UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 141-101)

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Harris Stratex Networks, Inc.

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637 Davis Drive

Morrisville, NC 27560 USA

phone 1-919-767-3230

fax 1-919-767-3233

 

www.harrisstratex.com

 

 

HARRIS STRATEX NETWORKS, INC.  
637 Davis Drive, Morrisville, NC 27560

Notice of 2007 Annual Meeting of Stockholders
To be held on November 14, 2007

 

TO THE HOLDERS OF COMMON STOCK OF HARRIS STRATEX NETWORKS, INC.

 

NOTICE IS HEREBY GIVEN that the 2007 Annual Meeting of Stockholders of Harris Stratex Networks, Inc. will be held in our San Jose office, located at 120 Rose Orchard Way, San Jose, California, on Wednesday, November 14, 2007 at 12:30 p.m., local time, for the following purposes:

 

1. Election of four Class A directors and five Class B directors to serve until the next annual meeting of stockholders or until their successors have been duly elected and qualified.

 

2. Ratification of the selection by our Audit Committee of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2008.

 

3. The transaction of such other business as may properly come before the annual meeting, or any adjournments or postponements thereof.

 

Only holders of common stock of record at the close of business on September 21, 2007 are entitled to notice of and to vote at the Annual Meeting and all adjournments or postponements thereof.

 

Whether or not you expect to attend in person, we urge you to provide a proxy to vote your shares by submitting your proxy via the Internet, by phone, or by signing, dating and returning the proxy card at your earliest convenience. This will help ensure the presence of a quorum at the meeting. If you wish to submit your proxy by mail, an addressed envelope for which no postage is required if mailed in the United States is enclosed.

 

 

By Order of the Board of Directors

 

/s/ Juan Otero

 

Juan Otero
General Counsel and Secretary

 

October 4, 2007

 

TABLE OF CONTENTS

 

HARRIS STRATEX NETWORKS, INC.

 

PROXY STATEMENT

FOR THE ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON NOVEMBER 14, 2007

 

We are furnishing this proxy statement (“Proxy Statement”) to you in connection with the solicitation of proxies by the Board of Directors (“Board”) of Harris Stratex Networks, Inc. (which we refer to as the “Company,” “we,” “our,” and “ours”) for use at the 2007 Annual Meeting of Stockholders, to be held at 12:30 p.m., local time, on November 14, 2007, and any adjournment or postponement thereof. The annual meeting will be held in San Jose, California, located at 120 Rose Orchard Way, San Jose, CA. The telephone number at that location is 408-943-0777. These proxy materials are being mailed on or about October 19, 2007 to our stockholders entitled to notice of and vote at the annual meeting.

 

All materials filed by the Company with the Securities and Exchange Commission, or SEC, can be obtained at the Commission’s Public Reference Room at 100 F Street, N.E, Washington D.C. 20549, or through the Commission’s website at www.sec.gov. You may obtain information on the operation of the Public Reference Room by calling 800-SEC-0330.

 

ABOUT THE MEETING

 

What is the purpose of the meeting?

 

The purpose of the 2007 Annual Meeting of Stockholders is to obtain stockholder action on the matters outlined in the notice of meeting included with this Proxy Statement. Our Class A common stockholders and our sole Class B common stockholder, Harris Corporation, or Harris, will vote together to elect four Class A directors, and Harris will vote as the sole Class B common stockholder, to elect five Class B directors. In addition, our Class A and Class B common stockholders, voting together, will be asked to ratify the appointment by our Audit Committee of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2008. In addition, management will report on its 2007 performance and respond to stockholders’ questions.

 

What is the record date, and who is entitled to vote at the meeting?

 

The record date for the stockholders entitled to vote at the annual meeting is September 21, 2007. The record date was established by the Board as required by the Delaware General Corporation Law, or DGCL, and our Bylaws. Owners of record of shares of our Class A and Class B common stock at the close of business on the record date are entitled to receive notice of the annual meeting and to vote at the annual meeting, and at any adjournments or postponements thereof. You may vote all shares that you owned on the record date.

 

What are the voting rights of the holders of Harris Stratex common stock at the meeting?

 

Each outstanding share of our Class A and Class B common stock is entitled to one vote on each matter considered at the annual meeting. In addition, Harris Corporation is entitled to one vote per share for the election of five Class B directors. As of the record date of September 21, 2007, the number of outstanding shares of Class A common stock was 25,478,101 and the number of outstanding shares of Class B common stock was 32,913,377. Because Harris owned a majority of the combined Class A and Class B common stock on the record date, it will have a majority of the votes in the election of Class A directors. Harris has agreed to vote its shares of Class B common stock in favor of nominees of our Nominating Committee, which includes no Harris representatives, for election as Class A directors. Accordingly, these nominees will be elected at the meeting irrespective of the voting of our Class A common shares.

 

Who can attend the Annual Meeting?

 

Subject to space availability, all stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Since seating is limited, admission to the meeting will be on a first-come, first-served basis.

If your shares are held in “street name” (that is, through a bank, broker or other holder of record) and you wish to attend the annual meeting, you need to bring a copy of a bank or brokerage statement reflecting your stock ownership as of the record date to the annual meeting.

 

How do I vote?

 

Stockholders of record can direct their votes by proxy as follows:

 

 

If your shares are held in street name through a broker, bank or other nominee, that institution will send you separate instructions describing the procedure for voting your shares. Street name stockholders who wish to vote at the meeting will need to obtain a proxy form from the institution that holds their shares.

 

Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials this year instead of a full set of proxy materials?

 

Pursuant to new rules recently adopted by the SEC, we have elected to provide access to our proxy materials over the Internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials (the “Notice”) to our stockholders of record and beneficial owners. All stockholders will have the ability to access the proxy materials on a website referred to in the Notice or request to receive a printed set of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a printed copy may be found in the Notice. In addition, stockholders may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis.

 

How can I access the proxy materials and annual report on the Internet?

 

This Proxy Statement, the form of proxy card, the Notice and our annual report on SEC Form 10-K are available at www.proxydocs.com/hstx.

 

What is a proxy?

 

A proxy is a person you appoint to vote on your behalf. We are soliciting your vote so all shares of our Class A common stock may be voted at the annual meeting. The proxy holders for the annual meeting are our General Counsel and Secretary, Juan Otero and Associate General Counsel and Assistant Secretary, Meena Elliott.

 

How do I revoke my proxy?

 

If the shares of Class A common stock are held in your name, you may revoke your proxy given pursuant to this solicitation at any time before your shares are voted by:

 

 

If your shares are held in “street name,” you should follow the directions provided by your broker regarding how to revoke your proxy. Your attendance at the annual meeting after having executed and delivered a valid proxy card will not in and of itself constitute a revocation of your proxy.

 

What vote is required to approve each item?

 

The director nominees will be reelected by a plurality of the votes cast. Our stockholders may not cumulate votes in the re-election of the director nominees. The director nominees receiving the highest number of affirmative votes of the shares present in person or by proxy at the annual meeting and entitled to vote will be elected. Ratification of the selection of our independent registered public accounting firm requires the affirmative vote of the majority of the stockholders present in person or by proxy at the annual meeting and entitled to vote. Harris has advised us that it intends to vote all of its shares of Class B common stock in favor of the re-election of the director nominees and the ratification of the selection of our independent registered public accounting firm.

