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Opnext 10-K 2010 Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
Amendment No. 1 to Form 10-K
(Mark One)
For the Fiscal Year Ended March 31, 2010
OR
For the Transition Period from to
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:
Securities registered pursuant to Section 12(g) of the Exchange Act: None
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, 2009, the aggregate market value of the registrant’s voting and
non-voting common equity held by non-affiliates of the registrant was approximately
$154,622,572, based upon the closing sales price of the registrant’s common stock as reported on
the Nasdaq Stock Market on September 30, 2009 of $2.93 per share.
As of July 26, 2010, 89,884,092 shares of the registrant’s common stock were outstanding.
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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, 2010, as
originally filed with the Securities and Exchange Commission (the “SEC”) on June 14, 2010 (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 2010 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, 2010, and we are therefore filing this Form 10-K/A so that such information
is included in the Form 10-K, as amended, within the prescribed 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
Item 10. Directors, Executive Officers and Corporate Governance.
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 currently serves as a director of both
CoSine Communications, Inc. (since 2000) and Cymer, Inc. (since 2003).
The Board concluded that Mr. Abbe’s significant experience as an executive in, and his
resulting knowledge of, the optical industry enables him to contribute significantly to the Board,
and that Mr. Abbe’s nearly two decades of service as a business consultant is valuable to the
Board, particularly with respect to his ability to bring experiences and knowledge learned in
connection with a variety of industries and circumstances.
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 served as a director of Arris, Inc. since 2002.
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The Board concluded that Mr. Bosco’s service as our president and chief executive officer
since our inception in 2000 until his retirement in March of 2009, his resulting extensive
knowledge of our business, operations, products and industry and unique relationship with both the
Board and management, as well as his more than three decades of service in various management,
engineering and executive positions at large, international telecommunications companies, is
valuable to the Board and enables Mr. Bosco to make a significant contribution in his role as
Chairman, especially with respect to the operational and strategic issues we encounter.
Gilles Bouchard. Mr. Bouchard has served as our President, Chief Executive Officer and a
member of the Board since April 1, 2009. Prior to that, Mr. Bouchard served as our chief operating
officer from November 2007 until March 31, 2009. Mr. Bouchard served in various 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 of Science in Engineering from École Centrale
de Lyon and a Master of Science from University of California-Berkeley.
The Board concluded that Mr. Bouchard’s extensive knowledge of our business, operations,
products, industry, challenges and risks, resulting from his prior service as our chief operating
officer and his current service as our chief executive officer, is valuable to the Board in
performing its oversight responsibilities and in making strategic decisions. The Board also
concluded that Mr. Bouchard’s prior experience as a senior executive at a multinational technology
company allows him to contribute significantly to the Board in light of our business and structure.
The Board also believes it appropriate for the Chief Executive Officer to serve as a member of the
Board.
Michael C. Chan. Mr. Chan has served as President of Opnext Subsystems, Inc., our wholly-owned
subsidiary, since April 1, 2009. Prior to that, Mr. Chan served as our Executive Vice President of
Business Development and Product Portfolio Management from January 2001until March 31, 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 has served as Chairman and Chief Executive Officer of The Cowan
Group, LLC, an investment and consulting firm, since January 2000, Chairman and Chief Executive
Officer of Cowan Holdings, Inc. since October 2006, and Mr. Cowan is a also 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.
The Board concluded that Mr. Cowan’s extensive experience in accounting, investing and
consulting, and his experience serving on the audit committee of another company and the board of
directors of other companies, are valuable assets to the Board and allow him to contribute
significantly, particularly in Mr. Cowan’s role as Chairman of our Audit Committee and as an Audit
Committee financial expert.
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
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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 Corporate Vice
President and Executive Officer, CEO of Service & Global Business, Information & Telecommunication
Systems Company 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.
The Board concluded that Mr. Iwata’s extensive experience in executive positions with Hitachi,
Ltd. and its affiliates, and his resulting knowledge of the technology industry and the operational
and strategic issues companies in our industry tend to encounter, enable him to contribute
significantly to the Board in light of our business and structure.
Tadayuki Kanno. Mr. Kanno has served as President of our modules and devices business unit and
Executive Vice President of Opnext Japan, Inc., our wholly owned subsidiary (“Opnext Japan”), since
April 2008. Prior to that, Mr. Kanno served as Senior Vice President of Opnext Japan from May 2004
until April 2008 and as President of Opnext Japan 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 a 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.
The Board concluded that Dr. Kuru’s extensive experience serving in executive positions at
significant international telecommunications and technology companies, and his resulting knowledge
of the telecommunications and technology industries and related operational and strategic issues
companies in our industry tend to encounter, enable him to contribute significantly to the Board.
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
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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.
The Board concluded that Dr. Lee’s unique combination of an in-depth understanding of optical
technology and extensive experience in finance, accounting and investing is valuable to the Board
and allows him to contribute significantly. The Board also concluded that Dr. Lee’s experience
founding and serving as President of a large, global telecommunications company enables Dr. Lee to
bring a valuable perspective to the Board, and that his experience serving as a director or trustee
on the boards of other entities is of significant value to his service on the Board.
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 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 and Secretary since January 2010. 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, Information &
Telecommunication Systems Company of Hitachi, Ltd. and has held various positions at Hitachi, Ltd.
from 1981 until the present, including Vice President, Business Planning and Coordination 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.
The Board concluded that Mr. Otsuki’s nearly three decades of experience in executive
positions with Hitachi, Ltd. and its affiliates, and his resulting knowledge of the technology
industry and related operational and strategic issues companies in our industry tend to encounter,
enable him to contribute significantly to the Board in light of our business and structure.
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.
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The Board concluded that Mr. Otto’s more than 30 years of experience in finance, investment
banking and management are valuable assets to the Board and allow him to contribute significantly,
particularly as a member of our Audit Committee and in light of the fact that the Company remains a
young public company operating in a capital intensive and consolidating industry.
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 B.S. in engineering from Yale University and an
MBA from Harvard Business School. Mr. Otto is not related to John F. Otto, Jr.
