay that aligns corporate performance
with individual performance. We provide salaries and incentive compensation to executive officers
that promote superior professional performance and maximize shareholder value while providing
differentiation and flexibility, allowing Opnext to respond to unique circumstances. The
Compensation Committee believes that compensation paid to executive officers should be closely
aligned with Opnext’s performance on both a short-term and long-term basis, linked to specific,
measurable results and that such compensation should assist Opnext in attracting and retaining key
executives critical to Opnext’s long-term success.
Consistent with our pay for performance philosophy, our executive compensation program is
designed to achieve four primary objectives:
Role of the Compensation Committee
The Compensation Committee is responsible for designing and evaluating our compensation plans
for directors and executive officers, including the Chief Executive Officer, awarding incentive
compensation to executive officers and administering other
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compensation programs as authorized by the Board. The Compensation Committee is also tasked
with producing the annual report on executive officer compensation for inclusion in our proxy
materials in accordance with applicable SEC rules. The Compensation Committee solely determines the
salary and overall compensation of our Chief Executive Officer and may approve, or recommend to the
Board for approval, the compensation for all other Named Executive Officers and the directors of
the Company. When establishing the compensation of the other Named Executive Officers, the
Compensation Committee takes into consideration the recommendations of the Chief Executive Officer.
More specifically, with respect to our Named Executive Officers, the Compensation Committee
reviews and approves their:
Consistent with our performance-based philosophy, the Compensation Committee reviews and
approves our compensation programs to appropriately reward success relative to predetermined goals
and to retain key talent in a competitive marketplace. The Compensation Committee endeavors to
effectively balance executive officers’ salaries with incentive compensation that is
performance-based as well as to reward annual performance while maintaining a focus on longer-term
objectives. We believe that it serves the needs of our stockholders and key executives to provide
incentives commensurate with individual management responsibilities and past and future
contributions to corporate objectives. The mix of compensation elements varies based on an
executive officer’s position and responsibilities with the Company.
In carrying out its responsibilities, the Compensation Committee works with members of our
management team, including our Chief Executive Officer. The management team assists the
Compensation Committee by providing information on Company and individual performance, market data,
and management’s perspective and recommendations on compensation matters. While the Compensation
Committee solicits and reviews management’s (including the Chief Executive Officer’s)
recommendations and proposals with respect to compensation adjustments, long-term equity incentive
awards, program structures and other compensation-related matters, the Compensation Committee uses
management’s recommendations and proposals as only one factor when making compensation decisions
for our executive officers and directors.
To maximize stockholder value, we believe it is necessary to deliver consistent, long-term
sales and earnings growth. Accordingly, the Compensation Committee reviews not only the individual
compensation elements, but the mix of individual compensation elements that make up aggregate
compensation and attempts to structure the total compensation package balanced between short-term
and long-term compensation, and currently paid cash and equity compensation, each in a way that
meets the objectives set forth above. In carrying out its responsibilities, the Compensation
Committee:
Use of External Advisors
Pursuant to the Charter of the Compensation Committee, the Compensation Committee has the
authority to retain the services of outside advisors, experts and compensation and benefits
consultants to assist in the evaluation of the compensation of the Chief Executive Officer, the
other executive officers, the Board and our compensation framework generally. Beginning in April
2008, the Compensation Committee engaged Pearl Meyer & Partners,
LLC (“Pearl Meyer”), an independent executive
compensation consulting firm, to provide it with information, recommendations, and other advice
relating to executive compensation for fiscal year 2009 and beyond. Pearl Meyer serves at the
discretion of the Compensation Committee. Total compensation paid in
the fiscal year to
Pearl Meyer for services rendered in this regard was $168,512. For the fiscal year ended March 31, 2009, Pearl Meyer
provided the following assistance to the Compensation Committee as described in more detail below:
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Compensation Levels and Benchmarking
In order to assess competitive compensation levels and practices, in April 2008, Pearl Meyer,
at the direction of the Compensation Committee, conducted a comprehensive review of our executive
compensation. Competitive compensation levels were developed utilizing a combination of data
reported for a peer group of industry competitors and compensation survey data.
Peer group data comparisons were developed relative to a peer group of publicly traded
companies (the “Peer Group”). Peer Group companies similar to us in terms of industry and size
were identified by Pearl Meyer, and reviewed and approved by Opnext management and the Chairman of
the Compensation Committee. Peer Group primary and secondary selection criteria included (i)
industry subgroups, such as analog chips, computer networking equipment, electronic components,
optical switching & transmission components, semiconductors, and telecommunications, and (ii)
level of revenues, with annual revenues of $200 million to $650 million being necessary for
inclusion. Secondary consideration was given to other technology companies that received more
than ten percent of their revenue from Alcatel-Lucent or Cisco Systems and that had annual
revenues between $125 million and $850 million. The following sixteen companies, consisting of
our Peer Group, were used for benchmarking purposes in fiscal 2009:
For five positions (none of them occupied by Named Executive Officers), proxy
information was augmented with proprietary resources and published compensation survey data to
develop “market consensus” compensation levels for each executive, generally representing an equal
weighting of the Peer Group and compensation survey data. Peer Group company and survey matches
were made based upon each executive’s primary roles and responsibilities and positions not
prevalent in available proxy information were benchmarked to published survey data only.
Compensation survey data was derived from the following domestic survey sources:
Compensation Elements
Although the structure may vary over time, our executive compensation program consists of
three primary components:
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These components, individually and in the aggregate, are designed to accomplish the four
compensation objectives described above. For this reason, no single element dominates the
compensation package of a Named Executive Officer.
The results of the Pearl Meyer’s competitive review indicated that total direct
compensation — base salaries, annual performance-based bonuses and the annual value of long-term
incentive awards — for our executives as a group (fourteen positions in total) was between the
50th and 75th percentile market levels, consistent with our target of providing total direct
compensation between the 50th and 75th percentile market levels.
We have similar competitive objectives for each component of compensation:
Base Salary
The base salaries of our executive officers, including those of our Named Executive Officers,
historically have generally been set at the time of employment and only adjusted when special
circumstances warranted adjustment. Base salaries are determined based on level of responsibility
and subjective factors such as the individual’s experience. Base salaries represent the fixed
portion of our executives’ compensation and are important in attracting, retaining, and motivating
highly talented executive officers.
Our base salary structure is designed to result in fixed compensation approximately equal to
the 50th percentile of the market for each executive officer. As a means of
benchmarking, early in the fiscal year ended March 31, 2009, Pearl Meyer reviewed the base salaries
for all executive officers and compared our current salary structure and salaries to those of the
market. Pearl Meyer concluded that the salaries of our executive officers approximated the
50th percentile of the market for all executive officers in the aggregate, but
nonetheless recommended adjustments with respect to certain individuals, with salaries below the
50th percentile of the market. The Compensation Committee subsequently determined that
is was not in the best interests of the Company and its stockholders to adjust the base salaries of
any of our executive officers during the fiscal year ended March 31, 2009 due to the difficult
economic conditions that existed during such time. Effective April 1, 2009, our executive
officers, including each of the Named Executive Officers (other than Mr. Bosco, who retired from
the Company on March 31, 2009, and Mr. Dodani), agreed to a ten percent reduction in their base
salaries for a period of not less than six months nor more than 12 months in order to reduce our
cost structure and operating expenses.
Annual Incentive Compensation
Our executive officers, including our Named Executive Officers, are eligible to receive an
annual performance-based cash incentive bonus under the Incentive Plan upon the achievement of
certain Company and individual objectives. We believe that performance-based cash incentive
bonuses play an important role in providing incentives to our executive officers to achieve
short-term performance goals. Performance-based incentive bonuses are intended to advance our
interests and those of our stockholders by assisting us in attracting and retaining executive
officers who, given the extent of their responsibilities, can make significant contributions to our
success through their ability, industry expertise, loyalty and exceptional service. The
Compensation Committee annually approves the performance criteria and goals that will be used to
calculate our Named Executive Officers’ incentive compensation for each fiscal year.
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In August 2008, our Compensation Committee approved a bonus program based upon the
recommendation of Pearl Meyer with respect to performance during the fiscal year ended March 31,
2009 (the “2009 Bonus Plan”). Under the 2009 Bonus Plan, incentive compensation to our Named
Executive Officers was performance driven and, therefore, contingent. Payment under the 2009 Bonus
Plan was conditioned largely upon the Company achieving threshold performance levels approved by
the Compensation Committee, with a smaller amount dependent upon the individual’s own performance.
No payments were to be made to the Named Executive Officers if the minimum threshold performance
levels were not met.
Pearl Meyer reviewed our annual incentive structure and recommended dividing each Named Executive Officer’s target bonus into two components: (i) one
component dependent upon the achievement of a predetermined financial metric for the Company and
(ii) the other component dependent upon the achievement of certain predetermined individual
performance objectives. Pearl Meyer recommended that the component of the target bonus dependent
upon the Company’s financial performance be weighted more heavily for executive officers,
representing between 70 to 80 percent of the target bonus opportunity. Based upon Pearl Meyer’s
recommendation, our Compensation Committee determined that for executive officers, including the
Named Executive Officers, the component of the annual bonus dependent upon Company financial
performance should be weighted at 80 percent of target annual bonus, with the component of the
target annual bonus dependent upon individual performance weighted at 20 percent.
Pearl Meyer also determined that, in the aggregate, our target bonuses were at the
50th percentile of the market for executive officer bonuses, and recommended adjusting
the target bonus for all executive officers, including the Named Executive Officers, to the
75th percentile of the market. Based upon the recommendation of Pearl Meyer, the
Compensation Committee approved the following target bonuses (as a percentage of base salary): 100%
of salary for Mr. Bosco, 80% of salary for Mr. Bouchard, and 70% of salary for Messrs. Chan and
Nobile. (Mr. Dodani did not participate in the 2009 Bonus Plan as Mr. Dodani did not commence
employment with us until the closing of the merger with StrataLight in January 2009.) The
percentage of total compensation represented by incentive awards is generally higher for more
senior executives to reflect their greater influence on profits and sales and to put a larger
percentage of their total potential cash compensation “at risk.” Accordingly, Mr. Bosco was at the
top end of the range.
Noting that our then current program lacked a range of potential bonus payments upon
achievement of the objectives, Pearl Meyer also recommended a bonus structure with incentive
compensation earned based on our financial performance exceeding increasingly challenging levels of
performance goals. For example, Pearl Meyer suggested that for executive officers bonuses might
start to pay out when the Company had achieved 50% of the predetermined target, with the maximum
payout occurring when the Company had achieved 150% of the predetermined target. Pearl Meyer then
reviewed the annual incentives of the Peer Group companies and determined that, while revenue was
the most prevalent annual incentive plan performance measure, operating income and individual
performance were also commonly used.
Based upon the advice of Pearl Meyer, the Compensation Committee structured the 2009 Bonus
Plan with a range of potential bonus payments for each executive officer, including the Named
Executive Officers, each dependent upon the achievement of certain pre-determined short terms goals
for the Company and each such officer. Working with our executive management team, and in
particular our Chief Executive Officer and Chief Financial Officer, the Compensation Committee
determined that operating income, which was utilized by approximately one-half of the Peer Group,
was the most appropriate measure and approved the use of operating income as the measure of the
Company’s financial performance under the 2009 Bonus Plan for the fiscal year ended March 31, 2009.
Pursuant
to the 2009 Bonus Plan, the Compensation Committee established a
tiered incentive compensation structure based upon increasing levels
of
operating income for the fiscal
year ended March 31, 2009. The
threshold performance levels for the fiscal year ended March 31, 2009 were attainable, though not
certain to be achieved at the time the performance criteria were determined.
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The Compensation Committee determined that we did not meet our target level of Adjusted
Operating Income for the fiscal year ended March 31, 2009 necessary for the Company financial
performance component of bonuses to be awarded under our 2009 Bonus Plan. In addition, the
Compensation Committee determined that, because of then current and forecasted economic conditions,
none of the executive officers, including none of the Named Executive Officers, would receive any
of the individual performance component of the bonus pursuant to the 2009 Bonus Plan,
notwithstanding that such executive officer might have achieved his or her individual objectives.
As a result, no amounts were paid to any Named Executive Officer pursuant to the 2009 Bonus Plan.
Long-Term Incentive Compensation
Awards of stock options and restricted stock under our Incentive Plan are designed to:
The Compensation Committee believes that stock ownership by management is beneficial to all
stockholders, since stock options provide a direct link with stockholder interests as they have no
intrinsic value unless our stock price increases above the grant date price, and we have granted
stock awards to executive officers and other employees to promote the goals discussed above.
In the first quarter of the fiscal year ended March 31, 2009, Pearl Meyer reviewed our
long-term incentive grants, comparing the Black-Scholes value of such grants to market consensus
data. Pearl Meyer recommended a long-term incentive structure with awards determined by salary
grade and the value of grants. Pearl Meyer determined that, while the aggregate value of our
long-term incentive grants to executive officers was at the 50th percentile level of the
market consensus as of August 2007, by April 2008, the aggregate value of such grants had decreased
such that it was at the 25th percentile of the market consensus. Pearl Meyer also
determined that 75 percent of the companies in the Peer Group used stock options
and 38 percent used restricted stock, and that on average stock options and restricted stock awards
for Peer Group companies vested over a four-year period. As a result of these findings, Pearl
Meyer recommended that we increase the aggregate value of our long-term incentive grants by making
regular grants to executive officers and that we use a mix of equity vehicles for our long-term
compensation, such as restricted stock together with stock options.