 

What constitutes a quorum, abstention, and broker “non-votes”?

 

The presence at the annual meeting either in person or by proxy of a majority of the outstanding shares of our common stock will constitute a quorum for the transaction of business at the annual meeting. Harris, which holds approximately 56 percent of our outstanding common stock, has advised us that it intends to be present at the meeting thus guaranteeing the presence of a quorum.

 

Under the DGCL, an abstaining vote and a broker “non-vote” are counted as present and are, therefore, included for purposes of determining whether a quorum of shares is present at the annual meeting. A broker “non-vote” occurs when a broker or other nominee holding shares in street name for a beneficial owner signs and submits a proxy or votes with respect to shares of common stock held in a fiduciary capacity, but does not vote on a particular matter because the nominee does not have the discretionary voting power with respect to that matter and has not received instructions from the beneficial owner or because the broker elects not to vote on a matter as to which it does have discretionary voting power. Under the rules governing brokers who are voting with respect to shares held in street name, brokers have the discretion to vote such shares on routine matters, but not on non-routine matters. Routine matters include both proposals at the annual meeting, the election of Class A Directors and the ratification of the selection of our independent public accounting firm. With respect to ratification of Proposal No. 1, which requires a plurality vote, broker “non-votes” will have no effect. With respect to ratification of Proposal No. 2 (ratification of the selection of our independent registered public accounting firm), which requires the affirmative vote of a majority of the shares present at the meeting and entitled to vote, broker “non-votes” will have the same effect as a negative vote.

 

Who pays for the cost of solicitation?

 

We will bear the entire cost of solicitation, including the preparation, assembly, printing, and mailing of this Proxy Statement, the proxy card, and any additional solicitation materials that may be furnished to our stockholders and the maintenance and operation of the website providing Internet access to these proxy materials. We will reimburse brokerage firms and other custodians, nominees, and fiduciaries for reasonable expenses incurred in sending proxy materials to beneficial owners of our common stock and maintaining the Internet access for such materials and the submission of proxies. We may supplement the original solicitation of proxies by mail, by solicitation by telephone, telegram, or other means by our directors, officers and employees. No additional compensation will be paid to these individuals for any such services.

 

What is the deadline for submitting proposals and director nominations for the 2008 Annual Meeting?

 

Stockholder Proposals.  In order for stockholder proposals to be considered properly brought before our 2008 annual meeting, the stockholder’s written notice thereof must be received by our General Counsel and Secretary, Juan Otero, at the address of our principal executive offices, not less than 60 days or more than 90 days prior to the meeting. However, in the event that we give less than 70 days prior notice or public disclosure of the annual meeting date, the notice must be received by our General Counsel and Secretary at the address noted above no less than 10 days following the date of our notice or public disclosure of the meeting. The full requirements for the notice are

in Article II, Section 13 of our Bylaws, which is available for review at our website, www.harrisstratex.com. In addition, if a stockholder wishes the proposal to be considered for inclusion in our proxy materials for the 2008 annual meeting under SEC Rule 14a-8, written notice thereof must be received by our General Counsel and Secretary at the address noted above by May 19, 2008.

 

Nomination of Director Candidates.  In order for a stockholder to nominate a director for election at our 2008 annual meeting, the stockholder’s written notice thereof must be received by our General Counsel and Secretary, Juan Otero, at the address of our principal executive officers, not less than 60 days or more than 90 days prior to the meeting. However, in the event that we give less than 70 days prior notice or public disclosure of the annual meeting date, the notice must be received by our General Counsel and Secretary at the address noted above no less than 10 days following the date of our notice or public disclosure of the meeting. The full requirements for the notice are in Article II, Section 14 of our Bylaws, which is available for review at our website, www.harrisstratex.com.

 

The proxies to be solicited by the Board for the 2008 annual meeting will confer discretionary authority on the proxy holders to vote on any stockholder proposal presented at such annual meeting if the Company fails to receive notice of such stockholder’s proposal for the meeting in accordance with the periods specified above.

 

Who will count the votes?

 

An automated system administered by Bowne & Co., Inc. will tabulate the votes cast by proxy. A representative of Bowne & Co., Inc. will act as the inspector of elections for the annual meeting and will tabulate the votes cast in person at the annual meeting.

 

CORPORATE GOVERNANCE

 

We believe in and are committed to sound corporate governance principles. Consistent with our commitment to and continuing evolution of corporate governance principles, we adopted a Code of Business Ethics, Nominating Committee, Audit Committee, Compensation Committee, and Corporate Governance Committee charters and corporate governance guidelines. The committee charters are available at http://www.harrisstratex.com/cg/committee-charters.asp. Each of our Board committees is required to conduct an annual review of its charter and applicable guidelines.

 

Board Members

 

The Board is composed of nine members, of whom four are Class A directors and five are Class B directors. All directors except Messrs. Campbell and Lance have held office as directors since January 26, 2007, the date of the contribution by Harris of the Microwave Communications Division of Harris, or MCD, and our merger with Stratex Networks, Inc. or Stratex. Messrs. Campbell and Lance have held office as directors since we were incorporated as a wholly-owned subsidiary of Harris on October 5, 2006. The Board is chaired by Mr. Kissner.

 

 

As a result of the combination of MCD and Stratex, as described above, Harris owns approximately 56 percent of the outstanding shares of our common stock as of the date of this Proxy Statement. We are a “controlled” entity under the listing requirements of NASDAQ and, as such, exempt from NASDAQ’s director independence requirements, with the exception those applicable to the Audit Committee. While we are not required to have independent directors on our Compensation and Nominating committees, the majority of our directors on these

committees are independent. Class A directors are nominated by the Nominating Committee of the Board, which consists solely of Class A directors and are elected by the holders of Class A and Class B common stock voting together as a class. Class B directors are elected by Harris, as the sole stockholder of Class B common stock. The number of Class A and Class B directors is defined in our restated certificate of incorporation, or charter, and our Bylaws.

 

The Board has determined that as of the date of this Proxy Statement, each of our current directors except Messrs. Kissner, Campbell and Lance has no material relationship with the Company and is independent within the Company’s director independence standards and, in the case of the Audit Committee, in accordance with the NASDAQ Global Market listing requirements. All directors are requested to attend the annual meeting of stockholders.

 

Board and Committee Meetings and Attendance

 

During fiscal year 2007, the Board held six meetings, five Audit Committee meetings, two Compensation Committee meetings and two Corporate Governance Committee meetings. All of our board members attended at least 75 percent of the total number of Board meetings and the number of meetings of the committee or committees on which the member served during the fiscal year.

 

Directors’ Biographies

 

Mr. Charles D. Kissner, age 60, currently serves our Chairman of the Board. Mr. Kissner served as Chief Executive Officer of Stratex from July 1995 through May 2000, and again from October 2001 to May 2006. He was elected a director of Stratex in July 1995 and Chairman in August 1996, a position which he held through 2006. Mr. Kissner also served as Vice President and General Manager of M/A-COM, Inc., a manufacturer of radio and microwave communications products, from July 1993 to July 1995. Prior to that, he was President and CEO of Aristacom International, a communications software company, and Executive Vice President and a Director of Fujitsu Network Switching, Inc. He also held a number of executive positions at AT&T (now Alcatel-Lucent). Mr. Kissner currently serves on the board of directors of SonicWALL, Inc., a provider of Internet security solutions, and Shoretel, Inc. an IP business telephony systems company. Mr. Kissner also serves on the Advisory Board of Santa Clara University’s Leavey School of Business.