The Board concluded that Mr. Otto’s significant experience as an executive in, and his
resulting knowledge of, the optical and technology industries, as well as his experience as a
strategic and financial advisor to technology companies, enable him to contribute significantly and
bring a valuable perspective to the Board, particularly with respect to our strategic decisions.
William F. Smith. Mr. Smith joined the Board in April 2009. Mr. Smith has been at AT&T since
February 1979, and since January 2010 has served as President, AT&T Network Operations, where he is
responsible for all network-related operations across AT&T’s global service footprint, including
AT&T’s global network operations center, mobility and wireline central offices, undersea cable
infrastructure, construction and engineering with wireless field operations, core installation and
maintenance, and U-verse field operations. From March 2008 to January 2010, Mr. Smith was
President, Local Network Operations at AT&T, where he was responsible for all local network-related
operations across AT&T’s domestic footprint, from October 2007 to March 2008, Mr. Smith was AT&T’s
Executive 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 from January 2007 to October 2007 he served as AT&T’s Senior Vice President of
Network Operations in the Southeast. Before AT&T’s
acquisition of BellSouth Corporation (“BellSouth”) in December 2006, Mr. Smith served
as Chief Technology Officer for BellSouth from 2001 until
December 2006, 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.
The Board concluded that Mr. Smith’s extensive experience in executive positions with AT&T,
and his resulting knowledge of the telecommunications industry and related operational and
strategic issues, enable him to contribute significantly to the Board in light of our business,
products and customers, especially with respect to strategic and operational issues we encounter.
Richard Zoccolillo. Mr. Zoccolillo has served as President of Opnext’s Pluggables business
unit since March 2005, with responsibility for coordinating product development, manufacturing,
management and sales activities. From February 2002 until March 2005, Mr. Zoccolillo served as
General Manager of the Optical Subsystems business at Opnext. Prior to joining Opnext, Mr. Zoccolillo spent more
than 15 years with Lucent Technologies (“Lucent”) and AT&T Bell Laboratories. From January 1996
until February 2002, Mr. Zoccolillo served as the general manager of Lucent’s Metro WDM Business,
where he
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spearheaded Lucent’s drive into the Metro WDM market. Prior to such position, Mr.
Zoccolillo served as Lucent’s director of product management for the Lucent SONET systems in the
US, spent two years in Germany focusing on SDH systems, and held a variety of positions in Lucent’s
Consumer Product Organization. From August 1986 until January 1996, Mr. Zoccolillo held various
positions at AT&T Bell Laboratories, including within the ATM Network Planning Committee, the
International ATM Standards Committee, and cellular system product development. Mr. Zoccolillo
holds both a Bachelor degree and a Master of Science degree in Computer Science from Polytechnic
University of New York and serves on the advisory council for Monmouth University’s School of
Science and Technology.
Audit Committee
The Audit Committee is a standing committee of the Board. Since April 1, 2009, the Audit
Committee has consisted 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. All members of the Audit Committee 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, retention 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.
Board of Directors’ Role in Risk Oversight
The Board of Directors oversees our risk management processes to determine whether those
processes are functioning as intended and are consistent with our business and strategy. The Board
conducts this oversight primarily through the Audit Committee, and the Compensation Committee with
respect to pay risk matters, although some aspects of risk oversight are performed by the full
Board of Directors.
Pursuant to the Audit Committee Charter, the Audit Committee is responsible for discussing
with management the Company’s policies with respect to risk assessment and risk management,
including discussing with management the Company’s significant financial risk exposures and the
actions management has taken to limit, monitor or control such exposures. The Audit Committee has
standing items on its meeting agendas relating to these responsibilities, and reports on its
findings at each regularly scheduled meeting of the Board after each Audit Committee meeting. Our
Internal Audit Director attends each regularly scheduled meeting of the Audit Committee and at each
such meeting reviews and assesses our processes and controls for ongoing compliance with internal
policies and legal and regulatory requirements, as well as potential material weaknesses or
significant deficiencies in our internal control over financial reporting. The Internal Audit
Director reports directly to the Audit Committee and has a “dotted-line” reporting relationship to
our Chief Financial Officer. In addition, members of our management who have responsibility for
designing and implementing our risk management processes, such as our Chief Financial Officer and
General Counsel, attend each meeting of the Audit Committee and report on risk assessment and risk
management issues regularly.
The Compensation Committee oversees risk management as it relates to our compensation
plans, policies and practices. The Compensation Committee monitors the
design and administration of the Company’s overall incentive compensation programs to ensure
that they include appropriate safeguards to avoid encouraging unnecessary or excessive risk taking.
Please see “Compensation Discussion and Analysis–Consideration of Risk” below for further
discussion of the Compensation Committee’s consideration of risk with respect to the Company’s
compensation program.
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Finally, the Board discusses risks related to the Company’s business strategy at the
annual strategic planning meeting and at other meetings as appropriate. Board oversight of risk is
enhanced by the fact that the Chairman attends virtually all Board committee meetings as well as by
the fact that reports are provided to the full Board following each meeting of a Board committee.
The Board does not believe that its oversight of the Company’s risk management processes
affects the Board’s leadership structure.
Consideration of Risk
The Company believes that its compensation policies and practices appropriately balance risk
in connection with the achievement of annual and long-term goals and that they do not encourage
unnecessary or excessive risk taking. As part of its oversight of the Company’s executive
compensation program, the Compensation Committee considers the impact of the Company’s executive
compensation program, and the incentives created by the compensation awards that it administers, on
the Company’s risk profile. In 2010, the Compensation Committee and management conducted a review
of the design and operation of all of the Company’s compensation policies and practices. The
review included an assessment of the level of risk associated with the various elements of
compensation. Based on this review and assessment, the Company believes that its compensation
policies and practices are not reasonably likely to have a material adverse effect on the Company.
