We have a classified Board of Directors consisting of three
Class I directors, two Class II directors and two
Class III directors, who will serve until the Annual
Meetings of Stockholders to be held in 2009, 2007 and 2008,
respectively, and until their respective successors are duly
elected and qualified. At each Annual Meeting of Stockholders,
directors are elected for a term of three years to succeed those
directors whose terms expire at the annual meeting dates.
The terms of the Class II directors will expire on the date
of the upcoming Annual Meeting of Stockholders. Accordingly, two
persons are to be elected to serve as Class II directors of
the Board of Directors at the meeting. Management’s
nominees for election by the stockholders to those two positions
are the current Class II members of the Board of Directors,
Lyle D. Feisel and Neil W. Flanzraich. If elected, the nominees
will serve as directors until our Annual Meeting of Stockholders
in 2010 and until their successors are elected and qualified. If
any of the nominees declines to serve or becomes unavailable for
any reason, or if a vacancy occurs before the
election (although we know of no reason to anticipate that
this will occur), the proxies may be voted for such substitute
nominees as we may designate.
If a quorum is present and voting, the two nominees for
Class II director receiving the highest number of votes
will be elected as Class II directors. Abstentions and
broker non-votes have no effect on the vote.
The following table sets forth, for our current directors,
including the Class II nominees to be elected at this
meeting, information with respect to their ages and background:
Name
Position with RAE Systems
Age
Director Since(1)
Class I directors whose
terms expire at the 2009 Annual Meeting of
Stockholders:
Peter C. Hsi
Vice President, Chief Technology
Officer and Director
57
1991
James W. Power
Director
77
2006
A. Marvin Strait
Director
73
2006
Class II directors
nominated for election at the 2007 Annual Meeting of
Stockholders:
Lyle D. Feisel
Director
71
2001
Neil W. Flanzraich
Director
63
2000
Class III directors whose
terms expire at the 2008 Annual Meeting of
Stockholders:
Robert I. Chen
President, Chief Executive Officer
and Chairman
59
1991
Sigrun Hjelmquist
Director
51
2004
(1)
Years noted includes board service prior to the April 2002
reverse merger between RAE Systems Inc., a California
corporation, and Nettaxi.com.
Robert I. Chen
co-founded RAE Systems in 1991 and has
served as President and Chief Executive Officer, and as Chairman
and a member of our Board of Directors since our inception. From
1981 to 1990, Mr. Chen served as President and Chief
Executive Officer of Applied Optoelectronic Technology
Corporation, a manufacturer of computer-aided test systems, a
company he founded and subsequently sold to Hewlett-Packard.
Mr. Chen currently serves on the Board of Directors for the
Shanghai Ericsson Simtek Electronics Company, Limited, a
telecommunications and electronics company. Mr. Chen
received a B.S.E.E. from Taiwan National Cheng Kung University,
an M.S.E.E. from South Dakota School of Mines and Technology, an
advanced engineering degree from Syracuse University and
graduated from the Harvard Owner/President program.
Sigrun Hjelmquist
has served as a member of our Board of
Directors since March 2004 and is currently a partner and
chairman of the Board of Directors for the Sight Executive
Group. From 2000 to 2005, Ms. Hjelmquist was investment
manager and one of the founding partners of BrainHeart Capital,
a venture capital company. From 1998 to 2000,
Ms. Hjelmquist was President of Ericsson Components AB, and
from 1994 to 1997, General Manager of the Microelectronics
Business Unit at Ericsson Components AB. Ms. Hjelmquist
currently serves on the Board of Directors of Sandvik AB,
Svenska Handelsbanken AB, IBS AB, EON Sverige AB, Audiodev AB,
AU Systems AB and Symsoft AB. Ms. Hjelmquist received an
M.S. in Engineering Physics and a Licentiate of Engineering in
Applied Physics from the Royal Institute of Technology in
Stockholm, Sweden.