 

Mr. Guy M. Campbell, age 61, serves as our President and Chief Executive Officer. Mr. Campbell served as President of MCD from August 2003 though January 2007. From 2000 through 2003, Mr. Campbell served as President and Chief Executive Officer of Andrew Corporation, a provider of communications equipment for the global telecommunications infrastructure market. Mr. Campbell has held a variety of marketing, customer engineering, and systems engineering positions with Ericsson, and served as Vice President and General Manager of Ericsson’s Business Mobile Networks BV in Amsterdam. In 1994 he was named Vice President, Wireless Enterprise Networks, where he was responsible for building Ericsson’s in-building wireless business unit in the United States.

 

Mr. Eric C. Evans, age 54, currently serves as Chairman of the Board of Directors, co-Chief Executive Officer, and Representative Executive Director of D&M Holdings Inc., a leading provider of premium consumer audio electronics. D&M is publicly traded on the Tokyo Stock Exchange. He is also an industrial partner in the private equity firm of Ripplewood Holdings LLC. Prior to joining Ripplewood in November 2005, Mr. Evans was President and Chief Operating Officer of Diebold, Inc., a $2.6 billion global technology product and services company from 2003 to 2005. Prior to 2003, Mr. Evans was a group vice president in the climate technologies area of Emerson Electric Company, an industrial technology and engineering leader. At Emerson beginning in 1987, Mr. Evans served in a variety of senior executive roles for Emerson’s Copeland Division including President of International, Senior Vice President, and Chief Financial Officer.

 

Mr. William A. Hasler, age 65, has served as Chairman of the Board of Directors of Solectron Corporation since 2003 and has been a member of that board since 1998. He served as a member of the Stratex board of directors from August 2001 through January 2007, and was Chairman of the Nominating and Corporate Governance Committee and a member of the Audit Committee. He was co-Chief Executive Officer and a Director of Aphton Corp, a biopharmaceutical company from 1998 to 2003. From 1991 to 1998, Mr. Hasler was Dean of both the Graduate and Undergraduate Schools of Business at the University of California, Berkeley. Prior to his deanship at UC Berkeley,

Mr. Hasler was Vice Chairman of KPMG Peat Marwick. Mr. Hasler also serves on the boards of Ditech Communications Corp., a supplier of telecommunications equipment, Genitope Corporation, a biopharmaceutical company, Technical Olympic USA, Inc., a leading homebuilder and financial services company, and Mission West Properties Inc., a REIT engaged in the management, leasing, marketing, development and acquisition of commercial R&D properties. He is also a trustee of the Schwab Funds.

 

Mr. Clifford H. Higgerson, age 67, served as a member of the board of directors from March 2006 to January 2007 and served on the Compensation and Strategic Business Development Committees. He has more than 35 years experience in research, consulting, planning and venture investing primarily in the telecommunications industry, with an emphasis on carrier systems and equipment. In 2006 he became a partner with Walden International, a global venture capital firm focused in the four key industry sectors: communications, electronics/digital consumer, software and IT services, and semiconductors. Mr. Higgerson was a founding partner of ComVentures from 1986 to 2005, and has been a general partner with Vanguard Venture Partners since 1991. He currently serves as a member of the board of directors of BA Systems, Kotura, Hatteras Networks, Xtera Communications, World of Good, and Ygnition.

 

Mr. Howard L. Lance, age 51, is currently President and Chief Executive Officer of Harris and Chairman of its board of directors. Mr. Lance joined Harris in January 2003 as President and Chief Executive Officer and was appointed Chairman in June 2003. Prior to joining Harris, Mr. Lance was President of NCR Corporation, an information technology services provider, and Chief Operating Officer of its Retail and Financial Group from July 2001 until October 2002. Prior to joining NCR, he spent 17 years with Emerson Electric Company, an electronic products and systems company, where he held increasingly senior management positions with different divisions of the company. In 1999, Mr. Lance was named Executive Vice President with operating responsibility for Emerson’s Electronics and Telecommunications businesses. Prior to 1999, Mr. Lance held sales and marketing positions with the Scott-Fetzer Company and Caterpillar, Inc. Mr. Lance is also a director of Eastman Chemical Company and serves on the Board of Trustees of the Aerospace Industries Association, the Manufacturers Alliance/MAPI, Inc., the Florida Council of 100, the United Way of Brevard County and the Florida Institute of Technology.

 

Dr. James C. Stoffel, age 61, currently serves on the Board of Directors of Harris Corporation, of which he has been a member since August 2003 and is also a member of its Finance Committee and the Management Development and Compensation Committees. Prior to his retirement, Dr. Stoffel was Senior Vice President, Chief Technical Officer, and Director of Research and Development of Eastman Kodak Company, a film and digital imaging company. He held this position from 2000 to April 2005. He joined Kodak in 1997 as Vice President, Director Electronic Imaging Products Research and Development and became Director of Research and Engineering in 1998. Prior to joining Kodak, he was with Xerox Corporation, where he began his career in 1972. His most recent position with Xerox was Vice President, Corporate Research and Technology. Dr. Stoffel is also a trustee of the George Eastman House museum. He serves on the Advisory Board for Research and Graduate Studies at the University of Notre Dame, and is a member of the advisory board of ASTRI, Hong Kong.

 

Dr. Mohsen Sohi, age 48, has served, since 2003, as President and Chief Executive Officer of Freudenberg-NOK, a privately-held joint venture partnership between Freudenberg & Co. of Germany and NOK Corp. of Japan, the world’s largest producer of elastomeric seals and custom molded products for automotive and other applications. From 2001 through 2003 he served as President, Retail Store Automation Division, NCR Corporation. From 1986 through 2001 he served in various key positions at Honeywell/Allied Signal Inc., including President, Honeywell Electronic Materials, and President, Honeywell Commercial Vehicle Systems.

 

Mr. Edward F. Thompson, age 69, served as a member of the Stratex board of directors from November 2002 through January 2007, where he was Chairman of the Audit Committee, and served on the Nominating and Corporate Governance Committee. Mr. Thompson has been a consultant to Fujitsu Labs of America since 2002. From 1976 to 1994, he held various positions at Amdahl Corporation, including Chief Financial Officer and Corporate Secretary, as well as Chairman and CEO of Amdahl Capital Corporation. Mr. Thompson also held positions at U.S. Leasing International, Inc., Computer Sciences Corporation, IBM and Lockheed Missiles and Space Company. Mr. Thompson has contributed as a director or advisor to a number of companies including Fujitsu, Ltd. and several of its subsidiaries, SonicWALL Inc., a provider of Internet security solutions ,and Shoretel, Inc., an

IP business telephony systems company. He is on the Advisory Boards of Diamondhead Ventures, LLP, and Santa Clara University’s Leavey School of Business.

 

Board of Directors Committees

 

Our Board of Directors maintains an Audit Committee, a Compensation Committee, a Nominating Committee, and a Corporate Governance Committee.