While Pearl Meyer recommended a long-term incentive structure based on value opportunity for
each executive officer and a mix of equity vehicles, due in part to our merger with StrataLight, as
discussed in more detail below, and the difficult economic environment, we continued to award a
fixed number of shares and only granted stock options to our executive officers, including Named
Executive Officers, in the fiscal year ended March 31, 2009.
Stock Options
The Compensation Committee has the authority to determine the Named Executive Officers to whom
options are granted, the terms upon which options are granted and the number of shares subject to
each option. Our Chief Executive Officer makes periodic recommendations of stock option grants
(other than for himself), which the Compensation Committee then considers, and may approve, revise
or reject.
Historically, the vesting schedule of stock options granted to our Named Executive Officers
has generally been vesting with respect to one quarter of the shares subject to the option on each
the first four anniversaries of the date of grant. This vesting schedule promotes retention, while
the nature of stock options provides Named Executive Officers with an incentive to contribute to
stockholder value over the long term. Stock options are priced at the closing price of our common
stock on the NASDAQ stock exchange on the date of grant. Stock options historically have generally
expired ten years from the date of grant unless the grantee’s employment was terminated earlier. A
ten-year term provides a reasonable time frame to align the Named Executive Officers’ compensation
with stockholder interests since any appreciation of our stock price will benefit both management
and stockholders. Stock options provide a direct link with stockholder interests as they have no
intrinsic value unless our stock price increases above the grant date price.
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In early July of 2008, the Company was on the verge of entering into an agreement and plan of
merger with StrataLight (the “Merger Agreement”) pursuant to which StrataLight would be merged with
and into the Company (the “Merger”), which Merger was subsequently consummated in January 2009.
The Compensation Committee retained Pearl Meyer to provide information, analysis and advice
regarding the retention of our senior executive team in light of the pending Merger.
Pearl Meyer assisted in the development of a special long-term incentive grant for the
executive team to be granted in the event that the Merger Agreement was executed. The special
long-term incentive grant was conceived to address the uncertainty inherent in the Merger by
providing incentive for the chief executive officer and other senior executives, each of whom was
expected to assume key responsibilities in connection with the Merger and the integration of
StrataLight, to complete the Merger and the related integration. The grant was deemed advisable in
light of the fact that the trading price of our common stock was then significantly below the
exercise price of options held by the executive team, resulting in little meaningful retention
value.
As a means of benchmarking the proposed grants, Pearl Meyer reviewed transaction bonuses for
all executive officers (including chief executive officers) granted in connection with 58
comparable precedent transactions, each precedent transaction being valued at less than $500
million. Based upon its analysis, Pearl Meyer recommended that we consider providing stock option
grants in conjunction with the execution of the Merger Agreement, such grants to vest ratably over
a three-year period, with each option having a term of five years.
On July 9, 2008, we entered into the Merger Agreement. In connection with, and conditioned
upon, the execution of the Merger Agreement, and based upon the recommendation of Pearl Meyer, on
July 8, 2008, the Compensation Committee approved the grant of options to purchase common stock of
the Company to the Named Executive Officers in the following amounts: 300,000 options to Mr. Bosco;
100,000 options to Mr. Chan; and 90,000 options to each of Messrs. Bouchard and Nobile (such
options, the “Transaction Bonus Options”). (Mr. Dodani did not receive a grant at that time because
he was the chief executive officer of StrataLight and did not become
employed by us until following the
closing of the Merger.) Accordingly, the grant was made on July 11, 2009. The Compensation
Committee approved the grant of the Transaction Bonus Options to retain key executives during the
pendency of the Merger. The Transaction Bonus Options differ from the terms of the options
historically granted by the Company in that they vest with respect to one third of the shares on
each anniversary of the date of grant and expire five years from the date of grant unless the
grantee’s employment is terminated earlier.
With respect to Mr. Bosco, the Transaction Bonus Options were also designed to address in part
the lack of supplemental retirement plan for the benefit of Mr. Bosco and the fact that Mr. Bosco’s
previously outstanding stock options, all of which had an exercise
price in excess of the then current quoted price per share for our
common stock, would be forfeited upon his
retirement. In the weeks preceding the execution of the Merger Agreement, Pearl Meyer had been
engaged to provide information, analysis and advice to the Compensation Committee regarding
retirement planning for Mr. Bosco, then our president and chief executive officer. Mr. Bosco had
realized no gains from his stock option awards over his years of service with the Company and such
awards would terminate shortly after the termination of Mr. Bosco’s employment with us, thus making
it possible that he might never receive any value from such awards.
Pearl Meyer reviewed general industry trends with respect to supplemental retirement plans,
noting that while the prevalence of retirement program among the Peer Group was low, retirement
programs were more common among general industry companies. Pearl Meyer found that annual
replacement pay ratios varied from 30% to 75%, with replacement pay most commonly being defined as
base salary and the replacement pay period typically being ten years. Pearl Meyer’s study
suggested that a grant equal to $2,000,000 in Black-Scholes value might be appropriate, such amount being
structured to provide approximately 40% of the current base salary replacement pay ratio over a
ten-year period. Pearl Meyer suggested that the award should provide for continued vesting of the
option upon retirement, exercisability of the option through its remaining term, and be conditioned
upon adherence to the terms of a non-compete over the term of the option.
To reward Mr. Bosco for his service to the Company, and in consideration of his efforts on
behalf of the Company since his commencement of employment in 2000, and due to the fact that Mr.
Bosco did not have a supplemental retirement plan, in addition to the Transaction Bonus Options
granted to Mr. Bosco, on July 11, 2008, the Compensation Committee approved the grant to Mr. Bosco
of a nonqualified stock option under the Incentive Plan to purchase up to an aggregate of 600,000
shares of common stock of the Company, the grant of such option being subject to approval by the
stockholders of the Company at the 2009 annual meeting of stockholders. While stockholder approval
of the option grant was not required by our bylaws or otherwise, the Compensation Committee
submitted the grant to the stockholders for approval at the annual meeting as a matter of good
corporate governance.
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The grant of the stock option was approved by the stockholders at the 2009 annual meeting of
stockholders and, on January 8, 2009, Opnext granted Mr. Bosco a nonqualified stock option under
the Second Amended and Restated Stock Incentive Plan to acquire 600,000 shares of our common with
an exercise price of $2.34 per share, which, subject to Mr. Bosco’s continued service with the us,
will vest and become exercisable with respect to one-third of the number of shares of subject
thereto on each of the first, second and third anniversaries of the date of grant. The option has
a term of five years from the date of grant. The option will become fully vested and exercisable
upon the occurrence of any of the following: (i) a termination of
Mr. Bosco’s service as an employee and director by Opnext without “cause” (as such term is defined
in Mr. Bosco’s option agreement) during the twelve-month period immediately following a “change in
control” (as such term is defined in the Second Amended and Restated Stock Incentive Plan), (ii) a
failure by the Board to nominate Mr. Bosco to stand for election to the Board at any meeting of our
stockholders whereby Mr. Bosco’s term as director will
expire if he is not reelected, (iii) a
failure by our stockholders to reelect Mr. Bosco to the Board at
any such meeting, or (iv) the
Board’s removal of Mr. Bosco as a member of the Board; provided, however, that no such accelerated
vesting will occur pursuant to clause (ii), (iii) or (iv) above if, at the time of such event, any
of the events constituting “cause” as defined in Mr. Bosco’s stock option agreement have occurred.
The option will also become fully vested and exercisable if Mr. Bosco’s service with us is
terminated by reason of his death or “disability” as defined in Mr. Bosco’s stock option agreement.
On
November 15, 2007, pursuant to his employment agreement, the Company granted Mr. Bouchard a
nonqualified stock option to purchase 250,000 shares of our common stock (the “Bouchard Option”) at
an exercise price of $8.89 per share, which options vested with respect to one-quarter of the
shares subject thereto on November 1, 2008 and will vest with respect to the remaining shares
subject thereto in equal annual installments on November 1, 2009, November 1, 2010 and November 1,
2011, subject to certain accelerated vesting under certain circumstances as set forth in the stock
option agreement.
On February 17, 2009, in consideration of his agreement to enter into an employment agreement
with the Company after the Merger, we granted Mr. Dodani a nonqualified stock option to purchase
200,000 shares of our common with an exercise price of $1.68 per share. By reason of Mr. Dodani’s
position having changed to Senior Advisor effective March 31, 2009, this stock option vested in
full and became exercisable with respect to all of the shares covered by such option on March 31,
2009. And as agreed to in connection with the execution of the Merger.
For more information regarding the terms of the stock option agreements, please see the
descriptions under the heading “Executive Compensation—Potential Payments upon Termination or
Change of Control–Stock Option Agreements.”
Employee Liquidity Bonus Plan—Mr. Dodani
As noted previously, Mr. Dodani did not become employed by the Company until the closing of
the Merger and, thus, did not receive any Transaction Bonus Options. Mr. Dodani is, however, a
participant in a bonus plan initially established by StrataLight for the benefit of certain
StrataLight employees, directors and certain other designees (the
“Employee Liquidity Bonus Plan”), a plan we assumed
under the Merger Agreement. Pursuant to the terms of the Employee Liquidity Bonus Plan, sixteen
percent (16%) of the aggregate merger consideration in the form of Opnext common stock and cash was
allocated to certain employees, directors and certain other designees of StrataLight pursuant to methodologies determined by
the Compensation Committee of the StrataLight board of directors prior to the closing of the
Merger. The merger consideration to be received by the participants in the Employee Liquidity
Bonus Plan, other than such director participants, is subject to vesting such that twenty-five
percent (25%) of such merger consideration vested and was distributed on January 31, 2009, fifty
percent (50%) will vest and be distributed on October 31, 2009 and twenty-five percent (25%) will
vest and be distributed on January 31, 2010. If an employee participant is no longer employed by
Opnext or the surviving corporation at any vesting date for any reason other than a termination of
such employee by Opnext or the surviving corporation without cause, such employee participant will
not be entitled to receive such merger consideration and such amounts not paid will be paid on a
pro rata basis to the other participants in the Employee Liquidity Bonus Plan. There are a total
of 3,291,570 shares of our common stock and $5,875,000 in cash held for the benefit of participants
in the Employee Liquidity Bonus Plan. As of March 31, 2009, Mr. Dodani held a 28.5% interest in
the Employee Liquidity Bonus Plan and such percentage interest is subject to increase in the event
of a forfeiture by other participants in the plan.
On
or about January 31, 2009, 272,734 shares of our common stock and $513,099 in cash were
distributed to Mr. Dodani in accordance with the terms of the Employee Liquidity Bonus Plan.
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On
February 18, 2009, we entered into an employment agreement with Mr. Dodani whereby in the
event of a change in Mr. Dodani’s position from
President, Opnext Subsystems, Inc. to Senior Advisor, Mr. Dodani
would become fully vested in his
right to receive all amounts payable to him under the Employee Liquidity Bonus Plan, subject to the
provisions of the Merger Agreement in respect of certain shares and cash held in escrow to satisfy
the former StrataLight shareholders’ indemnification obligations under the Merger Agreement, and
such amounts are to be paid to Mr. Dodani at the time set forth in, and otherwise in accordance
with, the Merger Agreement. By reason of Mr. Dodani’s position having changed to Senior Advisor
effective March 31, 2009 and pursuant to his employment agreement, Mr. Dodani became fully vested
in his right to receive all amounts payable to him under the Employee Liquidity Bonus Plan, subject
to the provisions of the Merger Agreement in respect of certain shares and cash held in escrow to
satisfy the former StrataLight shareholders’ indemnification obligations under the Merger
Agreement, and such amounts are to be paid to Mr. Dodani at the time set forth in, and otherwise in
accordance with, the Merger Agreement (the remaining fifty percent (50%) will be distributed on
October 31, 2009 and twenty-five percent (25%) will be distributed on January 31, 2010).
Restricted Stock
The Incentive Plan provides for awards of restricted shares of our common stock to our
executives and other employees. The Compensation Committee determines, based on recommendations
made by the Chief Executive Officer (other than for awards to himself), the Named Executive
Officers to whom restricted shares are awarded, the terms upon which shares are awarded and the
number of shares subject to each award.
Restricted shares are subject to certain forfeiture restrictions that generally lapse (or
vest) over a specified period of time set forth in the individual award agreements, subject to the
recipient’s continued employment with the Company. While grants of restricted shares generally vest
over a period of two years from the date of award, restricted shares granted to certain of our
Named Executive Officers vested over a period of two years from the date of our initial public
offering. This vesting schedule promotes retention, encourages long-term investment in the Company
and provides a reasonable timeframe to align the Named Executive Officers’ compensation with
stockholder interests since any appreciation of our stock price will benefit both management and
stockholders. For more information on the grant of shares of restricted stock, please see the table
under the caption, “Summary Compensation Table.”
Equity Award Practices
As described under the “Long-Term Incentive Compensation,” equity-based awards are a key
component of our overall executive compensation program. We do not backdate grants of awards nor do
we coordinate the grant of awards with the release of material information to result in favorable
pricing. Previous grants of awards to executive officers and other new employees were based on the
timing of date of hire. However, in June of 2007, the Compensation Committee established a new
grant schedule which provides that grants will generally be made on the 15th day of the second
month of each quarter (or, if such day is not a business day, on the next succeeding business day).