Board Diversity; Selection and Evaluation of Director Candidates
Our Board of Directors believes that it is important for the Board to be comprised of
individuals with diverse backgrounds, skills and experiences to best allow our Board of Directors
to fulfill its responsibilities. In recommending proposed nominees to the full Board of Directors,
the Nominating/Corporate Governance Committee uses it judgment to build and maintain a board that
has an appropriate mix of talent and experience to achieve the Company’s business objectives. While
the Nominating/Corporate Governance Committee does not have a formal diversity policy and
identifies qualified potential candidates without regard to any candidate’s race, color,
disability, gender, age, national origin, religion or creed, the Nominating/Corporate Governance
Committee is focused on achieving diversity of thought, background (including geographical
background), perspective and experience so as to facilitate robust debate and broad thinking on
strategies and tactics within the Board. The Nominating/Corporate Governance Committee takes into
account various factors when evaluating the suitability of new director nominees, including
understanding of our business environment and the industry in which we compete, integrity,
professional experience complementary to the Company’s business and strategic direction, relevant
subject matter expertise as well as ability to add varied perspectives, experiences and expertise
to the Board of Directors’ existing strengths.
Board Leadership Structure
Our Bylaws provide that the Chairman of the Board shall not be an officer of the Company and
that the Chairman of the Board shall preside at meetings of the Board and lead the Board in
fulfilling its responsibilities. According to the Bylaws, the responsibilities of the Chairman of
the Board include: (a) organizing and presiding over executive sessions of the Board; (b) acting as
a communication channel between the Board and the Chief Executive Officer; (c) in collaboration
with the Chief Executive Officer, setting the Board’s agenda; and (d) serving as a point of contact
for stockholders who wish to communicate with the independent directors of the Company.
The Board believes it is best served by having separate individuals serve as Chairman of the
Board of Directors and as Chief Executive Officer. The Board believes that having a separate
chairman provides a more effective channel for the Board to express its views on management, and
allows the chief executive officer to focus more on the operation of the Company while helping to
keep a measure of independence between the Board’s oversight function and the Company’s operating
decisions. The Board believes that this structure provides an appropriate balance of operational
focus and oversight.
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As a result, Mr. Bouchard, our Chief Executive Officer, serves on our Board of Directors, but
Mr. Bosco serves as the Chairman of the Board of Directors. Mr. Bosco was appointed as Chairman of
the Board after Mr. Bouchard was appointed President and Chief Executive Officer in April 2009.
Prior to the time of Mr. Bouchard’s appointment, Mr. Bosco had been the only chief executive
officer of the Company since its founding. At the time of the transition of the chief executive
officer responsibilities to Mr. Bouchard, the Board of Directors determined that it was in the best
interests of Opnext and its stockholders for Mr. Bosco to serve as Chairman of the Board, given the
depth of his experience with our company and our industry and his unique relationship with both the
Board and management. The Board concluded that having Mr. Bosco serve as Chairman of the Board
would help facilitate and strengthen the transition in leadership.
Our independent directors meet at regularly scheduled executive sessions without members of
management. The independent members of our Board of Directors have not chosen to appoint a “lead
independent director.” Our Board of Directors, under the guidance of the Nominating/Corporate
Governance Committee, reviews its performance each year as a part of its annual self evaluation
process, and in that context considers, among other things, issues of composition and organization.
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
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exchange agreements. We also have procedures that require trades by all employees 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, 2010, the Reporting Persons met all applicable Section 16(a) filing requirements, except for
the following: (1) Phil Otto, a member of our Board, filed a
Form 4 on June 28, 2010, and failed to file a Form 5, in
connection with three late Form 4 filings related to shares of our Common Stock issued to him on
January 30, 2009, October 30, 2009 and February 16, 2010 pursuant to his participation in the
StrataLight Communications, Inc. Employee Liquidity Bonus Plan in accordance with the terms of that
certain Agreement and Plan of Merger, dated as of July 9, 2008, among Opnext, Inc., StrataLight
Communications, Inc., Omega Merger Sub 1, Inc., Omega Merger Sub 2, Inc. and Jerome S. Contro as
the stockholder representative; and (2) Harry Bosco, our Chairman of the Board, filed one late Form
4 on July 16, 2010 in connection with restricted stock units granted to him on January 27, 2010
which constituted his Annual Grant (as defined under “Director Compensation” in Item 11 below).
Item 11. Executive Compensation.
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, 2010
(the “Named Executive Officers” or “NEOs”). During the fiscal year ended March 31, 2010, 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 22 of this amendment.
This Compensation Discussion and Analysis describes the material elements of our executive
compensation program during the fiscal year ended March 31, 2010. 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, 2010.
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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 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
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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 so that it is appropriately
balanced between short-term and long-term compensation and fixed and variable 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. Since April 2008, the
Compensation Committee has engaged Pearl Meyer & Partners, LLC (“Pearl Meyer”) as its independent
compensation consultant to provide information, recommendations, and other advice relating to
executive compensation. Pearl Meyer serves at the discretion of the Compensation Committee.
Compensation Levels
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 (the “Pearl Meyer Study”). Although compensation was not formally benchmarked, the
Compensation Committee has used the Pearl Meyer Study in assessing what compensation practices were
competitive in the market for companies of our size, maturity and industry (including for periods
subsequent to 2008). Competitive compensation levels were considered utilizing a combination of
data reported for a peer group of industry competitors and compensation survey data, as described
below.
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
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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, our two largest customers at the time of the Pearl
Meyer Study, and that had annual revenues between $125 million and $850 million. The following
sixteen companies were included in our Peer Group:
For five positions, including two positions held by Named Executive Officers (Chief Executive
Officer and Chief Financial Officer), 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 assessed using
published survey data only.
Compensation survey data was derived from the following domestic survey sources:
While the Compensation Committee considered Peer Group and compensation survey data in
establishing compensation for the fiscal year ended March 31, 2010, the Compensation Committee did
not formally benchmark total compensation or individual compensation elements against the Peer
Group or compensation survey data, and the Compensation Committee does not aim to set total
compensation, or any compensation element, at a specified level as compared to the companies in the
Peer Group or compensation survey data.
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Compensation Elements
Although the structure may vary over time, our executive compensation program consists of
three primary components:
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.
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.