 

Copies of the charters for the Audit Committee, the Compensation Committee, the Corporate Governance Committee, and the Nominating Committee are available on our website at http://www.harrisstratex.com/cg/committee-charters.asp.

The following table shows the Chairman and present members of each committee, the number of committee meetings held during fiscal year 2007, and the principal functions performed by each member.

 

 

 

 

Audit Committee

 

The Audit Committee is primarily responsible for approving the services performed by our independent registered public accounting firm and reviewing our accounting practices, our corporate financial reporting and system of internal accounting controls. The Audit Committee currently consists of Messrs. Evans, Hasler, and Thompson (Chairman). In February 2007, the Audit Committee adopted, and the Board approved, a charter for the Audit Committee. No material amendments to the Audit Committee Charter were made during fiscal year 2007. The Audit Committee is comprised of independent, non-employee members of our Board who are “financially sophisticated” under the rules of NASDAQ. The Board of Directors has determined that Mr. Thompson is the “audit committee financial expert,” as defined under Item 407(d)(5)(i) of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934, but that status does not impose on him duties, liabilities or obligations that are greater than the duties, liabilities or obligations otherwise imposed on him as a member of our Audit Committee and our board of directors.

 

Compensation Committee

 

The Compensation Committee has the authority and responsibility to approve our overall compensation strategy, to administer our annual and long-term compensation plans and to review and make recommendations to the Board regarding executive compensation. The Compensation Committee is comprised of independent, non-employee members of the Board. The Compensation Committee also retains an independent compensation consultant who advises on matters of executive compensation. The Compensation Committee has adopted, and the Board of Directors has approved, a Compensation Committee charter.

 

Compensation Committee Interlock and Insider Participation

 

The Compensation Committee currently consists of Mr. Clifford H. Higgerson, Dr. Mohsen Sohi, and Dr. James C. Stoffel (Chairman). None of these individuals is an officer or former officer of the Company. None of our executive officers served on the board of directors or compensation committees of Harris or any other entity during the past fiscal year.

 

Corporate Governance Committee

 

The Corporate Governance Committee identifies best practices and recommends steps consistent with sound and current corporate governance principles. The Committee consists of Messrs. Hasler (Chairman), Kissner, and Lance. The Committee is comprised of non-employee members of the Board. The Corporate Governance Committee has adopted, and the Board has approved, a Corporate Governance Committee charter.

 

Nominating Committee

 

The Nominating Committee assists the Board in selecting nominees for election to the Board as Class A directors and recommends Class A director candidates to the Board. The Nominating Committee currently consists of Messrs. Hasler (Chairman), Higgerson, Kissner and Thompson. As Class A directors, the Nominating Committee will periodically review whether a more formal policy should be adopted. There is no difference in the manner in which the Nominating Committee evaluates nominees for director based on whether the nominee is recommended by a stockholder. The Company currently does not pay a third party to identify or assist in identifying or evaluating potential nominees, although the Company may in the future utilize the services of such third parties. The Nominating Committee has adopted, and the Board has approved, a Nominating Committee charter.

 

In reviewing potential candidates for the Board, the Nominating Committee considers the individual’s experience and background. Candidates for the position of director should exhibit proven leadership capabilities, high integrity, exercise high level responsibilities within their chosen career, and possess an ability to quickly grasp complex principles of business, finance, international transactions, and communication technologies. In general, candidates will be preferred who hold an established executive level position in business, finance, law, education, research, government, or civic activity. In making its selection, the Nominating Committee bears in mind that the foremost responsibility of a director of a corporation is to represent the interests of the stockholders as a whole.

The Board intends to continue to evaluate candidates for election to the Board on the basis of the foregoing criteria.

 

The Nominating Committee has nominated, and the Board approved, Charles D. Kissner, William A. Hasler, Edward F. Thompson, and Clifford H. Higgerson to stand for election as Class A directors at the 2007 annual meeting.

 

Stockholder Communications with the Board

 

Stockholders who wish to communicate directly with the independent directors on the Board may do so by sending an e-mail to Juan Otero, the Company’s General Counsel and Secretary, at hsxbod@hstx.com, or may send a letter addressed to: Harris Stratex Networks, Inc. Board, c/o Juan Otero, General Counsel and Secretary, 120 Rose Orchard Way, San Jose, CA 95134. The General Counsel and Secretary monitors these communications and provides a summary of all received messages to the Board at its regularly scheduled meetings. When warranted by the nature of communications, the General Counsel and Secretary may obtain more immediate attention of the appropriate committee or independent director of the Board, independent advisors, or management. The General Counsel and Secretary may decide in his judgment whether a response to any stockholder communication is appropriate.

 

Code of Conduct

 

We implemented our Code of Conduct effectively on January 26, 2007. All of our employees, including the Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, and others are required to abide by the Code of Conduct to help ensure that our business is conducted in a consistently ethical and legal manner. The Audit Committee has adopted a written policy, and management implemented a reporting system, intended to encourage our employees to bring to the attention of management and the Audit Committee any complaints regarding the integrity of our internal financial controls or the accuracy or completeness of financial or other information related to our financial statements.

 

Contractual and Other Control Arrangements

 

In connection with the completion of the merger, we and Harris entered into several agreements, including an investor agreement, which provides Harris with ongoing governance rights. In addition, prior to the closing of the merger and the contribution transaction, we amended and restated our charter and Bylaws, to reflect these governance arrangements.

 

Election of Class B Directors

 

Harris and we have agreed that, so long as Harris holds a majority of the total number of votes entitled to be cast generally in an election of directors to the Board (other than directors elected separately as a Class by the holders of Class B common stock), there will be nine directors, of which five will be elected separately by Harris as the only holder of shares of Class B common stock. During this period, the quorum for action by the Board will be a majority, which majority must include at least four of the Class B directors. Harris has agreed that, until the second anniversary of the completion of the proposed transactions, two of the five Class B directors it is entitled to elect must satisfy the following requirements: One must meet the independence requirements for directors serving on an audit committee as prescribed by the Marketplace Rules applicable to companies listed on NASDAQ Stock Market, which rules we refer to in this Proxy Statement as the NASDAQ rules, and one must not be an employee of Harris or any of its subsidiaries (without regard to us or any of our subsidiaries).

 

The remaining four directors, known as the Class A directors or the non-Harris directors, will be nominated by a nominating committee of the Board of consisting solely of non-Harris directors and will be elected by the holders of Class A and Class B common stock voting together as a class. In addition, under the terms of the investor agreement, Harris has agreed to vote all of its shares in the election of the non-Harris directors for the nominees proposed by nominating committee so long as Harris holds a majority of the total number of votes entitled to be cast generally in an election of the Class A directors.

At any time when Harris holds less than a majority but 10 percent or more of the total number of votes entitled to be cast generally in an election of the directors to the Board (other than directors elected separately by the holders of Class B common stock), Harris will be entitled to elect a number of Class B directors equal to Harris’ voting percentage in such election times the number of directors then comprising the Board (rounding down to the next whole number of directors).