We established a schedule for granting equity awards to (1) avoid any appearance of impropriety or
manipulation regarding the timing of stock option grants, (2) minimize the number of dates of stock
option grants, and (3) ensure that the timing of stock option grants is based on objective criteria
and publicly available information.
Perquisites and Other Benefits
We provide our Named Executive Officers with perquisites and other benefits, reflected in the
“All Other Compensation” column in the table captioned, “Summary Compensation Table,” which we
believe are reasonable and consistent with our overall executive compensation program. The costs of
these benefits constitute only a small percentage of each Named Executive Officer’s total
compensation and include the following:
Employee Healthcare Premiums. We, at our sole cost (with the exception of Mr. Dodani), provide
to each Named Executive Officer, healthcare, dental care, life insurance, disability, and
accidental death and dismemberment insurance.
Matching Contributions to 401(k) Plan Accounts. The Company sponsors the Opnext, Inc. 401(k)
Plan (the “401(k) Plan”) to provide retirement benefits to each Named Executive Officer and all its
U.S. employees. As allowed under Section 401(k) of the Internal Revenue Code of 1986, as amended
(the “Code”), the 401(k) Plan provides tax-deferred salary deductions for eligible
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employees. Employees may contribute from 1% to 60% of their annual compensation to the 401(k)
Plan, subject to a maximum annual limit as set periodically by the Internal Revenue Service. The
Company matches employee contributions at a ratio of two thirds of one each dollar an employee
contributes up to a maximum of two thirds of the first six percent an employee contributes. All
matching contributions vest immediately. In addition, the 401(k) Plan provides for discretionary
contributions as determined by the Board. Were any such discretionary contributions to the 401(k)
Plan to be made, such contributions would be allocated among eligible participants in the
proportion of their salaries to the total salaries of all participants. On April 1, 2009, the
Company suspended our matching contribution to the 401(k) plan in order to reduce our cost
structure and operating expenses.
Insurance Allowance. In addition to the life insurance benefits provided under our group
healthcare benefits, the Company provides a monthly cash allowance to each Named Executive Officer
(other than Mr. Dodani) that is intended to enable the Named Executive
Officer
to purchase additional life insurance. The amount of the life insurance allowance for each
executive officer is calculated by a third-party consultant based upon an actuarial analysis. The
Named Executive Officer may elect to apply the cash allowance to purchase additional life insurance or he
or she may use this allowance for other purposes.
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Contributions to Vested and Unvested Defined Contribution Plans
The following table sets forth our contributions to the 401(k) Plan, which are discussed more
fully in the Compensation Discussion and Analysis section beginning
on page 9.
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All Other Compensation
Except as described above, there are no perquisites available to our Named Executive Officers
and no tax gross-up reimbursements are available to our Named Executive Officers. The Named
Executive Officers have access to the same facilities and workplace amenities as do all of our
employees.
Internal Revenue Code Section 162(m) Policy
Section 162(m) of the Code limits the deductibility of compensation paid to certain of our
executive officers. To qualify for deductibility under Section 162(m), compensation in excess of
$1,000,000 paid to our Named Executive Officers during any fiscal year generally must be
“performance-based” compensation as determined under Section 162(m). Compensation generally
qualifies as performance-based, if among other requirements, it is payable only upon the attainment
of pre-established, objective performance criteria based on performance goals that have been
approved by our stockholders, and the committee of our Board that establishes and certifies the
attainment of such goals consists only of “outside directors.” All members of our Compensation
Committee qualify as outside directors.
The Compensation Committee’s policy is to take into account Section 162(m) in establishing
compensation of our executive officers to preserve deductibility to the greatest extent possible.
The deductibility of some types of compensation payments can depend upon the timing of the vesting
or an executive’s exercise of previously granted awards. Interpretations of and changes in
applicable tax laws and regulations as well as other factors beyond our control can also affect
deductibility of compensation. While the tax impact of any compensation arrangement is one factor
to be considered, such impact is evaluated in light of the Compensation Committee’s overall
compensation philosophy and objectives. The Compensation Committee will consider ways to maximize
the deductibility of executive compensation, while retaining the discretion it deems necessary to
compensate officers competitively and in a manner commensurate with performance. From time to time,
the Compensation Committee may therefore award compensation to our executive officers which is not
fully deductible if it determines that such compensation is consistent with its philosophy and is
in our and our stockholders’ best interests.
Internal Revenue Code Section 409A
Section 409A requires that “nonqualified deferred compensation” be deferred and paid under
plans or arrangements that satisfy the requirements of the statute with respect to the timing of
deferral elections, timing of payments and certain other matters. Failure to satisfy these
requirements can expose employees and other service providers to accelerated income tax liabilities
and penalty taxes and interest on their vested compensation under such plans. Accordingly, as a
general matter, it is our intention to design and administer our compensation and benefits plans
and arrangements for all of our employees and other service providers, including our Named
Executive Officers, so that they are either exempt from, or satisfy the requirements of, Section
409A. With respect to our compensation and benefit plans that are subject to Section 409A, in
accordance with Section 409A and regulatory guidance issued by the Internal Revenue Service, we are
currently operating such plans in compliance with Section 409A. Pursuant to that regulatory
guidance, we have amended our plans and arrangements to either make them exempt from or have them
comply with Section 409A.
Accounting Standards
Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (FAS 123(R))
requires us to recognize an expense for the fair value of equity-based compensation awards. Grants
of stock options and restricted stock under the Incentive Plan are accounted for under FAS 123(R).
The Compensation Committee regularly considers the accounting implications of significant
compensation decisions, especially in connection with decisions that relate to the Incentive Plan
and equity award programs thereunder. As accounting standards change, we may revise certain
programs to appropriately align accounting expenses of our equity awards with our overall executive
compensation philosophy and objectives.
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Summary Compensation Table
The following table sets forth summary information concerning the compensation awarded to,
paid to or earned by each of our Named Executive Officers for all services rendered in all
capacities to us during the fiscal years ended March 31, 2009,
March 31, 2008 and March 31, 2007.
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Grants of Plan-based Awards*
The following table sets forth certain information with respect to grants of plan-based awards
for the fiscal year ended March 31, 2009 to the Named Executive Officers.
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Employment Agreements
Mr. Harry L. Bosco
Mr. Bosco retired as our President and Chief Executive Officer on March 31, 2009 and, as a
result, on such date our employment agreement with him terminated. Our employment agreement with
Mr. Bosco, originally dated July 31, 2001 and amended on November 1, 2004, provided that Mr. Bosco
would serve as our President and Chief Executive Officer. Mr. Bosco’s annual base salary under the
agreement was $500,000. In addition, he was eligible to receive a target annual bonus in an amount
equal to 100 percent of his base salary, though he did not receive any bonus for the fiscal year
ended March 31, 2009, as, with respect to the portion of Mr. Bosco’s bonus which was related to the
performance of the Company, the Company did not achieve its specified target performance metric
and, with respect to the portion of Mr. Bosco’s bonus which was related to his individual
performance, our Compensation Committee determined not to pay any individual performance related
cash bonuses due to the economic environment.
Pursuant to his employment agreement, Mr. Bosco is prohibited from competing with us for a
period of six months following the termination of his employment on March 31, 2009. During this
period, Mr. Bosco is also restricted from (i) soliciting our employees to terminate their
relationships with us and (ii) soliciting or interfering with our relationship with any of our
customers, suppliers or licensees. Mr. Bosco also executed a confidentiality agreement containing
customary provisions protecting our intellectual property rights and confidential information. In
addition, Mr. Bosco also entered into an indemnification agreement with us in connection with his
employment agreement which requires, among other things, that we indemnify Mr. Bosco to the fullest
extent permitted by applicable law against certain liabilities that may arise by reason of his
service or status as an officer of the Company, provided Mr. Bosco acted in good faith and in a
manner he reasonably believed to be in or not opposed to our best interests.
Mr. Gilles Bouchard
During the fiscal year ended March 31, 2009, Mr. Gilles Bouchard served as our Chief Operating
Officer pursuant to an employment agreement we entered into with Mr. Bouchard on November 1, 2007
(the “Initial Bouchard Agreement”), which was amended and restated on May 15, 2009 in connection
with Mr. Bouchard’s assumption of the roles of Chief Executive Officer and President effective as
of April 1, 2009 (such amended and restated employment agreement, the “Amended and Restated
Bouchard Agreement”).
Initial Bouchard Agreement
Pursuant to the Initial Bouchard Agreement, the term of Mr. Bouchard’s employment as Chief
Operating Officer extended until November 1, 2011, subject to automatic renewal for successive
one-year periods unless either party provides notice of such party’s intention not to renew the
employment agreement not less than sixty days prior to November 1, 2011 or the expiration of the
then-current term. Mr. Bouchard’s initial base salary was
$400,000 per year, and could be increased
annually at the sole discretion of the Board. Mr. Bouchard was entitled to receive an initial
bonus of $240,000 with respect to his first year of employment, $100,000 of which was paid on March
31, 2008 and $140,000 of which was paid on March 31, 2009. In addition, Mr. Bouchard was eligible
to receive an annual bonus up to a maximum of $100,000 with respect to the Company’s 2009 fiscal
year contingent upon the
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Company’s achievement of certain performance targets to be established by
the Board for such fiscal year. The Initial Bouchard Agreement provided that commencing with the
Company’s 2010 fiscal year and each fiscal year thereafter, Mr. Bouchard would be eligible to
participate in the Company’s bonus program for the relevant
fiscal year, under which Mr. Bouchard had the potential to earn an annual
bonus targeted at 60 percent of his annual base salary for each such year. Based upon the
recommendations of Pearl Meyer, in August 2008 the Compensation Committee approved an increase in
Mr. Bouchard’s target bonus to 80 percent of his annual base salary for the fiscal year ending
March 21, 2009.
Pursuant to the Initial Bouchard Agreement, on November 15, 2007, the Company granted Mr.
Bouchard nonqualified stock options to acquire 250,000 shares of the Company’s common stock under
the Incentive Plan with an exercise price of $8.89 per share. The options
will vest in four equal annual installments on each of November 1, 2008, November 1, 2009, November
1, 2010 and November 1, 2011, subject to his continued employment with the Company, and will be
subject to accelerated vesting in certain events. The Company also granted Mr. Bouchard, on
November 15, 2007, 40,000 shares of restricted stock at a purchase price of $.01 per share.
One-half of such restricted stock vested on November 1, 2008 and the remaining shares of restricted
stock will vest on November 1, 2009, subject to Mr. Bouchard’s continued employment with the
Company and subject to accelerated vesting in the event of a change of control or termination of
Mr. Bouchard’s employment by the Company without
“cause” or by him for “good reason” or by reason of
his death or “disability” (see “Executive
Compensation—Potential Payments upon Termination or Change of
Control” below for definitions of “cause,” “good
reason,” and “disability” as applied to Mr. Bouchard).
Amended and Restated Bouchard Agreement
Pursuant to the Amended and Restated Bouchard Agreement, the term of Mr. Bouchard’s employment
as Chief Executive Officer and President is for four years, commencing on May 15, 2009, and ending
on May 15, 2013, subject to automatic renewal for successive one-year periods unless either party
provides notice of such party’s intention not to renew the Agreement not less than sixty days prior
to the expiration of the then-current term. The Amended and Restated Bouchard Agreement provides
that Mr. Bouchard’s annual base salary will be $500,000 per year, and may be increased from time to
time in the sole discretion of the Compensation Committee. However, effective for the six-month
period commencing on April 1, 2009, Mr. Bouchard’s annual base salary was reduced to $360,000 per
year; provided, however, that the Compensation Committee may determine that Mr. Bouchard’s base
salary will remain at this reduced level after the expiration of such six-month period but in no
event beyond March 31, 2010. Pursuant to the Amended and Restated Bouchard Agreement, Mr. Bouchard
agreed that the reduction in his base salary would constitute “Good Reason” for purposes of the
Amended and Restated Bouchard Agreement or any other agreement.
Commencing with the Company’s 2010 fiscal year and each fiscal year thereafter, Mr. Bouchard
will be eligible to participate in the Company’s annual incentive bonus plan applicable to the most
senior executives of the Company, under which Mr. Bouchard will have the potential to earn an
annual bonus targeted at 100% of his unreduced annual base salary, contingent on the attainment of
certain individual and/or Company performance criteria established and evaluated by our board of
directors or the Compensation Committee in accordance with the terms of such bonus plan as in
effect from time to time.
Pursuant to the Amended and Restated Bouchard Agreement, on May 15, 2009, the Company granted
Mr. Bouchard a nonqualified stock option to acquire 1,000,000 shares of the Company’s common stock
under the Company’s Second Amended and Restated 2001 Long Term Stock Incentive Plan (the “Stock
Incentive Plan”) with an exercise price equal to $2.30 per share. This stock option will vest with
respect to one-third of the shares subject thereto on each of May 15, 2010, May 15, 2011, and May
15, 2012, subject to Mr. Bouchard’s continued employment with the Company. In addition, provided
that Mr. Bouchard remains employed by the Company on the date of grant, the Company has agreed to
grant Mr. Bouchard a nonqualified stock option on February 15, 2010 to acquire 1,000,000 shares of
the Company’s common stock under the Stock Incentive Plan with an exercise price equal to the last
quoted per share sales price as of the close of business on the date of grant, and on terms and
conditions set forth in a stock option agreement to be prescribed by the Company. In the event that
Mr. Bouchard’s employment is terminated by the Company without “cause” or by Mr. Bouchard for “good
reason” (each as defined in the Amended and Restated Bouchard Agreement—see “Executive
Compensation—Potential Payments upon Termination or change of Control” below for such definitions)
on any date other than a scheduled vesting date, the installment of each stock option that was
scheduled to vest on the next scheduled vesting date following the termination of employment will
vest immediately prior to such termination. If Mr. Bouchard’s employment is terminated by the
Company without Cause or by Mr. Bouchard for Good Reason within the twelve-month period immediately
following a Change of Control (as defined in the Stock Incentive Plan) or by reason of Mr.