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 due to the
difficult economic conditions that have existed since the time of the Pearl Meyer Study. Effective
April 1, 2009, our executive officers, including each of the Named Executive Officers, agreed to a
ten percent reduction in their base salaries for a period of 12 months in order to reduce our cost
structure and operating expenses. Mr. Bouchard agreed to forgo the raise associated with his
assumption of the roles of President and Chief Executive Officer (from $400,000 per annum, the
amount of his salary during the time he served as our Chief Operating Officer, to $500,000 per
annum) and to take a ten percent reduction from his previous base
salary effective April
1, 2009, resulting in an annual base salary of $360,000 or, effectively, a 28% reduction in his
base salary. Such salary reductions were discontinued effective April 1, 2010.
The base salary adjustments that were approved and implemented effective April 1, 2009 by the
Compensation Committee for each of the Named Executive Officers are shown in the table below:
Annual Incentive Compensation
Our executive officers, including our Named Executive Officers, are eligible to receive an
annual performance-based incentive bonus under the Incentive Plan upon the achievement of certain
Company and individual objectives. We believe that performance-based 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 incentivizing our executive officers to achieve our performance objectives and
assisting us in attracting and retaining
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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.
Based upon the recommendation of Pearl Meyer, the Compensation Committee approved the
following target bonuses (as a percentage of base salary) for the fiscal year ended March
31, 2010: 100% of salary for Mr. Bouchard and 70% of salary for Messrs. Chan, Kanno, Nobile and
O’Neill. 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. Bouchard
was at the top end of the range.
In May 2009, our Compensation Committee approved a bonus program with respect to performance
during the fiscal year ended March 31, 2010 (the “2010 Bonus Program”). Under the 2010 Bonus
Program, incentive compensation payable to our Named Executive Officers was performance driven and,
therefore, contingent. The Pearl Meyer Study, which included a review of the annual incentives of
the Peer Group companies, concluded that, while revenue was the most prevalent annual incentive
plan performance measure, operating income and individual performance were also commonly used.
Working with our executive management team, and in particular our Chief Executive 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 sole measure of the Company financial performance component under the 2010 Bonus
Program.
Payment under the 2010 Bonus Program was conditioned upon the Company achieving positive
operating income during any quarter of the fiscal year ended March 31, 2010; no payments were to be
made to the Named Executive Officers if the Company did not generate positive operating income in
any quarter of the fiscal year ended March 31, 2010. In the event that the Company achieved
positive operating income in any given quarter, twenty percent of all operating income above
breakeven for such quarter would be set aside to fund the bonus pool, subject to a cap established
by the Compensation Committee.
The Pearl Meyer Study had recommended that our annual incentive compensation be structured by
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 in part 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 as evaluated in the sole discretion of
the Compensation Committee weighted at 20 percent. However, in light of then current and
forecasted economic conditions and the resulting impact on the Company’s performance, the 2010
Bonus Program required that the Company financial performance component — positive operating
income in any quarter of the fiscal year ended March 31, 2010 — had to be achieved before any
participant, including any of the Named Executive Officers, would be eligible to receive any of the
individual performance component of the bonus pursuant to the 2010 Bonus Program, notwithstanding
that such executive officer might have achieved his or her individual objectives.
The Compensation Committee determined that we did not meet our target of positive operating
income in any quarter during the fiscal year ended March 31, 2010 necessary for bonuses to be
awarded under our 2010 Bonus Program. As a result, no amounts were paid to any Named Executive
Officer pursuant to the 2010 Bonus Program. Although we strive to maintain consistency in our
compensation philosophy and approach, our programs are designed and operate on the belief that it
is appropriate for certain components of compensation to be restrained during periods of economic
stress, reduced earnings and significantly lower stock prices.
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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, 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 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 make regular long-term incentive grants
to executive officers using a mix of equity vehicles, 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 large part to the difficult economic
environment, we awarded only stock options to our executive officers, including the Named Executive
Officers, in the fiscal year ended March 31, 2010, and our compensation committee established the
amount of such awards by reference to a fixed number of shares rather than value opportunity.
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.
Stock options granted to our Named Executive Officers generally vest 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 provide a direct link with stockholder interests as they have no intrinsic value unless our
stock price increases above the grant date price. Prior to the fiscal year ended March 31, 2009,
stock options granted to our Named Executive Officers generally had an expiration date of ten years
from the date of grant unless the grantee’s employment was terminated earlier. Starting in the
fiscal year ended March 31, 2009, based in part on the recommendation of Pearl Meyer, stock options
granted to our Named Executive Officers have had an expiration date of seven years from the date of
grant unless the grantee’s employment was terminated earlier. A seven-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.
On May 15, 2009, pursuant to his amended and restated employment agreement, the Company
granted Mr. Bouchard a nonqualified stock option to purchase 1,000,000 shares of our common stock
(the “2009 Bouchard Option”) at an exercise price of $2.30 per share, which option vested with
respect to one-third of the shares subject thereto on May 15, 2010 and will vest with respect to
the remaining shares subject thereto in equal annual installments on May 15, 2011 and May 15, 2012,
subject to accelerated vesting under certain circumstances as set forth in the stock option
agreement. On February 16, 2010, also pursuant
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to his amended and restated employment agreement, the Company granted Mr. Bouchard a
nonqualified stock option to purchase an additional 1,000,000 shares of our common stock (the “2010
Bouchard Option,” and together with the 2009 Bouchard Option, the “Bouchard Options”) at an
exercise price of $1.86 per share, which option will vest with respect to one-quarter of the shares
subject thereto in equal annual installments on each of February 16, 2011, 2012, 2013 and 2014,
subject to accelerated vesting under certain circumstances as set forth in the stock option
agreement. The Bouchard Options were awarded in connection with Mr. Bouchard’s promotion to the
position of Chief Executive Officer and President effective as of April 1, 2009.
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.”
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. Grants of restricted shares generally vest over
a period of two years from the date of grant. 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.
Stock Appreciation Rights (SARs)
The Company has awarded SARs to its employees in Japan, including Mr. Kanno. The awards
generally vest with respect to one-third or one-quarter of the shares on each of the first three or
four anniversaries of the date of grant and have a ten-year life.