 

Harris has the right to remove any Class B director with or without cause at any time for any reason and will have the right to elect any successor director to the fill vacancies created by such removal. Any vacancy created by the resignation, death, or incapacity of a Class B director will be filled by the other Class B directors then in office and, if none, by Harris. Only the holders of Class A common stock, voting separately as a class, will be permitted to remove the Class A directors without cause or fill vacancies created by such removal, if not filled by the Class A directors then in office. To the extent Harris owns any shares of Class A common stock, it has agreed that it will not vote those shares for the removal of any Class A director without cause and will vote all of its shares of Class A common stock for any individual nominated by the nominating committee to replace any Class A director who has been removed with or without cause.

 

TRANSACTIONS WITH RELATED PERSONS

 

It is the policy and practice of our Board to review and assess information concerning transactions involving related persons. Related persons include our majority stockholder, Harris, and our directors and executive officers and their immediate family members. If the determination is made that a related person has a material interest in a transaction involving us, then the disinterested members of our Board would review and approve or ratify it, and we would disclose the transaction in accordance with SEC rules. If the related person is a member of our Board, or a family member of a director, then that director would not participate in any discussion involving the transaction at issue.

 

Our Code of Conduct prohibits all employees, including our executive officers, from benefiting personally from any transactions with us other than approved compensation benefits.

 

Harris is a significant related party to us through its a 56 percent ownership of our common stock. Our investor agreement with Harris provides that:

 

Harris will not, and will not permit any of its affiliates to, directly or indirectly, enter into any transaction or series of related transactions with us or any of our subsidiaries unless (i) the transaction is on arm’s length terms and (ii) if it has a fair market value of more than $5 million, the transaction must be approved in advance by a majority of the Class A Directors. The foregoing restrictions do not apply to:

 

• transactions relating to employment arrangements, employee benefits, stock options and stock ownership plans approved by the Board,

 

• the payment of reasonable and customary fees to Directors who are not Harris Stratex Networks employees,

 

• indemnification or insurance arrangements covering Harris Stratex Networks directors and officers, and

 

• any payments or other transactions pursuant to our tax-sharing agreement with Harris.

 

We have sales to, and purchases from, Harris and/or other Harris entities from time to time. Our sales to Harris entities in fiscal 2007 were $1.9 million. On January 26, 2007, we entered into a transition services agreement with Harris to provide for certain services during the period subsequent to the merger with Stratex. These services are charged to us based primarily on actual usage and include database management, supply chain operating systems, e-Business services, sales and service, financial systems, back office material resource planning support, HR systems, internal and information systems shared services support, network management and help desk support, and server administration and support. We paid Harris $3.7 million in fiscal 2007 for these services. We share the directors’ and officers’ insurance policy with Harris. The primary layer is available to Harris and the Company on a first-case, first-served basis. We have an additional $25 million of insurance coverage, which is for use solely by us

and our officers and directors. An extra $10 million of additional coverage is in place for directors only. We owe Harris $204,834 for this insurance coverage.

 

Prior to January 26, 2007, MCD used certain assets in Canada owned by Harris that were not contributed to us as part of the Combination Agreement. We continue to use assets in Canada owned by Harris in our business, and have entered into a 5-year capital lease agreement with Harris to accommodate this use. Our total obligation to Harris under the lease agreement is $5.9 million. In addition, we have another lease agreement with Harris Corporation for premises in Florida used by a portion of our network operations group.

 

Prior to our merger, some of the former MCD executives were awarded options to purchase Harris common stock. In accordance with Statement of Financial Accounting Standards No. 123(R) “Share-Based Payment” (“SFAS 123(R)”), we recognized these expenses and have reimbursed Harris Corporation with cash in the amount of $1.6 million. We have agreed with Harris that Harris and its other affiliates are only permitted to enter into transactions with us if the transaction is approved by the majority of non-Harris directors on the Board or is on terms no less favorable in any material respect to us than those that could have been obtained by us taking into consideration the then prevailing facts and circumstances, if we negotiated the transaction with an informed, unrelated third party. However, if a transaction has a fair market value of more than $5 million, it must be approved in advance by a majority of Class A directors. Harris and Harris Stratex have agreed that certain specified transactions relating to the payment of directors’ fees, employee benefits and other similar arrangements, indemnification arrangements and tax-sharing arrangements between us and any other entity with which we file a consolidated tax return or with which we are part of a consolidated group for tax purposes will not be subject to these restrictions. For further discussion, please refer to the “Summary Compensation Table,” on page 25.

 

Tax Sharing Arrangements

 

We have entered into a tax sharing agreement which provides that if our financial results are required to be included in a Harris consolidated, combined, or unitary income or franchise tax return, or vice versa, the parties have agreed to consent to the inclusion of such results in the combined return. We have agreed to reimburse Harris for any tax liability of ours reflected in a Harris tax return (and vice versa), and Harris has agreed to reimburse us for use of any tax benefits of ours that are used by Harris in its tax return (and vice versa). These arrangements also apply to our subsidiaries as well as to those of Harris Corporation, although for purposes of the tax sharing agreement, neither we nor our subsidiaries are considered subsidiaries of Harris Corporation. There were no settlement payments under these arrangements that we recorded in the fiscal year ended June 29, 2007.

 

DIRECTOR COMPENSATION AND BENEFITS

 

The form and amount of director compensation is reviewed and assessed from time to time by the Corporate Governance Committee with changes, if any, recommended to the Board for action. Director compensation may take the form of cash, equity, and other benefits ordinarily available to directors.

 

Directors who are not employees of ours currently receive the following fees, as applicable, for their services on our Board:

 

 

 

We reimburse each non-employee director for reasonable travel expenses incurred in connection with attendance at Board and committee meetings on our behalf, and for expenses such as supplies, continuing director education costs, including travel for one course per year. Employee directors are not compensated for service as a director.

 

Fiscal 2007 Compensation of Non-Employee Directors

 

Our non-employee directors received the following aggregate amounts of compensation in respect of the fiscal year ended June 29, 2007.

 

 

 

 

Indemnification

 

Our Bylaws require us to indemnify each of our directors and officers with respect to their activities as a director, officer, or employee of ours, or when serving at our request as a director, officer, or trustee of another corporation, trust, or other enterprise, against losses and expenses (including attorney fees, judgments, fines, and amounts paid in settlement) incurred by them in any threatened, pending, or completed action, suit, or civil proceeding, whether civil, criminal, administrative, or investigative, to which they are, or are threatened to be made, a party(ies) as a result of their service to us. In addition, we carry directors’ and officers’ liability insurance, which includes similar coverage for our directors and executive officers. We will indemnify each such director or officer for any one or a combination of the following, whichever is most advantageous to such director or officer:

 

 

Under our Bylaws, each director or officer will continue to be indemnified even after ceasing to occupy a position as an officer, director, employee or agent of ours with respect to suits or proceedings arising from his or her service with us.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth information with respect to the beneficial ownership of our Class A common stock as of September 28, 2007 by each person or entity known by us to beneficially own more than 5 percent of our Class A common stock, by our directors, by our named executive officers and by all our directors and executive officers as a group. This table also provides information with respect to the beneficial ownership of our Class B common stock (all of which is owned by Harris) taken together with our Class A common stock. Except as indicated in the footnotes to this table, and subject to applicable community property laws, the persons listed in the table below have sole voting and investment power with respect to all shares of our common stock shown as beneficially owned by them. Unless otherwise indicated, the address of each of the beneficial owners identified is c/o Harris Stratex Networks, Inc., 637 Davis Drive, Morrisville, NC 27560. As of September 28, 2007, there were 25,478,101 shares of our Class A common stock outstanding and 32,913,377 shares of our Class B common stock outstanding. Total common stock outstanding as of September 28, 2007 was 58,391,478.