Bouchard’s death or disability, the stock options will immediately become fully vested and
exercisable.
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In the event that Mr. Bouchard incurs a separation from service due to a termination by the
Company without “cause” or by Mr. Bouchard for “good reason,” Mr. Bouchard will be entitled to
receive (i) a lump-sum cash severance payment equal to 100% of his unreduced annual base salary,
payable within 10 days after the date of his separation from service, and (ii) a lump-sum cash
payment equal to $30,000, payable within 10 days after the 18-month anniversary of the date of his
separation from service, provided that he is not at the time of payment eligible to participate in
a group health insurance plan of a subsequent employer. In the event that Mr. Bouchard incurs a
separation from service due to his death or disability, or non-renewal of the Amended and Restated
Bouchard Agreement by the Company, Mr. Bouchard (or his estate or beneficiaries) will receive the
payment described in clause (ii) above. Except in the event of a termination due to his death, Mr.
Bouchard’s right to receive these payments is subject to his execution and non-revocation of a
general release of claims against the Company. In the event of a termination for “cause,”
resignation by Mr. Bouchard without “good reason,” or non-renewal of the Amended and Restated
Bouchard Agreement by Mr. Bouchard, Mr. Bouchard will not be entitled to receive any further
compensation or payments from the Company (except for unpaid base salary, accrued vacation and
expense reimbursements relating to the period prior to the date of termination). During his
employment, Mr. Bouchard will be eligible to receive group welfare and retirement benefits in
accordance with the Company’s plans and policies and will receive four weeks of paid vacation time
each year. The non-competition agreement and indemnification agreement entered into by Mr. Bouchard
in connection with the Initial Bouchard Agreement remain in full force and effect.
Mr. Michael C. Chan
On
July 29, 2008, we entered into an amended and restated employment agreement with Mr. Chan,
which provides that Mr. Chan will serve as our Executive Vice President,
Business Development. The current term of Mr. Chan’s employment agreement extends until December 1,
2009, subject to automatic renewal for successive one-year periods unless either party provides
notice of such party’s intention not to renew the employment agreement not less than 60 days prior
to December 1, 2009 or the expiration of the then-current term. Mr. Chan’s initial base salary
pursuant to the employment agreement is $360,000 per year, which may be increased annually at the
sole discretion of the Board. Pursuant to his employment agreement,
Mr. Chan is entitled to participate in the bonus program for the
relevant fiscal year, under
which Mr. Chan has the potential to earn an annual bonus targeted at 60 percent of his annual base
salary. Based upon the recommendations of Pearl Meyer, in August 2008 the Compensation Committee
approved an increase in Mr. Chan’s target bonus to 70 percent of his annual base salary for the
fiscal year ended March 31, 2009.
Mr. Chan’s employment agreement further provides that in the event that his employment is
terminated by us for a reason other than death, “disability”, “cause” (each as defined in the
employment agreement) or failure to renew the initial or any successive term of the employment
agreement, or by Mr. Chan for “good reason”, Mr. Chan will be entitled to receive a lump-sum cash
payment equal to 100% of his then current annual base salary (see “Executive Compensation—Potential
Payments upon Termination or Change of Control” below).
On May 15, 2009, Mr. Chan and the Company entered into an amendment to Mr. Chan’s amended and
restated employment agreement with the Company. The amendment provides that Mr. Chan will serve as
Executive Vice President, Business Development and Product Portfolio Management, and President of
Opnext Subsystems, Inc. The amendment also provides that, effective for the six-month period
commencing on April 1, 2009, Mr. Chan’s annual base salary will be reduced from $360,000 to
$324,000, and that our board of directors or the Compensation Committee may determine that Mr.
Chan’s base salary will remain at this reduced level after the expiration of such six-month period,
but in no event beyond March 31, 2010. Pursuant to the amendment, Mr. Chan has consented to this
reduction of his base salary and has agreed that the reduction will not constitute “good reason”
for purposes of his employment agreement or any other agreement. The amendment also provides that
in no event will any change in Mr. Chan’s position, title, duties or responsibilities to reflect a
reduced business development role constitute “good reason” for purposes of his employment agreement
or any other agreement. The amendment also reflects an increase in Mr. Chan’s target annual bonus
from 60% to 70% of his unreduced annual base salary, and provides that any severance payments that
may become payable to Mr. Chan under his employment agreement will be calculated based on his
unreduced annual base salary and not his reduced base salary.
The amendment also provides that in connection with Mr. Chan’s relocation of his primary
residence, provided that he remains continuously employed by the Company through the payment date,
the Company will pay Mr. Chan a total of $300,000 in relocation bonuses, consisting of (i) a
payment of $100,000 no later than May 31, 2009, (ii) a payment of $100,000 on or within 10 days
following May 31, 2010, and (iii) a payment of $100,000 on or within 10 days following May 31,
2011. In the event that Mr. Chan’s employment is terminated by the Company without “cause” or by
Mr. Chan for “good reason” (each as defined in the employment agreement), or by reason of Mr.
Chan’s death or disability prior to the date of payment of any relocation bonus, Mr. Chan (or his
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estate or beneficiaries) will receive any unpaid relocation bonuses at the times described above.
If Mr. Chan’s employment is terminated for any other reason, he will not receive any relocation
bonus not previously paid to him.
In connection with Mr. Chan’s employment agreement, Mr. Chan also entered into a customary
non-competition agreement covering the period during and for one year immediately following Mr.
Chan’s employment with us.
In addition, under the non-competition agreement, during and after Mr. Chan’s employment with
us, Mr. Chan may not disclose, publish or use any confidential or proprietary information or trade
secrets of or relating to the Company, except as permitted by the non-competition agreement.
Mr. Chan also entered into an indemnification agreement with us in connection with his
employment agreement which requires, among other things, that we indemnify Mr. Chan to the fullest
extent permitted by applicable law against certain liabilities that may arise by reason of his
service or status as an officer of the Company, provided Mr. Chan acted in good faith and in a
manner he reasonably believed to be in or our best interests.
Mr. Shrichand Dodani
On February 18, 2009, we entered into an employment agreement with Mr. Shrichand Dodani, which
provides that Mr. Dodani will serve as the President of Opnext Subsystems, Inc., and will report to
the Company’s Chief Executive Officer; provided, however, that either Mr. Dodani or the Chief
Executive Officer may change Mr. Dodani’s position from the President of Opnext Subsystems, Inc. to
Senior Advisor at any time during the term of the employment
agreement. Mr. Dodani held the position of the President of Opnext Subsystems, Inc. until March 31,
2009, and thereafter became Senior Advisor to our Chief Executive Officer.
The term of Mr. Dodani’s employment agreement is for the period commencing on February 18,
2009 and ending on September 9, 2009. During the period of Mr. Dodani’s service under the
employment agreement, Mr. Dodani’s annual salary will be $115,000 per year. Pursuant to his
employment agreement, in the event that Mr. Dodani remains in
continuous “service” (as defined in the
employment agreement) with the Company until September 9, 2009, the Company will pay Mr. Dodani a
lump-sum cash payment in an amount equal to $86,250 on or within five business days following such
date.
Pursuant to his employment agreement, on February 17, 2009, we granted Mr. Dodani a
nonqualified stock option under the Incentive Plan to acquire 200,000 shares of our common
with an exercise price of $1.68 per share. By reason of Mr. Dodani’s position having changed to
Senior Advisor effective March 31, 2009, this stock option vested in full and became exercisable
with respect to all of the shares covered by such option on March 31, 2009.
In
the event that Mr. Dodani’s “service” with the
Company is terminated by us without “cause” or
by reason of his death or “disability” prior to September 9, 2009, the Company will pay Mr. Dodani,
within five business days following the date of termination, a
lump-sum cash (each as defined in the employment agreement) payment equal to
$86,250 multiplied by a fraction, the numerator of which is equal to the number of days that have
elapsed between January 9, 2009 and the date of such termination, and the denominator of which is
equal to 270.
By reason of Mr. Dodani’s position having changed to Senior Advisor effective March 31, 2009
and provided that Mr. Dodani has not materially breached his obligations under the
non-competition/confidentiality agreement we entered into with him, the Company will pay Mr. Dodani
a lump-sum cash payment within thirty (30) days following September 9, 2009 in an amount equal to
(x) $250,000, minus (y) in the event that Mr. Dodani’s Service with the Company is terminated by
the Company for “cause” or by Mr. Dodani for any reason prior to September 9, 2009, an amount equal
to the aggregate amount of the payments made to Mr. Dodani as salary since his commencement of
employment with us. Mr. Dodani’s right to receive this payment is subject to his execution and
non-revocation of a general release of claims against the Company.
Pursuant to his employment agreement, by reason of Mr. Dodani’s position having changed to
Senior Advisor effective March 31, 2009, Mr. Dodani became vested in his right to receive all
amounts payable to him under the Employee Liquidity Bonus Plan effective March 31, 2009, subject to
the provisions of the Merger Agreement in respect of escrowed consideration, and such amounts shall
be paid to Mr. Dodani on October 31, 2009 and January 31, 2010.
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Except as described above, in the event of a termination of Mr. Dodani’s Service with us, Mr.
Dodani will not be entitled to receive any further compensation or payments from the Company
(except for unpaid base salary, accrued vacation and expense reimbursements relating to the period
prior to the date of termination and any payment under the Employee Liquidity Bonus Plan to which
Mr. Dodani may otherwise be entitled pursuant to the Merger Agreement). In the event of such a
termination, any stock options or other equity-based awards held by Mr. Dodani will be subject to
the provisions of the incentive award plan and applicable award agreement pursuant to which such
awards were granted.
Unless otherwise determined by the Company in its absolute discretion, Mr. Dodani will not be
eligible to receive an annual bonus or other incentive compensation with respect to the services
provided under the employment agreement or otherwise. During his employment with the Company, Mr.
Dodani will be eligible to receive group welfare and retirement benefits in accordance with the
Company’s plans and policies. During the term of his employment agreement, Mr. Dodani will accrue
paid vacation at a rate of three weeks per year.
In connection with Mr. Dodani’s employment agreement, Mr. Dodani also entered into a customary
non-competition, confidentiality and invention assignment agreement with us covering the period
until October 9, 2010.
Under the non-competition, confidentiality and invention assignment agreement, Mr. Dodani may not disclose,
publish or use any confidential or proprietary information or trade secrets of or relating to the
Company, except as permitted by the non-competition, confidentiality and invention assignment
agreement, during or after his employment with us.
Concurrent with his entry into the employment agreement, Mr. Dodani executed a general
release of claims against the Company covering the period preceding his employment.
Mr. Robert J. Nobile
On December 31, 2008, we entered into an amended and restated employment agreement with Robert
J. Nobile, which provides that Mr. Nobile will serve as the Senior Vice President, Finance and
Chief Financial Officer of the Company, and will report to the Company’s Chief Executive Officer.
The term of Mr. Nobile’s employment under the agreement is for three years, commencing on December
31, 2008 and ending on December 31, 2011, subject to automatic renewals for successive one-year
periods unless either party provides notice of such party’s intention not to renew the agreement
not less than 60 days prior to the expiration of the then-current term. The agreement provides that
Mr. Nobile’s annual base salary will be $265,000 per year, and may be increased from time to time
at the sole discretion of the Board.
Mr. Nobile is eligible to participate in the Company’s annual incentive bonus plan applicable
to similarly situated executives of the Company, under which Mr. Nobile will have the potential to
earn an annual bonus targeted at 70% of his annual base salary actually paid for each such year,
contingent on the attainment of certain individual and/or Company performance criteria established
and evaluated by the Company in accordance with the terms of such bonus plan as in effect from time
to time. Any annual bonus payable to Mr. Nobile with respect to a partial year of employment will
be prorated to reflect the period of time during which Mr. Nobile was employed by the Company in
such year.
In the event that Mr. Nobile incurs a separation from service due to a termination by the
Company without “cause” or by Mr. Nobile for “good reason”, Mr. Nobile will be entitled to receive a lump-sum cash severance payment equal to 100%
of his then-current annual base salary (see “Executive Compensation – Potential Payments upon
Termination or Change of Control” for definitions of such terms
as set forth in Mr. Nobile’s employment agreement). Mr. Nobile’s right to receive his
severance payment is subject to his execution and non-revocation of a general release of claims
against the Company. In the event of a termination for “cause”, resignation by Mr. Nobile without
“good reason”, termination due to Mr. Nobile’s death or “disability”, or non-renewal of the
agreement, Mr. Nobile will not be entitled to receive any further compensation or payments from the
Company (except for unpaid base salary, accrued vacation and expense reimbursements relating to the
period prior to the date of termination).
On May 15, 2009, Mr. Nobile and the Company entered into an amendment to Mr. Nobile’s amended
and restated employment agreement with the Company. The amendment provides that, effective for the
six-month period commencing on April 1,
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2009, Mr. Nobile’s annual base salary will be reduced from
$265,000 to $238,500, and that our Board or the Compensation Committee may determine that Mr.