Approximately 83% of such SARs, including those held by
Mr. Kanno,
require settlement in the form of the Company’s common stock and approximately 17% of such SARs
require cash settlement.
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. In May of 2010, the Compensation Committee established a new grant practice which provides
that grants will generally be made on the second business day following the Company’s public
announcement of its results for each quarter. We established this practice for granting equity
awards in order 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. All of our stock options are granted at an exercise price equal to the closing price
of our common stock on the date of grant.
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
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following:
Employee Healthcare Coverage. We provide to each Named Executive Officer, healthcare, dental
care, life insurance (other than Mr. Kanno), disability, and accidental death and dismemberment
insurance. Coverage is provided to the Named Executive Officers (other than Mr. Kanno) on the same
basis as all other U.S. employees, except for certain life insurance and disability benefits as
described below.
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 (other than
Mr. Kanno) and all of 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 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.
Historically, the Company has matched employee contributions at a ratio of two-thirds of each
dollar an employee contributed up to a maximum of two-thirds of the first six percent an employee
contributed. All matching contributions vested immediately. On April 1, 2009, we suspended our
matching contribution to the 401(k) plan in order to reduce our cost structure and operating
expenses. The 401(k) Plan also 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. The Named Executive Officers (other than Mr. Kanno) are eligible to
participate in the 401(k) Plan on the same basis as all other U.S. employees.
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. Kanno) 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 may use
this allowance for other purposes.
Executive Disability Benefits. In addition to the disability benefits provided under our group
disability benefits, the Company provides to each Named Executive Officer (other than Mr. Kanno)
additional disability benefits pursuant to a separate long-term disability policy paid for in full
by the Company.
Chan Relocation Benefits. In connection with Mr. Chan’s relocation from New Jersey
to Los Gatos, California to be in closer proximity to our offices, during 2009 the
Compensation Committee approved the reimbursement or payment of certain
relocation expenses incurred by Mr. Chan. These expenses
included closing costs, commissions and sales price protection
relating to the sale of Mr. Chan’s residence; certain costs
associated with the purchase of a residence in the Los Gatos area;
moving, travel, transportation and storage expenses; a relocation
allowance; and tax “gross up” payments with respect to
taxes incurred by Mr. Chan on the relocation expense
reimbursements and payments.
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.
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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 goals based on performance criteria 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 that 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.
Accounting Standards
Accounting Standards Codification Topic 718, “Compensation — Stock Compensation” (“ASC 718”),
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 ASC 718. 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, 2010, March 31, 2009 and March 31, 2008.
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Fiscal Year 2010 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, 2010 to the Named Executive Officers.
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Employment Agreements
Mr. Gilles Bouchard
Mr. Gilles Bouchard serves as our Chief Executive Officer and President pursuant to an amended
and restated employment agreement we entered into with Mr. Bouchard on May 15, 2009 (the “Bouchard
Agreement”) in connection with Mr. Bouchard’s assumption of the roles of Chief Executive Officer
and President effective as of April 1, 2009.
Pursuant to the 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 Bouchard Agreement provides that Mr. Bouchard’s annual base salary
will be $500,000, and may be increased from time to time in the sole discretion of the Compensation
Committee. However, during the fiscal year ended March 31, 2010, Mr. Bouchard agreed to forgo the
raise associated with his assumption of the roles of President and Chief Executive Officer (from
$400,000 per annum, the amount of his salary during the time he served as our Chief Operating
Officer, to $500,000 per annum) and to take a ten percent reduction from his previous base
salary effective April 1, 2009, in connection with our ten percent reduction in salary
for all senior executives during such period, resulting in an annual base salary of $360,000 or,
effectively, a 28% reduction in his base salary. Mr. Bouchard agreed that such reduction in
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his base salary would not constitute “good reason” for purposes of the Bouchard Agreement or
any other agreement. Mr. Bouchard’s salary was reinstated to $500,000 per year effective April 1,
2010.
Commencing with the fiscal year ending March 31, 2010 and each fiscal year thereafter, Mr.
Bouchard is eligible to participate in the Company’s annual incentive bonus plan applicable to the
most senior executives of the Company, under which Mr. Bouchard has 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 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 (the “2009
Bouchard Option”) under the Incentive Plan with an exercise price equal to $2.30 per share. This
stock option vested with respect to one-third of the shares subject thereto on May 15, 2010, with
an additional one-third to vest on each of May 15, 2011 and May 15, 2012, subject to Mr. Bouchard’s
continued employment with the Company and subject to accelerated vesting under certain
circumstances as described below. In addition, on February 15, 2010, the Company granted Mr.
Bouchard a nonqualified stock option to acquire 1,000,000 shares of the Company’s common stock (the
“2010 Bouchard Option,” and together with the 2009 Bouchard Option, the “Bouchard Options”) under
the Incentive Plan with an exercise price equal to $1.86, which option will vest with respect to
one-quarter of the shares subject thereto in equal annual installments on February 16, 2011,
February 16, 2012, February 16, 2013 and February 16, 2014, subject to Mr. Bouchard’s continued
employment with the Company and subject to accelerated vesting under certain circumstances as
described below. 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 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 of the
Bouchard Options 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 Incentive
Plan) or by reason of Mr. Bouchard’s death or disability, the Bouchard Options will immediately
become fully vested and exercisable.
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 annual base salary, payable
within ten days after the date of his separation from service, and (ii) provided that he is not at
the time of payment eligible to participate in a group health insurance plan of a subsequent
employer, a lump-sum cash payment equal to $30,000, payable within ten days after the 18-month
anniversary of the date of his separation from service. In the event that Mr. Bouchard incurs a
separation from service due to his death or disability, or non-renewal of the Bouchard Agreement by
the Company, Mr. Bouchard (or his estate or beneficiaries) will receive the payment described in
clause (ii) of the immediately preceding sentence. 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 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 is eligible to receive group welfare and retirement benefits in accordance with the
Company’s plans and policies and four weeks of paid vacation time each year.