 

 

 

 

 

 

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

 

The Audit Committee currently consists of three members of the Board, each of whom is independent of the Company and its management, as defined by NASDAQ rules. The Board has adopted, and periodically reviews, the Audit Committee charter. The charter specifies the scope of the Audit Committee’s responsibilities and how it carries out those responsibilities.

 

The Audit Committee reviews management’s procedures for the design, implementation, and maintenance of a comprehensive system of internal controls over financial reporting and disclosure controls and procedures focused on the accuracy of our financial statements and the integrity of our financial reporting systems. The Audit Committee provides the Board with the results of its examinations and recommendations and reports to the Board as it may deem necessary to make the Board aware of significant financial matters requiring the attention of the Board.

 

The Audit Committee does not conduct auditing reviews or procedures. The Audit Committee monitors management’s activities and discusses with management the appropriateness and sufficiency of our financial statements and internal control processes. Management has primary responsibility for the Company’s financial statements, the overall reporting process and our system of internal control over financial reporting. Our independent registered public accounting firm audits the financial statements prepared by management, expresses an opinion as to whether those financial statements fairly present our financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States, or GAAP, and discusses with the Audit Committee any issues they believe should be raised with us.

 

The Audit Committee reviews reports and provides guidance to our independent registered public accounting firm with respect to their annual audit and approves in advance all audit and non-audit services provided by our independent auditors in accordance with applicable regulatory requirements. The Audit Committee also considers, in advance of the provision of any non-audit services by our independent registered public accounting firm, whether the provision of such services is compatible with maintaining their independence.

 

In accordance with its responsibilities, the Audit Committee has reviewed and discussed with management the audited financial statements for the year ended June 29, 2007 and the process designed to achieve compliance with Section 404 of the Sarbanes-Oxley Act of 2002. The Audit Committee has also discussed with our independent registered public accounting firm, Ernst & Young LLP, the matters required to be discussed by SAS No. 61, Communication with Audit Committees as adopted by the Public Company Accounting Oversight Board, or PCAOB, in Rule 3200T. The Audit Committee has received the written disclosures and letter from Ernst & Young LLP required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees as adopted by the PCAOB in Rule 3600T, and has discussed with Ernst & Young LLP its independence, including whether Ernst & Young LLP’s provision of non-audit services is compatible with its independence.

 

Based on these reviews and discussions, the Audit Committee recommended to the Board that our audited financial statements for the year ended June 29, 2007 be included in our Annual Report on Form 10-K.

 

Edward F. Thompson, Chairman
Eric C. Evans
William A. Hasler

INDEPENDENT AUDITOR’S FEES

 

Ernst & Young has been approved by our Audit Committee to act as our independent registered public accounting firm for the fiscal year ending June 29, 2008. Representatives of Ernst & Young LLP will be present at the 2007 Annual Meeting of Stockholders, will have opportunity to make a statement should they so desire, and will be available to respond to appropriate questions.

 

Audit and other fees billed to us by Ernst & Young for the fiscal year ended June 29, 2007 are as follows:

 

 

 

 

Ernst & Young did not perform any professional services related to financial information systems design and implementation for us in fiscal 2007.

 

The Audit Committee has determined in its business judgment that the provision of non-audit services described above is compatible with maintaining Ernst & Young’s independence.

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Overview

 

This Compensation Discussion and Analysis, which has been prepared by management, is intended to help our stockholders understand our executive compensation philosophy, objectives, elements, policies, and practices. It is also intended to provide context for the compensation information for our CEO, CFO, and four other most highly compensated executive officers (our “named executive officers”) detailed in the Summary Compensation Table on page 25, and in the other tables and narrative discussion that follows.

 

The Compensation Committee has oversight responsibility for the establishment and implementation of compensation policies and programs for our executive officers to provide that they are compensated in a manner consistent with our compensation objectives and principles. The Compensation Committee also monitors the executive succession plans and monitors our performance as it relates to overall compensation policies for employees.

 

The Board generally has delegated to the Compensation Committee final decision-making authority with respect to the compensation of our named executive officers, other than our Chief Executive Officer, as to whom the Compensation Committee makes a recommendation subject to the Board’s approval. In carrying out its responsibilities, the Compensation Committee may engage outside consultants and consult with our Human Resources Department, as the Compensation Committee determines to be appropriate. The Compensation Committee also may obtain advice and assistance from internal or external legal, accounting and other advisers selected by the Compensation Committee. The Compensation Committee may delegate any of its responsibilities to one or more

directors or to members of management, to the extent permitted by our charter documents and applicable law. The Compensation Committee has authorized members of management to make salary adjustments and bonus decisions under guidelines approved by the Compensation Committee for all employees other than executive officers.

 

Awards under the 2007 Stock Equity Plan for our executives, other than the Chief Executive Officer, are recommended to the Compensation Committee by the Chief Executive Officer. All awards are reviewed by the Compensation Committee. Under our Compensation Committee charter, the Committee is authorized to approve all awards except awards to the Chief Executive Officer, which it recommends to the full Board. In fiscal 2007, the awards for all named executive officers were approved by the full Board on the recommendation of the Compensation Committee.

 

Compensation Philosophy and Objectives

 

In connection with other pre-merger activities, the prospective management team for the combined company, in consultation with several prospective members of our Board, developed and formulated for fiscal 2007 and fiscal 2008 the Company’s current compensation and benefits philosophy and objectives, which generally were reviewed and approved by the Compensation Committee and the full Board at a meeting held shortly after consummation of the MCD-Stratex combination on January 26, 2007. At that meeting, the Board approved proposals for base salary, annual bonus range and long term incentives in relation to base salary, and severance benefits for all of the named executive officers, as well as Mr. Campbell’s employment agreement. The remaining elements of the compensation packages for our named executive officers were approved by the Board at a meeting on February 28, 2007.

 

The total executive compensation program was developed within the context of the newly-created company, with primary objectives being recruiting, retaining and developing exceptional executives, enabling those individuals to achieve strategic and financial goals, rewarding superior performance and aligning the interests of our executives with our stockholders.

 

The Compensation Committee recommended, and the full Board concurred, that the executive compensation program should —

 

 

Going forward, the Compensation Committee will conduct annual reviews of the executive compensation program in an effort to ensure our executive compensation policies and programs remain appropriately aligned with evolving business needs, and to consider best compensation practices and leading corporate governance principles.

 

Competitive Market Data

 

To help establish the initial level and mix of compensation for each of our named executive officers, the Compensation Committee utilized the compensation consultants Towers Perrin to advise on various matters relating to our executive compensation and benefits program. Towers Perrin’s services included:

 

 

Targets for total compensation for our executive officers, including the named executive officers, were set with reference to a benchmark group of companies derived from the National High Tech Survey of cash compensation published by Radford Surveys and Consulting (the “Radford Survey”) for technology companies with revenues between $200 million and $1 billion. We also used long-term incentive data collected by Towers Perrin for a group

of companies that Towers Perrin reviewed with management and the Compensation Committee and proposed for benchmarking data considering primarily the following attributes: business operations in the industries and businesses in which we participate, similar revenue and market capitalization, and complex businesses that compete for the same executive talent. For fiscal year 2007, the Compensation Committee set targets for each element of executive compensation at performance levels corresponding to percentile targets obtained from the Radford Survey and the data collected by Towers Perrin.