Nobile’s base salary will remain at this reduced level after the expiration of such six-month
period, but in no event beyond March 31, 2010. Pursuant to the amendment, Mr. Nobile has agreed
that the reduction will not constitute “good reason” for purposes of his employment agreement or
any other agreement. The amendment also provides that Mr. Nobile has the potential to earn an
annual bonus in our bonus program for the relevant fiscal year targeted at 70% of his annual unreduced base salary, and provides
that any severance payments that may become payable to Mr. Nobile under his employment agreement
will be calculated based on his unreduced annual base salary and not his reduced base salary. (See
“Executive Compensation—Potential Payments upon Termination or Change in Control” below for
definitions of “good reason” and “disability” in Mr. Nobile’s agreement.)
During his employment, Mr. Nobile will be eligible to receive group welfare and retirement
benefits in accordance with the Company’s plans and policies and will receive four weeks of paid
vacation time each year.
Mr. Nobile
also entered into an indemnification agreement with us in connection with his employment agreement
which requires, among other things, that we indemnify Mr. Nobile to the fullest extent permitted by
applicable law against certain liabilities that may arise by reason of his service or status as an
officer of the Company, provided Mr. Nobile acted in good faith and in a manner he reasonably
believed to be in our best interests.
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Outstanding Equity Awards at Fiscal Year-End
The following table sets forth summary information regarding the outstanding equity awards at
March 31, 2009 granted to each of our Named Executive Officers.
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Option Exercises and Stock Vested
During the fiscal year ended March 31, 2009, none of the Named Executive Officers exercised
any of options. On November 1, 2008, one-half of the restricted stock award issued to Mr. Bouchard
vested in the amount of 20,000. On February 20, 2009, the remaining half of the restricted stock
awards issued to Messrs. Bosco, Nobile and Chan vested in the amounts of 33,333 for Mr. Bosco,
12,500 for Mr. Chan and 8,333 for Mr. Nobile. On or about January 31, 2009, 272,734 shares of our
common stock were distributed to Mr. Dodani pursuant to his award under the Employee Liquidity
Bonus Plan. On March 31, 2009, pursuant to our employment agreement with Mr. Dodani, by reason of
Mr. Dodani’s position having changed to Senior Advisor effective March 31, 2009, (i) a nonqualified
stock option granted to Mr. Dodani to purchase 200,000 shares of our common stock at an exercise
price of $1.68 per share became fully vested, and (ii) his award under the Employee Liquidity Bonus
Plan became fully vested. The table below summarizes, for each of the Named Executive Officers,
the exercise of stock options, SARs and similar instruments and vesting of stock, including
restricted stock, restricted stock units and similar instruments, during the fiscal year ended
March 31, 2009:
Potential Payments upon Termination or Change of Control
Employment Agreements
In order to achieve our paramount objective of attracting and retaining the most talented
executives, as well as motivating such executives throughout their tenure with us, we believe it is
vital to provide our executive officers with severance payments. To this end, each of our Named
Executive Officers, other than Mr. Bosco and Mr. Dodani, is entitled to a severance payment in an
amount equal to one times the executive’s unreduced annual base salary in the event of a
termination of the executive’s employment without
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“cause” (as defined below) and, in certain
instances, by the executive for “good reason” (as defined below). Mr. Bosco was not entitled to
any severance payment pursuant to his employment agreement in the event of a termination of Mr.
Bosco’s employment.
Mr. Dodani’s employment agreement provides that, in the event his service with the Company is
terminated by us without “cause” or by reason of his death or “disability” (each as defined below)
prior to September 9, 2009, we will pay Mr. Dodani, within five business days following the date of
such termination, a lump-sum cash payment equal to $86,250 multiplied by a fraction, the numerator
of which is equal to the number of days that have elapsed between January 9, 2009 and the date of
such termination, and the denominator of which is equal to 270. Mr. Dodani’s employment agreement
also provides that, in the event that (i) Mr. Dodani’s position changed from President, Opnext
Subsystems, Inc. to Senior Advisor (a “Position Change”), which Position Change took place on March
31, 2009, and (ii) Mr. Dodani has not materially breached his obligations under the
non-competition/confidentiality agreement we entered into with him, we will pay Mr. Dodani a
lump-sum cash payment in an amount equal to (x) $250,000, minus (y) in the event that Mr. Dodani’s
service with us is terminated by us for “cause” or by Mr. Dodani for any reason prior to September
9, 2009, an amount equal to the aggregate amount of the payments made to Mr. Dodani as salary since
his commencement of employment with us (the “Retention/Non-Compete Payment”). The
Retention/Non-Compete Payment shall be paid to Mr. Dodani within 30 days following September 9,
2009 (with the exact payment date determined by us in our sole discretion). Mr. Dodani’s right to
receive the Retention/Non-Compete Payment is subject to his execution and non-revocation of a
general release of claims against the Company. Mr. Dodani’s employment agreement does not provide
for severance compensation or benefits in the event of a termination of his employment by him for
“good reason”.
Pursuant to Mr. Bouchard’s Amended and Restated Employment Agreement, in the event that Mr.
Bouchard incurs a separation from service due to a termination by the Company without “cause” or by
Mr. Bouchard for “good reason,” Mr. Bouchard will be entitled to receive a lump-sum cash payment
equal to $30,000, payable within 10 days after the 18-month anniversary of the date of his
separation from service, provided that he is not at the time of payment eligible to participate in
a group health insurance plan of a subsequent employer. Mr. Bouchard (or his estate or
beneficiaries) will also receive this payment in the event that he incurs a separation from service
due to his death or disability, or non-renewal of the Amended and Restated Bouchard Agreement by
the Company.
On May 15, 2009, we entered into an amendment to Mr. Chan’s employment agreement which
provides that we will pay Mr. Chan a total of $300,000 in relocation bonuses, consisting of: (i) a
payment of $100,000 no later than May 31, 2009; (ii) a payment of $100,000 on or within 10 days
following May 31, 2010; and (iii) a payment of $100,000 on or within 10 days following May 31,
2011, provided that he remains continuously employed by us through the applicable payment date. The
amendment also provides that if Mr. Chan’s employment were to be terminated by us without “cause”
or by Mr. Chan for “good reason,” or by reason of Mr. Chan’s death or “disability” (each as
defined below), prior to the date of payment of any relocation bonus, Mr. Chan (or, in the event of
his death, Mr. Chan’s estate or beneficiaries) will receive any of such theretofore unpaid
relocation bonuses at the times described above.
In each of the employment agreements for Messrs. Bouchard, Chan, Dodani and Nobile, “cause” is
defined as the occurrence of any one or more of the following events: (i) the commission of a
felony or the commission of any other act or omission involving dishonesty or fraud with respect to
the Company or any of its subsidiaries or affiliates or any of their customers or suppliers; (ii)
conduct that brings the Company or any of its subsidiaries or affiliates into substantial public
disgrace or disrepute; (iii) any material breach of the confidentiality agreement entered into in
connection with his employment; (iv) fraud or embezzlement with respect to the Company or any of
its subsidiaries or affiliates; (v) gross negligence or willful misconduct with respect to the
Company or any of its subsidiaries or affiliates; or (vi) with respect to Messrs. Bouchard, Chan
and Nobile, repeated failure to perform in any material respect executive’s duties as directed by
the Board, and with respect to Mr. Dodani, repeated failure to perform in any material respect
executive’s duties as directed by the individual to whom he is reporting, provided that such
directed duties are consistent with his position.
In addition, “good reason” is defined in the employment agreements for Messrs. Bouchard, Chan
and Nobile as the occurrence of any one or more of the following events, along with the Company’s
failure to cure the circumstances constituting good reason within 20 days after the receipt of
notice thereof: (i) a material and substantial diminution of executive’s duties or responsibilities
or executive’s removal from his position, or (ii) a reduction by the Company of executive’s base
salary or target bonus range. The agreements provide that to constitute resignation for “good
reason” the executive must resign within 30 days after the end of the 20-day cure period.
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“Disability” is defined in the each of the employment agreements entered into with Mr.
Bouchard, Mr. Chan and Mr. Dodani to mean that the executive is unable to effectively perform his
duties and responsibilities, as determined by the Board, for more than 180 days during any
twelve-month period by reason or any physical or mental injury, illness or incapacity.
Assuming a termination of employment as of March 31, 2009, the severance benefits described
above would have resulted in payments of the following amounts to each of the respective Named
Executive Officers: Mr. Bouchard — $400,000, Mr. Chan — $360,000, Mr. Nobile — $265,000 and Mr.
Dodani — $25,875.
Stock Option Agreements
The Compensation Committee granted 150,000 nonqualified stock options to Mr. Bosco, 35,000
nonqualified stock options to Mr. Chan and 25,000 nonqualified stock options to Mr. Nobile, each
with an exercise price of $11.34 per share, on August 15, 2007, based on the performance of such
Named Executive Officers during the fiscal year ended March 31, 2007 (collectively, the “August
2007 Options”). The August 2007 Grants granted to Mr. Bosco were cancelled upon his resignation
from the Company effective March 31, 2009. The August 2007 Options vest with respect to
one-quarter of the shares subject thereto on each of the first four anniversaries of the date of
grant and expire ten years from the date of grant unless the grantee’s employment is terminated
earlier.
In connection with the execution of the Merger Agreement with StrataLight, on July 11, 2008,
the Compensation Committee granted the Transaction Bonus Options, each with an exercise price of
$4.92 per share, to the Named Executive Officers (with the exception
of Mr. Dodani, who was not yet
employed) in the following amounts: 300,000 nonqualified stock options to Mr. Bosco;
100,000 nonqualified stock options to Mr. Chan; and 90,000 nonqualified stock options to each of
Messrs. Bouchard and Nobile. The Transaction Bonus Options vest
with respect to one-third of the
shares subject thereto on each of the first three anniversaries of the date of grant and expire
five years from the date of grant unless the grantee’s employment is terminated earlier.
On
November 15, 2007, pursuant to his employment agreement, we granted Mr. Bouchard a
nonqualified stock option to purchase 250,000 shares of our common stock (the “Bouchard Option”) at
an exercise price of $8.89 per share. One-quarter of the options
vested on November 1, 2008 and the remaining options will vest in equal annual installments on November 1, 2009, November 1, 2010 and November 1, 2011.
Each of the stock option agreements entered into in connection with the August 2007 Options,
the Transaction Bonus Options and the Bouchard Option provides that in the event that the
applicable executive’s employment with us is terminated by us without “cause” (as defined therein)
or by the executive for “good reason” (as defined therein) (or, in the case of Mr. Bosco with
respect to the Transaction Bonus Options, Mr. Bosco’s service as an officer or director of the
Company is terminated by us without “cause” as defined therein), such options shall vest with
respect to the portion of the options that would have otherwise become vested during the
twelve-month period immediately succeeding the date of such termination of employment had the
executive remained employed by us during such period. In addition, each of the stock option
agreements provides that in the event that the executive’s employment with us is terminated by
reason of his death or “disability” (as defined therein) or by us without “cause” or by him for
“good reason” (as defined therein) (or, in the case of Mr. Bosco with respect to the Transaction
Bonus Options, Mr. Bosco’s service as an officer or director of the Company is terminated by the
Company without “cause” as defined therein) during the twelve-month period immediately following a
“change in control” (as defined in the Incentive Plan (see “Change of Control Provisions” below)),
the stock options issued to such executive shall, to the extent not then vested, become fully
vested.
On January 8, 2009, the Compensation Committee granted Mr. Bosco a nonqualified stock option
to acquire 600,000 shares of our common stock with an exercise price of $2.34 per share (“the Bosco
Option”), which, subject to Mr. Bosco’s continued service with the Company as an officer or
director, one-third of which will vest and become exercisable on each of the first, second and third anniversaries of the
date of grant. The Bosco Option will become fully vested and exercisable upon the occurrence of
any of the following: (i) a termination of Mr. Bosco’s employment by Opnext without “cause” (as
such term is defined in Mr. Bosco’s option agreement (such agreement, the “Bosco Option
Agreement”)), (ii) a termination of Mr. Bosco’s service as an employee and director by Opnext
without “cause” (as such term is defined in the Bosco Option Agreement)) during the twelve-month
period immediately following a “change in control” (as such term is defined in the Incentive Plan),
(iii) a failure by the Board to nominate Mr. Bosco to stand for election to the Board at any
meeting of our stockholders whereby Mr. Bosco’s term as director will expire if he is not
reelected, (iv) a failure by our stockholders to reelect Mr. Bosco to the Board at any such
meeting, or (v) the Board’s removal of Mr. Bosco as a member of the Board; provided, however, that
no such accelerated vesting will occur pursuant to clause (iii), (iv) or (v) above if, at the time
of such event, any of the events
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constituting “cause” as defined in Mr. Bosco’s stock option
agreement have occurred. The Bosco Option will also become fully vested and exercisable if Mr.
Bosco’s service with us is terminated by reason of his death or “disability” as defined in the
Bosco Option Agreement.