Dr. Peter C. Hsi
co-founded RAE Systems in 1991 and
has served as our Vice President, Chief Technology Officer, and
as a member of the Board of Directors since our inception. Prior
to co-founding RAE Systems, Dr. Hsi worked at Applied
Optoelectronic Technology Corporation as the Chief Architect for
semiconductor test systems. He was also the General Manager for
Shanghai Simax Technology Co. Ltd. Dr. Hsi has filed 21
patent applications, of which 11 have been granted and 10 are
pending. Dr. Hsi received a B.S.E.E. from the National
Chiao-Tung University, and a M.S. and Ph.D. in Electrical
Engineering from Syracuse University.
James W. Power
has served as a member of our Board of
Directors since May 2006, and is currently the principal partner
in J.W. Power & Associates, a security systems
development and marketing consultant group, which he founded in
1992. Mr. Power is currently chairman of the Board of
Directors at MDI, Inc., a security controls systems company, and
has served in such capacity since June 2004. Since December
2005, Mr. Power is also a member of the Board of Directors
of Henry Bros. Electronics, Inc., a security systems sales and
integration
company. From 1994 to 2003, Mr. Power served as the
chairman of the Board of Directors for InfoGraphic Systems
Corp., a security systems development, manufacturer and sales
company.
A. Marvin Strait
has served as a member of our Board
of Directors since May 2006. Mr. Strait has practiced in
the field of public accountancy for over 46 years and
presently practices as a certified public accountant under the
name A. Marvin Strait, CPA. Mr. Strait was chairman of the
Board of Directors of the 300,000-member American Institute of
Certified Public Accountants (AICPA), and continues to serve as
a permanent member of the AICPA Governing Council. He is also a
Past President of the Colorado Society of Certified Public
Accountants and the Colorado State Board of Accountancy. He also
presently serves as a member of the Board of Directors and
chairman of the audit committee of the Board of Directors at
Continucare Corporation, a provider of primary care physician
services, and Strum Financial Group, Inc., a regional bank
holding company. Mr. Strait received a B.S. with
distinction in Accounting from Arizona State University.
Dr. Lyle D. Feisel
has served as a member of our
Board of Directors since March 2001. Currently, Dr. Feisel
is a private investor and educational consultant. In 2001, he
retired as the Dean of the Thomas J. Watson School of
Engineering and Applied Science, and Professor of Electrical
Engineering at the State University of New York (SUNY) at
Binghamton. Dr. Feisel joined the faculty of SUNY
Binghamton in 1983. Dr. Feisel is a Life Fellow of the
Institute of Electrical and Electronics Engineers and of the
American Society for Engineering Education, and is a fellow of
the National Society of Professional Engineers. He is active in
the affairs of those organizations and in the development and
accreditation of engineering education worldwide.
Dr. Feisel received his B.S., M.S. and Ph.D. degrees in
Electrical Engineering from Iowa State University.
Neil W. Flanzraich
has served as a member of our Board of
Directors since December 2000. From May 1998 through February
2006, he served as Vice Chairman and President of IVAX
Corporation, a pharmaceutical company. In January 2006, IVAX was
acquired by TEVA Pharmaceuticals. From 1995 to May 1998,
Mr. Flanzraich served as chairman of the Life Sciences
Legal Practice Group of Heller Ehrman White and McAuliffe, a law
firm, and from 1981 to 1994, Senior Vice President and member of
the corporate Operating Committee at Syntex Corporation, a
pharmaceutical company. Mr. Flanzraich is also a director
of Chipotle Mexican Grill, Continucare Corporation; Equity One,
Inc.; Javelin Pharmaceuticals, Inc. and Neurochem, Inc. He also
serves as chairman of the Israel American Foundation.
Mr. Flanzraich received an A.B. from Harvard College and a
J.D. from Harvard Law School.
The Board of Directors has determined that, other than Robert I.
Chen and Dr. Peter C. Hsi, each of the members of the Board
is an independent director for purposes of the American Stock
Exchange (“AMEX”) listing standards. The Board has
also determined that Susan K. Barnes and Edward C. Ross, who
served as directors until May 2006, were independent at the time
they served as directors.
During 2007, non-management directors met once in executive
session without management present. As Lead Director, Neil W.