In connection with Mr. Bouchard’s employment agreement, Mr. Bouchard also entered into a
non-competition and confidentiality agreement with us, which provides, among other things, that Mr.
Bouchard will refrain from competing with us during and for one year immediately following his
employment with us. In addition, under the agreement, during and after Mr. Bouchard’s employment
with us, Mr. Bouchard
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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 agreement.
Finally, we entered into an indemnification agreement with Mr. Bouchard, which indemnification
agreement requires, among other things, that we indemnify Mr. Bouchard 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. Bouchard acted in good faith and in a manner he
reasonably believed to be in or our best interests.
Mr. Michael C. Chan
On July 29, 2008, we entered into an amended and restated employment agreement with Mr. Chan
which provided that Mr. Chan would serve as our Executive Vice President, Business Development;
provided, however, that such agreement was further amended in May of 2009 to provide that Mr. Chan
would serve as the President of Opnext Subsystems, Inc., our wholly owned subsidiary, the position
he currently occupies. The current term of Mr. Chan’s employment agreement extends until December
1, 2010, 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 the expiration of the then-current term. Mr. Chan’s 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. During his employment, Mr. Chan is eligible to receive group
welfare and retirement benefits in accordance with the Company’s plans and policies as well as four
weeks of paid vacation time each year.
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” 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, subject to his execution and non-revocation of a general release of claims against the
Company (See “Executive Compensation—Potential Payments upon Termination or Change in Control”
below for definitions of “disability,” “cause” and “good reason” in Mr. Chan’s employment
agreement).
On May 15, 2009, we entered into an amendment to Mr. Chan’s employment agreement which
provided that, effective for the six-month period commencing as of April 1, 2009, Mr. Chan’s annual
base salary would be reduced from $360,000 to $324,000, and that our board of directors or the
Compensation Committee could determine that Mr. Chan’s base salary would 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 consented to this reduction of his base salary and agreed that
the reduction would not constitute “good reason” for purposes of his employment agreement or any
other agreement. Mr. Chan’s annual base salary was reinstated to $360,000 effective April 1, 2010.
The amendment also provided 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 reflected the
increase in Mr. Chan’s target annual bonus from 60% to 70% of his unreduced annual base salary.
The amendment to Mr. Chan’s employment agreement dated May 15, 2009 also provided 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 would 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
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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 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, confidentiality and invention assignment agreement, which provides, among other
things, that Mr. Chan will refrain from competing with us during and for one year immediately
following his employment with us. In addition, under the 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 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. 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, 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 has 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 is entitled to receive a
lump-sum cash severance payment equal to 100% of his then-current annual base salary. 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 is not 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). (See “Executive
Compensation—Potential Payments upon Termination or Change in Control” below for definitions of
“cause,” “good reason” and “disability” in Mr. Nobile’s employment agreement.)
On May 15, 2009, Mr. Nobile and the Company entered into an amendment to Mr. Nobile’s
employment agreement. The amendment provided that, effective for the six-month period commencing on
April 1, 2009, Mr. Nobile’s annual base salary would be reduced from $265,000 to $238,500, and that
our Board or the Compensation Committee could determine that Mr. Nobile’s base salary would 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 agreed that the reduction will not constitute “good
reason” for purposes of his employment agreement or any other agreement. Mr. Nobile’s annual base
salary was reinstated to $265,000
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effective April 1, 2010. The amendment also provided that Mr. Nobile had the potential to earn
an annual bonus under our 2010 Bonus Program targeted at 70% of his unreduced annual base salary.
During his employment, Mr. Nobile is eligible to receive group welfare and retirement benefits
in accordance with the Company’s plans and policies and as well as 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.
Mr. Justin J. O’Neill
On December 31, 2008, we entered into an amended and restated employment agreement with Justin
J. O’Neill, which provides that Mr. O’Neill will serve as the Senior Vice President and General
Counsel of the Company, and will report to the Company’s Chief Executive Officer. The term of Mr.
O’Neill’s employment under the agreement is for four years, commencing on May 7, 2007 and ending on
May 7, 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. O’Neill’s annual base
salary will be $300,000 per year, and may be increased from time to time at the sole discretion of
the Board.
Mr. O’Neill is eligible to participate in the Company’s annual incentive bonus plan applicable
to similarly situated executives of the Company, under which Mr. O’Neill has 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. O’Neill with respect to a partial year of employment will
be prorated to reflect the period of time during which Mr. O’Neill was employed by the Company in
such year.
In the event that Mr. O’Neill incurs a separation from service due to a termination by the
Company without “cause” or by Mr. O’Neill for “good reason,” Mr. O’Neill is entitled to receive a
lump-sum cash severance payment equal to 100% of his then-current annual base salary. Mr. O’Neill’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. O’Neill without “good reason,” termination due to Mr. O’Neill’s death or “disability,” or
non-renewal of the agreement, Mr. O’Neill is not 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). (See “Executive
Compensation—Potential Payments upon Termination or Change in Control” below for definitions of
“cause,” “good reason” and “disability” in Mr. O’Neill’s employment agreement.)
On May 15, 2009, Mr. O’Neill and the Company entered into an amendment to Mr. O’Neill’s
amended and restated employment agreement with the Company. The amendment provided that, effective
for the six-month period commencing as of April 1, 2009, Mr. O’Neill’s annual base salary would be
reduced from $300,000 to $270,000, and that our Board or the Compensation Committee could determine
that Mr. O’Neill’s base salary would 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. O’Neill
agreed that the reduction will not constitute “good reason” for purposes of his employment
agreement or any other agreement. Mr. O’Neill’s annual base salary was reinstated to $300,000
effective April 1, 2010. The amendment also provided that Mr. O’Neill had the potential to earn an
annual bonus under our 2010 Bonus Program targeted at 70% of his unreduced annual base salary.
During his employment, Mr. O’Neill is eligible to receive group welfare and retirement
benefits in accordance with the Company’s plans and policies as well as four weeks of paid vacation
time each year.