“Cause” is defined in the Bosco Option Agreement and the stock option agreement pursuant to
which Mr. Bosco was granted his Transaction Bonus Option to mean “cause” as defined in any
employment agreement then in effect between Mr. Bosco and us or if not defined therein or, if
there shall be no such agreement, (i) Mr. Bosco’s engagement in misconduct which is materially
injurious to us or any of our affiliates, (ii) Mr. Bosco’s continued failure to substantially
perform his duties to us or any of our subsidiaries, (iii) Mr. Bosco’s repeated dishonesty in the
performance of his duties to us or any of our subsidiaries, (iv) Mr. Bosco’s commission of an act
or acts constituting any (x) fraud against, or misappropriation or embezzlement from us or any of
our affiliates, (y) crime involving moral turpitude, or (z) offense that could result in a jail
sentence of at least 30 days or (v) Mr. Bosco’s material breach of any confidentiality,
non-solicitation, non-competition or inventions covenant entered into between the Mr. Bosco and us
or any of our subsidiaries.
“Cause” is defined in each of Mr. Bouchard’s, Mr. Chan’s and Mr. Nobile’s stock option
agreement entered into in connection with the August 2007 Options, the Transaction Bonus Options
and the Bouchard Option, as applicable, to mean the definition of such terms as
defined in each such Named Executive Officer’s employment agreement then in effect. In the
employment agreements for each of Mr. Bouchard, Mr. Chan and Mr. Nobile, “cause” is defined as the
occurrence of any one or more of the following events: (i) the commission of a felony, or the
commission of any other act or omission involving dishonesty or fraud with respect to the Company
or any of its subsidiaries or affiliates or any of their customers or suppliers; (ii) conduct
tending to bring the Company or any of its subsidiaries or affiliates into substantial public
disgrace or disrepute; (iii) breach of the proprietary information agreement he entered into in
connection with his employment; (iv) fraud or embezzlement, gross negligence or willful misconduct
with respect to the Company or any of its subsidiaries or affiliates; or (v) egregious or bad faith
performance of, or failure to perform, the duties of his position.
“Disability” is defined in the Bosco Option Agreement and the stock option agreement entered
into with Mr. Bosco’s Transaction Bonus Option to mean “disability” as defined in any employment
agreement then in effect between the Mr. Bosco and us, or, if not defined therein or if there shall
be no such agreement, as defined in our long-term disability plan as in effect from time to time,
or if there shall be no plan or if not defined therein, Mr. Bosco’s becoming physically or mentally
incapacitated and consequent inability for a period of six (6) months in any twelve (12)
consecutive month period to perform his duties to us.
“Disability” and “good reason” are each defined in Mr. Bouchard’s, Mr. Chan’s and Mr.
Nobile’s stock option agreements entered into in connection with the August 2007 Options, the
Transaction Bonus Options, and the Bouchard Option, as applicable, to mean the definition of such
terms as defined in each such executive’s employment agreement then in effect. (See “Potential
Payments upon Termination or Change in Control – Employment Agreements” above for definitions of
such terms as applied to Messrs. Bouchard, Chan and Nobile).
All of the August 2007 Options, the Transaction Bonus Options, the Bouchard Option and the
Bosco Option could be subject to accelerated vesting. However, since March 31, 2009, the market
price of our common stock has been below the strike price of all options issued in connection with
the August 2007 Options, the Transaction Bonus Options, the
Bouchard Option and the Bosco Option.
As a result, accelerated vesting would not have resulted in any benefit to any of the Named Executive
Officers as of such date.
Except with respect to the option grants described above, all of the current stock options
held by Messrs. Bosco, Bouchard, Chan, Dodani and Nobile are fully vested with no remaining
acceleration benefits.
Restricted Stock Agreements
Pursuant to his employment agreement, we granted Mr. Bouchard 40,000 shares of restricted
stock at a purchase price of $0.01 per share. Pursuant to the terms of the restricted stock
agreement and the employment agreement we entered into with Mr. Bouchard, one
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half of the shares of
restricted stock vested on November 1, 2008 and the remainder of the shares are scheduled to vest
on November 1, 2009, subject to his continued employment with us and also subject to accelerated
vesting in the event of a termination of Mr. Bouchard’s employment by us without “cause” or by him
for “good reason”, by reason of his death or “disability” or in the event of a “change in control”
(as defined in the Incentive Plan (see “Change of Control
Provisions” below)). (See “—Employment
Agreement” above for definitions of “cause,” “good reason” and “disability” as applied to Mr.
Bouchard.) The market value of Mr. Bouchard’s unvested shares of restricted stock as of March 31,
2009 was $34,200, as listed in the table under the caption, “Outstanding Equity Awards at Fiscal
Year-End.”
Change in Control Provisions
Our Incentive Plan provides that, except as may otherwise be provided in a written agreement
between the participant and us, in the event of a “Change in Control” of the Company (as defined
below) in which awards under the Incentive Plan are not converted, assumed, or replaced by the
successor, such awards will become fully exercisable and all forfeiture restrictions on such awards
will lapse. Upon, or in anticipation of, a Change in Control, the plan administrator may cause any
and all awards outstanding under the Incentive Plan to terminate at a specific time in the future
and will give each participant the right to exercise such awards during a period of time as the
plan administrator, in its sole and absolute discretion, will determine.
“Change in Control” is defined in the Incentive Plan to include each of the following:
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The Board has full and final authority, which shall be exercised in its discretion, to
determine conclusively whether a Change in Control of the Company has occurred pursuant to the
above definition, and the date of the occurrence of such Change in Control and any incidental
matters relating thereto.
Employment Agreements, Severance Benefits and Change of Control Provisions
We also offer certain of our Named Executive Officers certain severance payments and benefits
in the event of a “change of control.” For a detailed discussion of our employment agreements,
please see the descriptions under the headings “Executive Compensation—Employment Agreements” and
“Executive Compensation—Potential Payments upon Termination or Change of Control.”
Severance Benefits. With the exception of Mr. Bosco, our Named Executive Officers are entitled
to certain severance payments and benefits in the event of a termination without “cause” and, in
certain instances, for resignation for “good reason.” For a detailed discussion of such severance
compensation and benefits, please see the descriptions under the headings “Executive
Compensation—Employment Agreements” and “Executive Compensation—Potential Payments upon Termination
or Change of Control.” Our philosophy is to provide severance packages that we believe enable the
Company to retain qualified executives, maintain a stable work environment for the Named Executive
Officers and provide economic security to the executives in the event of certain terminations of
employment. Our severance arrangements are designed to limit distractions to the Named Executive
Officers in the performance of their duties and allow the executives to focus on achieving superior
company performance and building stockholder value. We believe that it is important to provide
severance payments in both the event of actual termination and in the event of constructive
termination. Excluding instances of constructive termination from the types of termination covered
by our severance packages would risk that an acquirer of us could avoid paying severance by
fostering a non-conducive work environment for the executives, thereby ensuring their voluntary
exit.
Change of Control. Prior to the August 2007 Options, the terms of nonqualified stock option
agreements we entered into with the Named Executive Officers pursuant to the Incentive Plan
provided that in the event of a change of control and a termination of employment within six months
of such change of control, either by us other than for “cause” or “disability” or by the
participant for “good reason”, the unvested stock options of each Named Executive Officer
immediately became fully vested and exercisable. (Please see “Executive Compensation—Potential
Payments upon Termination or Change of Control” for definitions of “cause”, “disability” and “good
reason”.) This approach to compensation in the event of a change of control is sometimes referred
to as a “double-trigger” because the intent is to provide appropriate benefits in the event of a
termination following a change of control, rather than to provide a change of control bonus. The
Incentive Plan is intended to focus each employee, including each Named Executive Officer, on
completing a transaction that will be in the best interests of our stockholders rather than on
concerns about future employment.
All of the August 2007 Grants, the Transaction Bonus Options, the Bouchard Option and the
Bosco Option could be subject to accelerated vesting upon a change of control and a subsequent
termination of employment or service, as the case may be, within twelve months following such
change in control. For a detailed discussion of such accelerated vesting provisions in each of the
stock option agreements, please see the descriptions under the heading “Executive
Compensation—Potential Payments upon Termination or Change of Control.” However, since as of March
31, 2009, the market price of our common stock was below the strike price of all options issued in
connection with the August 2007 Grants, the Transaction Bonus Options, the Bouchard Option and the
Bosco Option. As a result, accelerated vesting would not have resulted in any benefit to any of the Named
Executive Officers as of such date. Except with respect to these option grants, all of the current
stock options held by the Named Executive Officers are fully vested with no remaining acceleration
benefits.
Pursuant to his employment agreement, we granted Mr. Bouchard 40,000 shares of restricted
stock at a purchase price of $0.01 per share. Pursuant to the terms of the restricted stock
agreement and the employment agreement we entered into with Mr. Bouchard, one half of such shares
of restricted stock vested on November 1, 2008 and the remainder will vest on November 1, 2009,
subject to accelerated vesting in the event of a “change in control” (as defined in the Incentive
Plan). The market value of Mr. Bouchard’s unvested shares of restricted stock as of March 31, 2009
was $34,200, as listed in the table under the caption, “Outstanding Equity Awards at Fiscal Year
End.”
No other Named Executive Officer has restricted stock subject to accelerated vesting in the
event of termination following a change of control.
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Change of Control Table
The table below assumes that a termination of employment or change of control occurred on
March 31, 2009, the last business day of our last completed fiscal year. For purposes of estimating
the value of amounts of equity compensation to be received in the event of termination or change of
control, we have assumed a price per share of our common stock of $1.71, which represents the
closing market price of our common stock as reported on the NASDAQ on March 31, 2009. In the event
employment of each of our Named Executive Officers were terminated as of March 31, 2009, the value
of equity compensation to be received with respect to accelerated stock options would have been
zero as the exercise price of all grants exceeded the market price of our common stock on such date
(other than stock options granted to Mr. Dodani, which options became fully vested on such date).
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DIRECTOR COMPENSATION
The Incentive Plan provides for the following equity compensation to our non-employee
directors:
The cash, common stock or other securities or property of the Company payable in respect of
such vested restricted stock units will, subject to the exception set forth below, be paid to the
independent director upon the earliest to occur of:
In the case of an individual who is a “specified employee” (within the meaning of Section
409A(a)(2)(B)(i)), however, the payment will not be made until the date which is six months and one
day after the individual’s separation from service (or, if earlier, the date of the individual’s
death). To the extent otherwise eligible, members of our Board who are employees of the Company who
subsequently retire from the Company and remain on the Board will receive, at each annual meeting
of stockholders after his or her retirement from employment with the Company, an Annual Grant.
In addition, each non-employee director of the Company receives the following cash
compensation:
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Non-employee directors receive an annual cash retainer of $25,000 as fees related to their service
on the Board which is paid in quarterly installments of $6,250. The Chairmen of the Audit and
Compensation Committees receive an annual retainer of $5,000 in addition to the foregoing retainer
of $25,000. The Chairman of the Nominating/Corporate Governance Committee receives an annual
retainer of $2,500 in addition to the foregoing retainer of $25,000. Non-employee directors are
reimbursed for reasonable expenses incurred in connection with attending Board and committee
meetings. Directors who are also employed by the Company do not receive any compensation for their
services as directors. Effective April 1, 2009, members of the Board agreed to a ten percent
reduction to their cash compensation for a period of not less than six months in order to reduce
our cost structure and operating expenses.
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Director Compensation Table
The following table shows compensation of the non-employee members of our Board for the fiscal
year ended March 31, 2009. Any board member who is also an employee of the Company does not receive
separate compensation for service on the Board.
Compensation Committee Interlocks and Insider Participation
As of March 31, 2009, our Compensation Committee consisted of Mr. John F. Otto, Jr., Dr. Lee,
Mr. Cowan and Dr. Kuru. Effective as of April 1, 2009, the composition of the Compensation
Committee consists of Mr. John F. Otto, Jr., Dr. Lee, Mr. Cowan and Mr. Philip Otto. None of our
executive officers serves as a member of the Compensation Committee, or any other committee serving
an equivalent function, of any other entity that has one or more of its executive officers serving
as a member of our Board or Compensation Committee.
Compensation Committee Report*
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis
with management and, based on the review and discussions, recommended to the Board that the
Compensation Discussion and Analysis be included in this Amendment No. 1 to our Annual Report on
Form 10-K for the fiscal year ended March 31, 2009.
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Compensation Committee
of the Board of Directors John F. Otto, Jr., Chairman
Kendall W. Cowan Dr. David Lee Philip Otto
July 29, 2009
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The following table provides information as of July 27, 2009 with respect to shares of our
Common Stock that may be issued under our existing equity compensation plans.
Equity Compensation Plan Information
The following table sets forth certain information regarding the beneficial ownership of our
common stock as of June 30, 2009, by:
The address for each of the individuals listed under “Directors and Named Executive Officers”
in the table below is Opnext, Inc., 46429 Landing Parkway, Fremont, California 94538.
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There are no family relationships among any of the Company’s directors or executive officers.
The Audit Committee regularly reviews the transactions of each director and executive officer to
determine if there are any circumstances that would require disclosure as a related person
transaction in the Company’s public filings. All such related person transactions must be approved
by the Audit Committee, as stated in the Audit Committee Charter.
Agreements with Hitachi and Clarity
Registration Rights Agreement
In connection with the 2001 acquisition of our then outstanding Class A common stock we
entered into a registration rights agreement with Hitachi, Clarity Partners, L.P., Clarity Opnext
Holdings I, LLC and Clarity Opnext Holdings II, LLC dated as of July 31, 2001. The agreement
provides that at any time following 180 days after the initial public offering of our common stock,
Clarity Partners, L.P., and Hitachi may make a written demand to register some or all of their
shares. The agreement also grants Clarity Partners, LP and Hitachi “piggyback” registration rights
other than in connection with an initial public offering of our common stock.