 

Total Compensation Elements

 

Our executive compensation program includes four major elements:

 

 

Each named executive officer’s performance is measured against factors such as long and short-term strategic goals and financial measures of our performance, including revenue, operating income, net income, and cash flow from operations.

 

Our compensation policy and practice is to target total compensation levels for all employees, including our named executive officers, nominally at the 50th percentile for similar positions as derived from the selected compensation database, assuming experience in the position and competent performance, although the Compensation Committee may decide to target total compensation above or below the 50th percentile for similar positions in unique circumstances based on an individual’s unique background, experience or position, because part of our compensation philosophy is to recognize outstanding contributions with above-market compensation.

 

The incentive compensation program is incremental to the base salary and has two major elements:

 

 

In addition, in connection with the MCD-Stratex combination, on February 28, 2007, we issued restricted shares for retention purposes to selected executives, including four of our six named executive officers.

 

Payouts for annual cash incentive awards are based upon the degree to which we achieve the applicable operating results established at the start of the fiscal year. Individual awards then may be adjusted plus or minus 20 percent to recognize the unique contributions of each executive officer. Similarly, long-term compensation in the form of performance share awards is based upon the degree to which we attain performance results established at the start of the performance period.

 

2007 Cash Compensation

 

Base Salary.  Base salaries are provided as compensation for day-to-day responsibilities and services to us. Executive salaries are reviewed after the end of a fiscal year. The first seven months of fiscal year 2007 preceded the combination of the MCD and Stratex, and the compensation of those named executive officers who were employed by MCD or Stratex prior to January 26, 2007, was not determined by our Compensation Committee. To determine compensation for the remainder of fiscal year 2007, the Compensation Committee reviewed base salaries for our named executive officers as recommended by the prospective management team in connection with the pre-merger activities, and approved the base salary of each executive officer on a case-by-case basis taking into account the individual officer’s responsibilities, his or her previous compensation with MCD or Stratex, the compensation information from the Radford Survey and the compensation program objectives. The Compensation Committee

approved and recommended to the Board the base salaries for fiscal 2007 for our named executive officers set forth on page 25. Base pay was determined with reference to the amount paid for each equivalent executive position at the 50th percentile in the Radford Survey. If the recommended amount of base pay was more than 15 percent below the percentile amount, the base salary was adjusted upward; otherwise no adjustments were made.

 

Incentive Pay.  The short-term incentive element of our executive compensation program consists of an Annual Incentive Plan or AIP. The plan covers the second half of the fiscal year performance period. Our AIP for fiscal year 2007 provided our executives, including our named executive officers, with the opportunity to achieve total cash compensation above the 50th percentile in the Radford Survey if our financial performance for the second half of the fiscal year exceeded the targets set by the Compensation Committee. Under the AIP for fiscal year 2007, potential payouts ranged from zero to 200 percent of target cash payout depending on our revenue and operating income results, as adjusted, for fiscal year 2007. These performance targets utilized revenue and operating income computed in accordance with generally accepted accounting principles, or GAAP, for the five-month period ended June 29, 2007 (the period subsequent to the merger), adjusted as if the merger had occurred at the end of December 2006 and to exclude unique operating items related to the merger and the combination. The adjustments included adding Stratex’s revenue and operating income for the month of January 2007 and removing post-merger purchase accounting adjustments, including the amount of amortization of identifiable intangible assets, the write-off of acquired in-process research and development costs, the amount of amortization of valuation increases to inventory and fixed assets and costs associated with the assumption of former Stratex unvested stock options. Adjustments also were made to remove other merger-related costs from restructuring, severance and integration activities. Finally, SFAS 123(R) stock-based compensation expenses for the five-month period ended June 29, 2007 and the corporate allocations expense from Harris to MCD for the month of January 2007 were eliminated.

 

The AIP for fiscal year 2007 contained minimum thresholds and payout ratios for both performance measures and assigned a weight of 60 percent to revenue and 40 percent to operating income. Performance relative to each measure was evaluated independently (see Table 1, below), and the plan provided for no payout unless our performance met at least one target threshold percentage.

 

Table 1

 

 

In determining the individual cash incentive target amounts for the fiscal year 2007 AIP, the prospective management team and Compensation Committee considered the bonus targets set for similarly situated individuals in the Radford Survey and established targets to be near the 50th percentile plus or minus 5 percent. The average target cash incentive as a percentage of base salary earned during the second half of the fiscal year for our continuing named executive officers in fiscal year 2007 was 61 percent, with a range from 45 percent to 100 percent.

 

The fiscal year 2007 AIP did not guarantee payout of the target amounts, and the Compensation Committee considered the revenue and operating income targets to be challenging.

 

For the measurement period of the 2007 fiscal year AIP, we achieved 92 percent of the revenue target and 44 percent of the operating income target. Since the minimum threshold for operating income was not achieved there was no payout for this portion of the plan. Our continuing named executive officers received approximately 20 percent of the total payout under this plan. The specific amount paid to each named executive officer is shown on the Summary Compensation Table on page 25. Our Chief Executive Officer received $126,000, which represented

approximately 25 percent of his base salary. We expect the short-term incentive pay to continue to be a component of our total executive compensation program.

 

2007 Long-Term Incentive Compensation Awards

 

The 2007 Stock Equity Plan permits the grant of stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares, and other stock-based awards to our employees. In establishing the recommended value of long-term equity incentives to be awarded in fiscal 2007, the Compensation Committee utilized market data provided by Towers Perrin from the available compensation database. The Compensation Committee considered the value of similar grants for equivalent positions with reference to the 50th percentile of the market. The average value of the fiscal 2007 long-term incentive award for continuing named executive officers was 117 percent of base salary, with a range from 75 percent to 190 percent. Long-term incentive awards were granted under the 2007 Stock Equity Plan on February 28, 2007, valued as follows: 50 percent through awards of performance shares and 50 percent through the grant of stock options, based on the closing price of a share of Class A common stock on the NASDAQ Global Market on that date. For the purposes of calculating how we expense these awards, we valued performance share awards at the closing price on that date, without reduction to reflect the performance and other conditions. We valued options using the method specified in SFAS 123(R). These awards are intended as incentives for the 29-month period ending June 26, 2009. We expect to present similar multi-year plans, each covering a three-year period, for Board approval each year. No new multi-year plan is currently proposed for adoption in our 2008 fiscal year, however.

 

Performance Shares.  In general, the Compensation Committee will determine the applicable multi-year performance criteria and vesting cycle for performance share awards with a view to allowing the shares to be earned at the end of each 3-year plan cycle. The fiscal 2007 performance share awards require both continuous employment through June 30, 2009, and achievement of at least the minimum performance result for one or both key performance metrics for the period from January 1, 2007 through June 26, 2009. The employment agreement for our Chief Executive Officer, however, provides for a shorter initial long-term incentive program, ending June 30, 2008.