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In connection with Mr. O’Neill’s employment agreement, Mr. O’Neill also entered into a
customary confidentiality and invention assignment agreement, which provides, among other things,
that during and after Mr. O’Neill’s employment with us, Mr. O’Neill 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 agreement.
Finally, Mr. O’Neill also entered into an indemnification agreement with us in connection with
his employment agreement which requires, among other things, that we indemnify Mr. O’Neill 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. O’Neill 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 2010 Fiscal Year-End
The following table sets forth summary information regarding the outstanding equity awards at
March 31, 2010 granted to each of our Named Executive Officers.
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Option Exercises and Stock Vested in Fiscal Year 2010
During the fiscal year ended March 31, 2010, none of the Named Executive Officers exercised
any of their options. On November 1, 2009, 20,000 shares of restricted stock issued to Mr. Bouchard
in connection with his employment agreement 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, 2010:
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. Kanno, is entitled to a severance payment in an amount equal to
one times the executive’s annual base salary in the event of a termination of the executive’s
employment without “cause” (as defined below) and, in certain instances, by the executive for “good
reason” (as defined below).
Pursuant to the Bouchard 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, in addition to the severance payment referenced above, 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, Nobile and O’Neill, “cause”
is defined as the occurrence of any one or more of the following events: (i) the commission of a
felony or the
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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) repeated failure to perform in any
material respect executive’s duties as directed by the Board.
In addition, “good reason” is defined in the employment agreements for Messrs. Bouchard, Chan,
Nobile and O’Neill 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.
For purposes of the employment agreements with Mr. Bouchard, Mr. Chan, Mr. Nobile and Mr.
O’Neill, “disability” will generally 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 12-month
period by reason or any physical or mental injury, illness or incapacity.
Assuming a termination of employment as of March 31, 2010, the severance benefits described
above would have resulted in payments of the following amounts to each of the respective Named
Executive Officers: Mr. Bouchard — $530,000, Mr. Chan — $360,000, Mr. Nobile — $265,000 and Mr.
O’Neill — $300,000.
Stock Option Agreements
The Compensation Committee granted 35,000 nonqualified stock options to purchase common stock
of the Company to Mr. Chan, 40,000 nonqualified stock options to Mr. Kanno 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 Options vested with respect to
one-quarter of the shares subject thereto on each of August 15, 2008 and August 15, 2009, and the
remainder of the shares subject thereto will vest in equal annual installments on August 15, 2010
and August 15, 2011, and will expire on August 15, 2017 unless the grantee’s employment is
terminated earlier.
In connection with the execution of the agreement and plan of merger (the “Merger Agreement”)
with StrataLight Communications, Inc. (“StrataLight”) pursuant to which StrataLight was merged with
and into the Company, on July 11, 2008, the Compensation Committee granted options to purchase
common stock of the Company to the Named Executive Officers in the following amounts: 100,000
options to Mr. Chan; and 90,000 options to each of Messrs. Bouchard, Kanno, Nobile and O’Neill
(such options, the “Transaction Bonus Options”), each with an exercise price of $4.92 per share.
The Transaction Bonus Options vested with respect to one-third of the shares subject thereto on
each of July 11, 2009 and July 11, 2010, and the remainder of the shares subject thereto will vest
on July 11, 2012, and will expire on July 11, 2013 unless the grantee’s employment is terminated
earlier.
On November 15, 2007, pursuant to his employment agreement, the Compensation Committee granted
Mr. Bouchard a nonqualified stock option to purchase 250,000 shares of our common stock (the “2007
Bouchard Option”) at an exercise price of $8.89 per share. Such option vested with respect to
one-quarter of the shares subject thereto on each of November 1, 2008 and November 1, 2009, and the
remainder of the shares subject thereto will vest in equal annual installments on November 1, 2010
and November 1, 2011, subject to certain accelerated vesting under certain circumstances as set
forth in the stock option agreement.
On May 15, 2009, pursuant to his employment agreement, the Company granted Mr. Bouchard a
nonqualified stock option to purchase 1,000,000 shares of our common stock (the “2009 Bouchard
Option”) at an exercise price of $2.30 per share, which option vested with respect to one-third of
the shares
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subject thereto on May 15, 2010 and will vest with respect to the remaining shares subject
thereto in equal annual installments on May 15, 2011 and May 15, 2012, subject to certain
accelerated vesting under certain circumstances as set forth in the stock option agreement. On
February 16, 2010, also pursuant to his employment agreement, the Company granted Mr. Bouchard a
nonqualified stock option to purchase an additional 1,000,000 shares of our common stock (the “2010
Bouchard Option,” and together with the 2007 Bouchard Option and the 2009 Bouchard Option, the
“Bouchard Options”) at an exercise price of $1.86 per share, which option will vest with respect to
one-quarter of the shares subject thereto in equal annual installments on February 16, 2011,
February 16, 2012, February 16, 2013 and February 16, 2014, subject to certain accelerated vesting
under certain circumstances as set forth in the stock option agreement.
In addition, on August 19, 2009, the Compensation Committee granted options to purchase common
stock of the Company to the Named Executive Officers in the following amounts: 200,000 options to
each of Messrs. Chan, Kanno and Nobile and 100,000 options to Mr. O’Neill (such options, the
“August 2009 Options”), each with an exercise price of $2.23 per share. The August 2009 Options
will vest and become exercisable with respect to one-fourth of the shares subject thereto on each
of the first, second, third and fourth anniversaries of the date of grant and will expire seven
years from the date of grant unless the grantee’s employment is terminated earlier, subject to
accelerated vesting in each case under certain circumstances as set forth in the applicable stock
option agreement entered into with the Named Executive Officer.
Each of the stock option agreements entered into in connection with the August 2007 Options,
the Transaction Bonus Options, the Bouchard Options and the August 2009 Options 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), 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) 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.