Agreements with Hitachi
Opnext Japan Intellectual Property License Agreement
Opnext Japan, Inc., or Opnext Japan, and Hitachi are parties to an Intellectual Property
License Agreement, pursuant to which Opnext Japan licenses to Hitachi and its wholly owned
subsidiaries, and Hitachi licenses to Opnext Japan (with a right to sublicense to its wholly owned
subsidiaries and us and our wholly owned subsidiaries), on a fully paid-up, non-exclusive basis,
intellectual property rights (patents, copyrights, mask works, software and trade secrets) related
to the products of the business transferred by Hitachi to Opnext Japan, whether existing or which
arise during the period from July 31, 2001 to July 31, 2011. The licenses granted under the
agreement are irrevocable and: (i) with respect to patent rights, survive for so long as any
applicable patent is valid; and (ii) with respect to all other intellectual property, perpetual.
Opnext Japan may also sublicense the intellectual property rights licensed from Hitachi to its
customers as necessary or appropriate in connection with the completion of Opnext Japan’s products
or services, to complete the sale of products and services in the ordinary course of business, or
to enable joint development of a product or service to be manufactured and sold by Opnext Japan to
a customer. However, such sublicense rights are subject to Hitachi’s consent and Hitachi may
condition its consent on Opnext Japan making changes requested by Hitachi, or in lieu of providing
such consent, Hitachi may elect to enter a license agreement directly with a customer. Hitachi has
also agreed to sublicense its rights to third party agreements to Opnext Japan, to the extent that
Hitachi has the right to make available such rights to Opnext Japan, in accordance with the terms
and conditions of the agreement.
Pursuant to the terms of such Intellectual Property License Agreement, Hitachi covenants not
to sue Opnext Japan, us or sublicensees of Opnext Japan, and Opnext Japan covenants not to sue
Hitachi or sublicensees of Hitachi, for infringement of any intellectual property related to the
business. Each party’s covenant not to sue also extends to customers of the other party (and our
customers in the case of Hitachi’s covenant not to sue), provided that it only extends to the
products or methods provided by Opnext Japan or the Company, and not to customer products or
methods that incorporate products of Opnext Japan or the Company if the
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customer products or methods infringe intellectual property of Hitachi that is not licensed to
Opnext Japan under this agreement. Each party indemnifies the other party for losses arising from
any breach of any covenant under the agreement. If a party commits a material breach that remains
uncured for 60 days following notice of such breach, the other party may terminate its obligation
to license intellectual property developed or filed on or after the effective date of termination,
provided that the licenses granted for intellectual property developed or filed prior to the
effective date of termination shall continue pursuant to the terms and conditions of the agreement.
Opto Device Intellectual Property License Agreement
On October 1, 2002, we acquired Opto Device, Ltd., the optical devise business of Hitachi
(“Opto Device”). In connection with the acquisition, Opto Device and Hitachi entered into an
Intellectual Property License Agreement, pursuant to which Opto Device licenses to Hitachi and its
wholly owned subsidiaries, and Hitachi licenses to Opto Device (with a right to sublicense to its
wholly owned subsidiaries and us and our wholly owned subsidiaries), on a fully paid-up,
non-exclusive basis, intellectual property rights (patents, copyrights, mask works, software and
trade secrets) related to the products of the business transferred by Hitachi to Opto Device,
whether existing or which arise during the period from October 1, 2002 to October 1, 2012. The
licenses granted under the agreement are irrevocable and: (i) with respect to patent rights,
survive for so long as any applicable patent is valid; and (ii) with respect to all other
intellectual property, perpetual. Opto Device may also sublicense the intellectual property rights
licensed from Hitachi to its customers as necessary or appropriate in connection with the
completion of Opto Device’s products or services, to complete the sale of products and services in
the ordinary course of business, or to enable joint development of a product or service to be
manufactured and sold by Opto Device to a customer. However, such sublicense rights are subject to
Hitachi’s consent and Hitachi may condition its consent on Opto Device making changes requested by
Hitachi, or in lieu of providing such consent, Hitachi may elect to enter a license agreement
directly with a customer. Hitachi has also agreed to sublicense its rights to third party
agreements to Opto Device, to the extent that Hitachi has the right to make available such rights
to Opto Device, in accordance with the terms and conditions of the agreement.
Pursuant to the terms of such Intellectual Property License Agreement, Hitachi covenants not
to sue Opto Device, us or sublicensees of Opto Device, and Opto Device covenants not to sue Hitachi
or sublicensees of Hitachi, for infringement of any intellectual property related to the business.
Each party’s covenant not to sue also extends to customers of the other party (and our customers in
the case of Hitachi’s covenant not to sue), provided that it only extends to the products or
methods provided by Opto Device or the Company, and not to customer products or methods that
incorporate products of Opto Device or the Company if the customer products or methods infringe
intellectual property of Hitachi that is not licensed to Opto Device under this agreement. Each
party indemnifies the other party for losses arising from any breach of any covenant under the
agreement. If a party commits a material breach that remains uncured for 60 days following notice
of such breach, the other party may terminate its obligation to license intellectual property
developed or filed on or after the effective date of termination, provided that the licenses
granted for intellectual property developed or filed prior to the effective date of termination
shall continue pursuant to the terms and conditions of the agreement. Pursuant to the merger of
Opto Device into Opnext Japan on March 31, 2003, this agreement was assumed by Opnext Japan.
Opnext Japan Intellectual Property License Agreement with Hitachi Communication Technologies, Ltd.
Opnext Japan and Hitachi Communication Technologies, Ltd (“Hitachi Communication”) are parties
to an Intellectual Property License Agreement, pursuant to which Opnext Japan licenses to Hitachi
Communication and its wholly owned subsidiaries, and Hitachi Communication licenses to Opnext Japan
(with a right to sublicense to its wholly owned subsidiaries and us and our wholly owned
subsidiaries), on a fully paid-up, non-exclusive basis, intellectual property rights (patents,
copyrights, mask works, software and trade secret) related to the business transferred by Hitachi
to Opnext Japan, whether existing or which arise during the period from July 31, 2001 to July 31,
2011. The licenses granted under the agreement expire July 31, 2011, provided that the license to
intellectual property which is licensed as of such date will continue on reasonable terms and
conditions to be agreed upon between the parties, until such intellectual property expires. Opnext
Japan may also sublicense the intellectual property rights licensed from Hitachi Communication to
its customers as necessary or appropriate in connection with the completion of Opnext Japan’s
products or services, to complete the sale of products and services in the ordinary course of
business, or to enable joint development of a product or service to be manufactured and sold by
Opnext Japan to a customer. However, such sublicense rights are subject to Hitachi’s consent and
Hitachi may condition its consent on Opnext Japan making changes requested by Hitachi, or in lieu
of providing such consent, Hitachi may elect to enter a license agreement directly with a customer.
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Pursuant to the terms of such Intellectual Property License Agreement, Hitachi Communication
covenants not to sue Opnext Japan or us or any sublicensees of Opnext Japan, and Opnext Japan
covenants not to sue Hitachi Communication or its wholly owned subsidiaries, or Hitachi
Communication’s sublicensees, for infringement of any intellectual property related to Opnext
Japan’s business. Each party’s covenant not to sue also extends to customers of the other party
(and our customers in the case of Hitachi Communication’s covenant not to sue), provided that it
only extends to the products or methods provided by Opnext Japan or the Company, and not to
customer products or methods that incorporate products of Opnext Japan or the Company if the
customer products or methods infringe intellectual property of Hitachi Communication that is not
licensed to Opnext Japan under this agreement. Each party indemnifies the other party for losses
arising from any breach of any covenant under the agreement. If a party commits a material breach
that remains uncured for 60 days following notice of such breach, the other party may terminate its
obligation to license intellectual property under the agreement, and if it elects to exercise such
option, it is obligated to negotiate in good faith the terms of a new license agreement for the
same intellectual property on commercially reasonable terms. On July 1, 2009, Hitachi
Communication Technologies, Ltd. merged with Hitachi, Ltd. and the agreement was assumed by
Hitachi, Ltd. All terms and conditions of the agreement remain unchanged.
Opnext Research and Development Agreement
We are parties with Hitachi to a Research and Development Agreement pursuant to which Hitachi
provides research and development support to us and/or our affiliates (other than Opnext Japan).
Under the agreement, Hitachi supports research and development projects requested by us. To the
extent any intellectual property (patents, copyrights, mask works, software and trade secrets)
directly results from the research, we will own it provided we fund 100% of the costs of the
research, or we will be a joint owner where we fund 50% or more of the costs of the research or
provide other contributions. In all other cases, Hitachi will own any intellectual property
resulting from the research. We license to Hitachi and its wholly owned subsidiaries any such
intellectual property owned by us, and Hitachi licenses to us (with a right to sublicense to our
wholly owned subsidiaries) any such intellectual property owned by Hitachi. These licenses are
irrevocable and: (i) with respect to patent rights, survive for so long as any applicable patent is
valid; and (ii) with respect to all other intellectual property, perpetual.
Each party indemnifies the other party for losses arising from any breach of any covenant
under the agreement. Hitachi indemnifies us from any losses arising from a third party claim that
intellectual property licensed by Hitachi to us under the agreement infringes such third party’s
intellectual property rights. We indemnify Hitachi from any losses arising from a third party claim
that products developed or manufactured by us or specifications and instructions provided to
Hitachi infringe such third party’s intellectual property rights. The parties will jointly defend
infringement claims involving jointly owned intellectual property. If a party commits a material
breach that remains uncured for 60 days following notice of such breach, the other party may
terminate its obligation to license intellectual property developed or filed on or after the
effective date of termination, provided that the licenses granted for intellectual property
developed or filed prior to the effective date of termination shall continue pursuant to the terms
and conditions of the agreement. This agreement expires on February 20, 2012.
Opnext Japan Research and Development Agreement
Opnext Japan and Hitachi are parties to a Research and Development Agreement pursuant to which
Hitachi provides research and development support to Opnext Japan and/or its affiliates. The
agreement was amended on October 1, 2002 to include Opto Device under the same terms and conditions
as Opnext Japan, and to expand the scope to include research and development support related to
Opto Device’s business. Under the agreement, Hitachi supports research and development projects
requested by Opnext Japan. To the extent any intellectual property (patents, copyrights, mask
works, software and trade secrets) directly results from the research, Opnext Japan will own it
provided Opnext Japan funds 100% of the costs of the research, or will be a joint owner where it
funds 50% or more of the costs of the research or provides other contributions. In all other cases,
Hitachi will own any intellectual property resulting from the research. Opnext Japan licenses to
Hitachi and its wholly owned subsidiaries any such intellectual property owned by Opnext Japan, and
Hitachi licenses to Opnext Japan (with a right to sublicense to its wholly owned subsidiaries and
us and our wholly owned subsidiaries) any such intellectual property owned by Hitachi. These
licenses are irrevocable and: (i) with respect to patent rights, survive for so long as any
applicable patent is valid; and (ii) with respect to all other intellectual property, perpetual.
The research and development expenditures relating to the agreement are generally negotiated
semi-annually on a fixed fee project basis and were $5.8 million for the fiscal year ended March
31, 2009.
Each party indemnifies the other party for losses arising from any breach of any covenant
under the agreement. If a party commits a material breach that remains uncured for 60 days
following notice of such breach, the other party may terminate its obligation to
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license intellectual property developed or filed on or after the effective date of
termination, provided that the licenses granted for intellectual property developed or filed prior
to the effective date of termination shall continue pursuant to the terms and conditions of the
agreement. This agreement expires on February 20, 2012.
Pursuant to this agreement, Opnext Japan and Hitachi have entered into various research and
development agreements that provide for the terms and conditions of specific research projects.
Opnext Japan Outsourcing Agreement
Opnext
Japan and Hitachi, Ltd. are parties to an Outsourcing Agreement, which requires Hitachi
to provide services, including administrative services in the areas of human resources, finance and
accounting, information systems, procurement, and other general support. Hitachi may provide the
services through third party subcontractors. Fees for the services are adjusted every six months
based on volume forecasts submitted by Opnext Japan and fees submitted by Hitachi for discussion
between the parties. Unless otherwise mutually agreed, volume forecasts and fees submitted by each
party will apply for the upcoming period. Specific charges for such services amounted to $1.9
million for the fiscal year ended March 31, 2009. Each party indemnifies the other party against
third party claims resulting from such party’s gross negligence or willful misconduct. Each party’s
liability for damages arising out of the agreement is limited to an amount equal to payments made
by Opnext Japan to Hitachi for the services during the nine months prior to the first claim. By
mutual agreement of the parties, the agreement was terminated on July 31, 2008.
Opnext Preferred Provider Agreement
The Company and Hitachi, Ltd. were parties to a Preferred Provider Agreement which terminated
on July 31, 2008 by mutual agreement of the parties. Pursuant to the terms of such Preferred
Provider Agreement, Hitachi agreed to purchase all of its requirements with respect to
optoelectronic components from us; provided that: (i) such components met Hitachi’s specifications
and delivery requirements; (ii) we gave Hitachi the most favorable aggregate price for comparable
components and comparable volumes, and (iii) such obligation was subject to Hitachi’s product
requirements. Hitachi’s obligation to purchase these products from us was excused when customers
required that products be sourced from multiple vendors or from vendors unaffiliated with the
Company, when prudent business practices required Hitachi to maintain a second supply source, or
when the Company was unable to meet Hitachi’s or its customers’ requirements for technical support,
technical data, or time to market for new products. The terms for procuring such components were
set forth in the Opnext Japan Procurement Agreement described below. Each party’s liability for
damages arising out of the agreement during any twelve-month period was limited to $36.0 million
U.S. dollars, except in connection with a breach of a party’s confidentiality obligations.