 

The performance metrics for the current award cycle are net income, as adjusted, and cash flow from operations, as adjusted, with each measure weighted 50 percent. Net income and cash flow from operations are reported GAAP results, adjusted to make the same non-GAAP adjustments to net income and corresponding non-GAAP adjustments to cash flow from operations as the adjustments made to operating income under the fiscal year 2007 AIP, discussed above.

 

Under the 2007 long-term equity incentive awards, performance shares are earned if at least 90 percent of either target is met. The maximum possible entitlement to performance shares will occur if 120 percent of both targets is achieved. Irrespective of performance versus target, there is no entitlement to performance shares unless the award recipient continues to be employed throughout the multi-year period.

 

Table 2, below, outlines the metrics of the performance share plan adopted in 2007.

 

Table 2

 

 

 

 

Stock Options.  In general, options are granted with an exercise price equal to the fair market value of the Class A common stock on the grant date, which currently would be the closing price on the date on the NASDAQ Global Market on that date. Typically, the Compensation Committee awards stock options that vest and become exercisable solely on the basis of continued employment, or other service, usually over three years, with 50 percent vesting on the first anniversary of the date of the grant and an additional 25 percent vesting on the second and third anniversaries of the date of the grant. This vesting schedule applied to all of the stock options granted during fiscal 2007, which also have a term of seven years. No options were granted to any of the named executive officers in fiscal 2007 except in connection with the Long-Term Equity Incentive awards described above.

 

Restricted Stock Awards.  Awards of restricted shares or units may be made on a selective basis to individual executives for the purpose of retention. Restricted shares are subject to repurchase by us for nominal consideration if the specified vesting or other conditions are not satisfied. For compensation planning purposes, awards of restricted shares are valued at the fair market value of the shares on the date of award, without reduction to reflect vesting or other conditions. In fiscal year 2007, restricted stock awards were made to four of our continuing named executive officers (not including our Chief Executive Officer) as shown in the table of Grants of Plan-Based Awards in Fiscal 2007. Each officer’s awarded shares are subject to repurchase for nominal consideration if he or she does not remain continuously employed by us through February 28, 2010.

 

Stock Ownership Guidelines

 

While we do not have a minimum stock ownership requirement for members of the Board and our named executive officers, the corporate governance guidelines adopted by the Board encourage the ownership of our common stock.

 

Tax and Accounting Considerations

 

The Compensation Committee generally considers the federal income tax and financial accounting consequences of the various components of the executive compensation program in making decisions about executive compensation. The Compensation Committee believes that achieving the compensation objectives discussed above is more important than the benefit of tax deductibility and the executive compensation programs may, from time to time, limit the tax deductibility of compensation. Nevertheless, when not inconsistent with these objectives, the Compensation Committee endeavors to award compensation that will be deductible for income tax purposes. Internal Revenue Code Section 162(m) may limit the tax deductions that a public company can claim for compensation to some of its named executive officers. The Compensation Committee believes that performance-based compensation authorized and earned under our employee stock option plans and options grants qualify as performance-based compensation that would not be subject to deduction limitations under Section 162(m) and the applicable Treasury Regulations and therefore was or will be fully tax-deductible by the Company. Accordingly the Compensation Committee believes that no expense must be accrued on account of non-deductibility under Section 162(m). Section 409A of the Internal Revenue Code 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 the deferral elections, timing of payments and certain other matters. As a general matter, it is our intention to design and administer our compensation and benefits plans and arrangements for all of our employees so that they are either exempt from, or satisfy the requirements of, Section 409A. We believe that currently we are operating such plans in compliance with Section 409A. Pursuant to recently published final treasury regulations, we expect that we may be required to amend some of our plans and arrangements to make them either exempt from or comply with Section 409A.

 

Retirement Benefits under the 401(k) Plan, Executive Perquisites, and Generally Available Benefit Programs

 

In fiscal year 2007, the named executive officers were eligible to participate in the health and welfare programs that are generally available to all full-time U.S.-based employees, including medical, dental, vision, life, short-term and long-term disability, employee assistance, flexible spending and accidental death and dismemberment. Except

for allowances provided to former Stratex officers, such as car and housing allowances, we do not provide perquisites to our named executive officers.

 

In addition, the named executive officers and all other eligible U.S.-based employees can participate in our tax-qualified 401(k) Plan. Under the 401(k) Plan, all eligible employees can receive matching contributions from the Company. The company-matching contribution for the 2007 401(k) Plan year was up to five percent of compensation contributed by the employee to the 401(k) Plan, to a maximum per participating employee of $20,500 for employees age 50 and over, as allowed by the IRS. We do not provide defined benefit pension plans or defined contribution retirement plans to the named executive officers or other employees other than the 401(k) Plan, or as required in certain countries other than the United States, for legal or competitive reasons.

 

The 401(k) Plan and the other benefit programs allow us to remain competitive and enhance employee loyalty and productivity. These benefit programs are primarily intended to provide all eligible employees with competitive and quality healthcare, financial contributions for retirement and to enhance hiring and retention.

 

Post-Termination Compensation

 

Employment agreements have been established with each of our named executive officers. These agreements provide for certain payments and benefits to the employee if his or her employment with us is terminated. These arrangements are discussed in more detail on page 35. We have determined that such payments and benefits are an integral part of a competitive compensation package for our named executive officers. Mr. Thomas H. Waechter, our former Chief Operating Officer, voluntarily terminated his employment effective June 7, 2007. Under the terms of his employment agreement, he received severance pay of $1,350,000 and an annual incentive payout of $360,000 for fiscal year 2007. He also received a cash payment of $43,200 as a car allowance and COBRA benefit payments totaling $17,425. He may exercise vested options over a 36-month period. The value of Mr. Waechter’s total termination benefits was $1,824,911. For additional information regarding our employment agreements with our named executive officers, reference the discussion under “Potential Payments Upon Termination or Change of Control.”

 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this Proxy Statement. Based on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into our Annual Report on Form 10-K for the fiscal year ended June 29, 2007.

 

Compensation Committee of the Board of Directors

 

Dr. James C. Stoffel, Chairman
Clifford H. Higgerson
Dr. Mohsen Sohi

 

Summary Compensation Table

 

The following table summarizes the total compensation for our fiscal year ended June 29, 2007 of our named executive officers, who consisted of our Chief Executive Officer, Chief Financial Officer, the next three other most

highly compensated executive officers, and one former executive officer who would have been included in such table had he served as an executive officer at June 29, 2007.

 

 

 

 

 

 

 

 

 

Grants of Plan-Based Awards In Fiscal 2007

 

The following table lists our grants and incentives during our fiscal year ended June 29, 2007 of plan based awards, both equity and non-equity based and including our Annual Incentive Plan, to the executive officers and former executive officers named in the Summary Compensation Table. There is no assurance that the grant date fair value of stock and option awards will ever be realized.

 

 

 

 

 

Outstanding Equity Awards at Fiscal Year-End 2007

 

The following table provides information regarding outstanding unexercised stock options and unvested stock awards held by each of our named executive officers as of June 29, 2007. Each grant of options or unvested stock awards is shown separately for each named executive officer. The vesting schedule for each award of options is shown in the footnotes following this table based on the option grant date.