“Cause” is defined in each of the Named Executive Officer’s stock option agreements to mean
the definition of such terms as defined in each such Named Executive Officer’s employment agreement
then in effect or if not defined therein or, if there shall be no such agreement, (i) the Named
Executive Officer’s engagement in misconduct which is materially injurious to the Company or any of
its affiliates, (ii) the Named Executive Officer’s continued failure to substantially perform his
duties to the Company or any of its subsidiaries, (iii) the Named Executive Officer’s repeated
dishonesty in the performance of his duties to the Company or any of its subsidiaries, (iv) the
Named Executive Officer’s commission of an act or acts constituting any (x) fraud against, or
misappropriation or embezzlement from the Company or any of its affiliates, (y) crime involving
moral turpitude, or (z) offense that could result in a jail sentence of at least 30 days or (v) the
Named Executive Officer’s material breach of any confidentiality, non-solicitation, non-competition
or inventions covenant entered into between the Named Executive Officer and the Company or any of
its subsidiaries.
In the employment agreements for each of Messrs. Bouchard, Chan, Nobile and O’Neill, “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” and “good reason” are each defined in the stock option agreements for each of
Messrs. Bouchard, Chan, Nobile and O’Neill 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
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in Control — Employment Agreements” above for definitions of such terms as applied to Messrs.
Bouchard, Chan and Nobile). “Disability” is defined in the stock option agreements entered into
with Mr. Kanno to mean “disability” as defined in any employment agreement then in effect between
the Mr. Kanno 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. Kanno’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.
Each of the August 2007 Options, the Transaction Bonus Options, the Bouchard Options and the
August 2009 Options could be subject to accelerated vesting. However, as of March 31, 2010, the
market price of our common stock was below the strike price of all options issued in connection
with the August 2007 Options and the Transaction Bonus Options, and therefore, accelerated vesting
would not have resulted in any benefit to any of the Named Executive Officers as of such date with
respect to such grants. Please see the table labeled “Change of Control Table” below for a
quantification of the benefits potentially realizable by the respective Named Executive Officers in
connection with accelerated vesting as of March 31, 2010 of the Bouchard Options and the August
2009 Options.
Except with respect to the option grants described above, all of the current stock options
held by the Named Executive Officers and are fully vested with no remaining acceleration benefits.
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. Kanno, 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
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concerns about future employment.
All of the August 2007 Options, the Transaction Bonus Options, the Bouchard Options and the
August 2009 Options 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, 2010, the market price of our common stock was below the strike price of all options issued in
connection with the August 2007 Grants and the Transaction Bonus Options, accelerated vesting would
not have resulted in any benefit to any of the Named Executive Officers as of such date in
connection with such grants. Please see the table labeled “Change of Control Table” below for a
quantification of the benefits potentially realizable by the respective Named Executive Officers in
connection with accelerated vesting as of March 31, 2010 of the Bouchard Options and the August
2009 Options. 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. And no Named
Executive Officer has restricted stock subject to accelerated vesting in the event of termination
following a change of control.
Severance and Change of Control Table
The table below assumes that a termination of employment or change of control occurred on
March 31, 2010, 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 $2.36, which represents the
closing market price of our common stock as reported on the NASDAQ on March 31, 2010.
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DIRECTOR COMPENSATION
The Incentive Plan provides for the following equity compensation to our non-employee
directors:
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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
non-employee 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 is entitled to receive the following
cash compensation:
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. Such ten percent reduction in cash compensation expired
effective March 31, 2010.
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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, 2010. 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
Since April 1, 2009, our Compensation Committee has consisted 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.
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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, 2010.
Compensation Committee
of the Board of Directors John F. Otto, Jr., Chairman
Kendall W. Cowan Dr. David Lee Philip Otto
July 29, 2010
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table provides information as of June 30, 2010 with respect to shares of our
common stock that may be issued under our existing equity compensation plans.
Equity Compensation Plan Information
Beneficial
Ownership Table
The following table sets forth certain information regarding the beneficial ownership of our
common stock as of June 30, 2010, by: (1) as of June 30, 2010 by each director and nominee, (2) as
of June 30, 2010 by our Named Executive Officers, (3) as of June 30, 2010 by all of our directors
and executive officers as a group and (4) as of December 31, 2009 by each person known by us to
beneficially own more than five percent of our common stock.
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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Item 13. Certain Relationships and Related Transactions, and Director Independence
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
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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 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 device 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
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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.
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
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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. There were no research and development expenses related to this agreement for the
fiscal year ended March 31, 2010.
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 $4.1 million for the fiscal year ended March
31, 2010.
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. 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, 2010. 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
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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. However, Hitachi has continued to make various services available to
Opnext under the arrangements established pursuant to the Outsourcing Agreement.
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 $14.5 million for the year ended
March 31, 2010. At March 31, 2010, we had accounts receivable from Hitachi and its subsidiaries of
$4.5 million.
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 $19.8 million for the fiscal year ended March 31, 2010. At March 31, 2010, we had
accounts payable to Hitachi and its subsidiaries of $4.7 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 $1.4 million for the year ended March
31, 2010 in connection with the agreement.
We sell our products directly to end users and through distributors. For the year ended March
31, 2010,
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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 $11.4
million for the fiscal year ended March 31, 2010.
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, 2010.
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.
The lease payments for these premises were $751,000 for the year ended March 31, 2010.
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 $98,000 for the year ended March 31, 2010.
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, 2012. 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.
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The annual lease payment under this agreement was $133,000 for the fiscal year ended
March 31, 2010.
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, 2010, there were five seconded employees. Expenses associated with these
employees were $711,000 for the fiscal year ended March 31, 2010.
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, 2010, there was one seconded employee. Expenses associated with this employee
were $144,000 for the year ended March 31, 2010.
Capital Leases with Hitachi Capital Corporation
Opnext Japan has entered into capital leases with Hitachi Capital Corporation to finance
certain equipment purchases. For the fiscal year ended March 31, 2010, Opnext Japan had outstanding
capital leases with Hitachi Capital Corporation of $23.7 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.
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Item 14. Principal Account Fees and Services.
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, 2010 and 2009:
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 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,
2010, all services were pre-approved in accordance with these procedures.
July 29, 2010
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PART IV
Item 15. Exhibits and Financial Statement Schedules.
(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.
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, 2010
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Exhibit Index
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