Although
this agreement was terminated, we have continued to sell to Hitachi
and its subsidiaries under the arrangements established by this agreement and the Opnext Japan Procurement
Agreement, as described below. Sales under these arrangements were $19.5 million for the year ended March 31, 2009. At March 31,
2009, we had accounts receivable from Hitachi and its subsidiaries of $3.5 million.
Opnext Japan Procurement Agreement
Opnext Japan and Hitachi, Ltd. are parties to a Procurement Agreement pursuant to which, each
month, Hitachi provides a rolling three-month forecast of Hitachi’s purchase plans with respect to
products and components of Opnext Japan or any other Opnext entity. The forecast for the first two
months is a firm and binding commitment to purchase. Pricing is negotiated semiannually, but Opnext
Japan commits to provide Hitachi with prices that are at least as favorable as the lowest aggregate
prices Opnext Japan provides to other customers for comparable products and volumes. Opnext Japan
indemnifies Hitachi against claims arising out of or resulting from any product defects. With
respect to infringement of third party intellectual property rights, Hitachi is responsible where
the infringement is caused by a product design as of July 31, 2001, or by any intellectual property
assigned or licensed by Hitachi to us, and Opnext Japan is responsible where the infringement is
caused by new product designs or any other intellectual property. Each party’s liability for
damages arising out of the agreement during any twelve-month period is limited to $36.0 million
U.S. dollars, except in connection with a breach of the limitations on assignment. By mutual
agreement of the parties, the agreement was terminated on July 31, 2008.
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Opnext Raw Materials Supply Agreement
The Company and Hitachi, Ltd. were parties to a Raw Materials Supply Agreement that terminated
on July 31, 2008 by mutual agreement of the parties. Under the terms and conditions of such Raw
Materials Supply Agreement, Hitachi agreed to continue to make available for purchase by us laser
chips and other semiconductor devices and all other raw materials that were provided by Hitachi to
the business prior to or as of July 31, 2001 for our production of optoelectronics components.
Pricing was negotiated between the parties, but Hitachi was obligated to provide prices that were
no greater than the lowest aggregate price Hitachi charged similarly situated customers. For raw
materials Hitachi purchased from third parties, Hitachi charged us the prices paid by Hitachi, net
of any discounts obtained by Hitachi. Each party’s liability for damages arising out of the
agreement during any twelve-month period was limited to $24.0 million U.S. dollars or the aggregate
dollar amount of materials projected to be purchased by us under the agreement in the following
twelve-month period, whichever was greater, except where Hitachi divested its telecommunications
division and the acquirer did not agree to assume Hitachi’s obligations under this agreement as
they relate to the raw materials.
Although
this agreement was terminated, we have continued to make purchases
from Hitachi and its subsidiaries under the arrangement established
by the agreement. Purchases under the arrangement were $40.2 million for the
fiscal year ended March 31, 2009. At March 31, 2009, we had accounts payable to Hitachi and its
subsidiaries of $6.1 million.
Opnext Logistics and Distribution Agreements
We entered into a Logistics Agreement on April 1, 2002 with Hitachi Transport System, Ltd., or
Hitachi Transport, a wholly owned subsidiary of Hitachi, pursuant to which Hitachi Transport
provides to us and our subsidiaries logistic services such as transportation, delivery and
warehouse storage. The agreement had an initial term of one year with automatic one-year renewals.
Specific charges for such distribution services are based on volume at fixed per transaction rates
generally negotiated on a semi-annual basis. Expenses were $2.6 million for the year ended March
31, 2009 in connection with the agreement.
We sell our products directly to end users and through distributors. For the year ended March
31, 2009, certain subsidiaries of Hitachi acted as our distributors in Japan. In 2003, Opnext Japan
entered into distribution agreements with Hitachi High Technologies, Renesas Technology Sales and
Renesas Devices Sales which is a subsidiary of Renesas Technology Sales. These agreements were
entered into for an initial one-year term and are automatically renewable for one-year periods.
Such agreements are basic distributor contracts. Sales pursuant to these agreements were $8.8
million for the fiscal year ended March 31, 2009.
Software User License Agreement with Renesas Technology
Opnext Japan and Renesas Technology, one of Hitachi’s subsidiaries, are parties to a software
user license agreement, pursuant to which Renesas Technology grants to Opnext Japan a non-exclusive
royalty-free, fully paid-up right to duplicate, modify or alter proprietary software for use in
developing, manufacturing and selling Opnext Japan’s products, which includes Renesas Technology’s
microcomputer product or a version of the program for such product. The agreement also grants
Opnext Japan the right to sublicense to third parties the right to use a copy of such proprietary
software as a component part of Opnext Japan’s products, including the right to sublicense to a
third party service provider for purposes of production of such software or manufacturing of Opnext
Japan’s products. The initial agreement had a term of one year with automatic one-year renewals
unless terminated earlier by mutual agreement. The current term expires October 20, 2009.
Lease Agreement with Hitachi
Opnext Japan leases certain manufacturing and administrative premises from Hitachi located in
Totsuka, Japan, pursuant to a lease agreement entered into between Opnext Japan and Hitachi. The
original term of the lease was for one year and began on February 1, 2001. In 2002, Hitachi
assigned the lease to Hitachi Communication Technologies, Ltd., a wholly owned subsidiary of
Hitachi. An amendment was thereafter entered into between Hitachi Communication Technologies, Ltd.
and Opnext Japan, which, among others, modified the premises covered under the lease and according
to which approximately 115,852 square feet (10,763 square meters) are now leased to Opnext Japan. A
subsequent amendment was entered into between Hitachi Communication Technologies, Ltd. and Opnext
Japan to extend the term of the lease. Pursuant to this amendment, the lease will terminate on
September 30, 2011 and will be renewable for successive one-year terms, provided that neither party
notifies the other of its contrary intention. On July 1, 2009, Hitachi Communication Technologies,
Ltd. merged with Hitachi, Ltd. and the agreement was assumed by Hitachi, Ltd. All terms and
conditions of the agreement remain unchanged.
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The lease payments for these premises were $689,000 for the year ended March 31, 2009.
Lease Agreement with Renesas Technology
Opnext Japan leases certain manufacturing and administrative premises located in Komoro,
Japan, from Reneses Technology, a wholly owned subsidiary of Hitachi, pursuant to a lease agreement
initially entered into on October 1, 2002. The lease agreement will terminate on March 31, 2011,
with an automatic five-year extension, subject to either party’s contrary intent. Under this
agreement, Renesas Technology has the option to increase the rent upon the occurrence of certain
circumstances during the term of the lease.
The lease payments for these properties were $65,000 for the year ended March 31, 2009.
Lease Agreement with Chuo Shoji
Chuo Shoji, Ltd., or Chuo Shoji, one of Hitachi’s subsidiaries, leases office space located in
Chiyoda-ku (Tokyo), Japan to Opnext Japan. The building is owned by Tokyo Tatemono Co., Ltd.
(“Tokyo Tatemono”), and leased to Chuo Shoji. The term of the lease agreement automatically renews
for successive periods of two years unless either party gives notification to terminate the lease
to the other party six months or more prior to the end of then current term. The current term
expires on June 11, 2010. Opnext Japan executed a letter of guarantee for the benefit of Tokyo
Tatemono, according to which the lease agreement between Opnext Japan and Chuo Shoji shall be
terminated and Opnext Japan shall vacate the premises in the event that the lease agreement between
Chuo Shoji and Tokyo Tatemono is terminated.
The annual lease payment under this agreement was $127,000 for the fiscal year ended March 31,
2009.
Lease Agreement with Hitachi Europe GmbH
Opnext GmbH is party to a lease agreement with Hitachi Europe GmbH under which Hitachi Europe
GmbH leases office space and other services to Opnext Germany GmbH in Munich, Germany. The
agreement became effective on December 1, 2001 and remains in force unless and until terminated by
either party. Under this agreement, Opnext GmbH pays for the cost of the actual occupied office
space and reimburses Htiachi Europe GmbH for various costs that Hitachi Europe GmbH incurs in
providing certain services. This agreement was terminated on
October 31, 2008.
The lease payment under this agreement were $60,000 for the fiscal year ended March 31, 2009.
Opnext Japan Secondment Agreement
Opnext Japan, Inc. and Hitachi entered into a one-year secondment agreement effective February
1, 2001 with automatic annual renewals, which provides for the details of the secondment of Hitachi
employees to Opnext Japan, Inc. Hitachi is entitled to terminate the secondment agreements at any
time.
As of March 31, 2009, there were seven seconded employees. Expenses associated with these
employees were $977,000 for the fiscal year ended March 31, 2009.
Opto Device Secondment Agreements
Opto Device entered into one-year secondment agreements respectively with Hitachi and Hitachi
Tohbu Semiconductor, Ltd., or HTS, one of Hitachi’s wholly owned subsidiaries, respectively,
effective October 1, 2002 with automatic annual renewals. Hitachi and HTS are each entitled to
terminate the secondment agreements at any time.
As of March 31, 2009, there was one seconded employee. Expenses associated with this employee
were $144,000 for the year ended March 31, 2009.
Capital Leases with Hitachi Capital Corporation
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Opnext Japan has entered into capital leases with Hitachi Capital Corporation to finance
certain equipment purchases. For the fiscal year ended March 31, 2009, Opnext Japan had outstanding
capital leases with Hitachi Capital Corporation of $32.8 million. The terms of the leases generally
range from three to five years and the equipment can be purchased at the residual value upon
expiration. Opnext Japan can terminate the leases at its discretion in return for a penalty payment
as stated in the lease contracts.
Director Independence
The Board has determined that seven of our non-employee directors are independent under the
listing standards of NASDAQ and pursuant to the Company’s criteria described in the next paragraph. The
independent directors are Mr. Cowan, Chairman of the Audit Committee, Mr. John F. Otto, Jr.,
Chairman of the Compensation Committee, Dr. Lee, Co-Chairman of the Board and Chairman of the
Nominating/Corporate Governance Committee, Mr. Abbe, Dr. Kuru, Mr. Philip F. Otto and Mr. Smith.
The Company’s Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee
each consist entirely of independent directors under the listing standards of NASDAQ and pursuant
to the Company’s criteria described in the next paragraph.
In making its independence determinations, the Board considered any transactions and
relationships between the director, or any member of his immediate family, and us or one of our
subsidiaries or affiliates based on information provided by the director, Company records and
publicly available information. Specifically, the Board considered the following types of
relationships and transactions: (i) principal employment of, and other public company directorships
held by, each non-employee director; (ii) contracts or arrangements that are ongoing or that
existed during any of the past three fiscal years between the Company and/or its subsidiaries or
affiliates and any entity for which the non-employee director, or his immediate family member, is
an executive officer or greater-than-10% shareholder; and (iii) contracts or arrangements that are
ongoing or that existed during any of the past three fiscal years between the Company and/or its
subsidiaries or affiliates and any other public company for which the non-employee director serves
as a director. In each instance, the Board determined that no such relationships or transactions
existed.
Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees
The following summarizes the aggregate fees paid to Ernst & Young LLP, the Company’s
registered independent accounting firm, for the fiscal years ended March 31, 2009 and 2008:
From and after the effective date of the SEC rule requiring Audit Committee pre-approval of
all audit and permissible non-audit services provided by the independent registered public
accounting firm, the Audit Committee has approved all audit and permissible non-audit services
prior to such services being provided by Ernst & Young. The Audit Committee, or one or more of its
designated members that granted authority by the Audit Committee, meets to approve each audit or
non-audit service prior to the engagement of
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Ernst & Young for such service. Each such service approved by one or more of the authorized
and designated members of the Audit Committee is presented to the entire Audit Committee at a
subsequent meeting, subject to the de minimis exception for non-audit services.
Audit Committee Policy Regarding Pre-Approval of Audit and Permissible Non-Audit Services of our Independent Auditors
Our Audit Committee has established a policy that generally requires that all audit and
permissible non-audit services provided by our independent auditors be pre-approved by the Audit
Committee. These services may include audit services, audit-related services, tax services and
other services. The Audit Committee considers whether the provision of each non-audit service is
compatible with maintaining the independence of our auditors. Pre-approval is detailed as to the
particular service or category of the services and is generally subject to a specific budget. Our
independent auditors and management are required to periodically report to the Audit Committee
regarding the extent of services provided by the independent auditors in accordance with this
pre-approval, and the fees for the services performed to date. During fiscal year ended March 31,
2009, all services were pre-approved in accordance with these procedures.
July 29, 2009
PART IV
(a)(1) All financial statements. The information required by this item is incorporated herein
by reference to the financial statements and notes thereto listed in Item 8 of Part II of the
Original Form 10-K.
(a)(2) Financial statement schedules. All financial statement schedules are omitted because
the required information is incorporated herein by reference to the financial statements and notes
thereto listed in Item 8 of Part II of the Original Form 10-K.
(a)(3) Exhibits. The following exhibits are filed as a part of this report or are incorporated
by reference to exhibits previously filed.
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Exhibit Index
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SIGNATURES
Pursuant to the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Dated: July 29, 2009
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Exhibit Index
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