Flanzraich presided over the executive session of non-management
directors. As Lead Director, Mr. Flanzraich’s
responsibilities include:
•
Chair executive sessions of the independent directors;
•
Serve as liaison between the chairman and the independent
directors, including, communicating to the chairman, as
appropriate, the results of executive sessions of the
independent directors;
•
Ensure that independent directors have adequate opportunities to
meet without management present, including authority to call
meetings of the independent directors;
•
Serve as designated contact for communication to independent
directors, as required by Securities and Exchange Commission and
AMEX listing standards, including being available for
consultation and direct communication with major stockholders;
Approve the agenda and information sent in connection with Board
of Directors meetings and ensure that the other independent
directors also have an opportunity to provide input on the
agenda;
•
Approve meeting schedules to assure that there is sufficient
time for discussion of all agenda items; and
•
Chair Board of Directors meetings if the chairman of the Board
of Directors is unable to attend.
The Board of Directors has an Audit Committee, a Compensation
Committee and a Nominating and Governance Committee. Each of
these committees operates under a written charter adopted by the
Board. Copies of these charters are available on our website at
www.raesystems.com. The Board of Directors held four meetings
during the fiscal year ended December 31, 2006. Each of the
standing committees of the Board of Directors held the number of
meetings indicated below. During the last fiscal year, each of
our directors attended at least 75% of the total number of
meetings of the Board of Directors and all of the committees of
the Board of Directors on which such director served held during
that period.
The following table sets forth the three standing committees of
the Board, the members of each committee during the last fiscal
year and the number of meetings held by each committee:
Nominating and
Name of Director
Audit
Compensation
Governance(2)
Robert I. Chen(1)
—
—
—
Peter C. Hsi(1)
—
—
—
Lyle D. Feisel
Member
—
Member
Neil W. Flanzraich
Member
Member
Chair
Sigrun Hjelmquist
—
Member
Member
James W. Power
Member
Chair
Member
A. Marvin Strait
Chair
Member
—
former directors:
Susan K. Barnes(3)
Chair
—
—
Edward C. Ross(3)
Member
Member
Member
Number of Meetings:
8
5
1
(1)
Robert I. Chen and Dr. Peter C. Hsi are officers of the
Company and not independent.
(2)
Nominating and Governance Committee met on March 28, 2006,
and recommended the election new directors. Edward C. Ross, a
retiring director, was a member of the committee at the March
2006 meeting.
(3)
Ms. Barnes and Mr. Ross retired from the Board of
Directors and did not seek re-election.
The Company will make every effort to schedule its Annual
Meeting of Stockholders at a time and date to maximize
attendance by directors taking into account the directors’
schedules. All directors are expected to make every effort to
attend the Company’s Annual Meeting of Stockholders. At our
last Annual Meeting of Stockholders, which was held on
May 17, 2006, seven of our current directors were in
attendance.
The members of the Audit Committee are Messrs. Feisel,
Flanzraich, Power and Strait (Chair). The Board of Directors has
determined that each current member of the Audit Committee is
“independent,” as such term is defined under the
applicable AMEX listing standards and the rules and regulations
of the Securities and Exchange Commission (“SEC”) as
they apply to audit committee members. The Board of Directors
has also determined that each member of the Audit Committee is
financially literate, and that Mr. Strait is a
“financial expert,” as such term is defined by the
applicable regulations of the SEC. Messrs. Power and Strait
were elected to the Board of Directors at the Company’s
2006 Annual Meeting of Stockholders on May 17, 2006. Prior
to the Company’s 2006 Annual
Meeting of Stockholders, Ms. Barnes and Mr. Ross were
members of the Audit Committee, and Ms. Barnes served as
the chair. Upon his election to the Board of Directors,
Mr. Strait was appointed to serve as the chair of the Audit
Committee.
The functions of the Audit Committee include retaining our
independent auditors, reviewing their independence, reviewing
and approving the planned scope of our annual audit, reviewing
and approving any fee arrangements with our auditors, overseeing
their audit work, reviewing and pre-approving any non-audit
services that may be performed by them, reviewing the adequacy
of accounting and financial controls, reviewing our critical
accounting policies and reviewing and approving any related
party transactions.
The Audit Committee held eight meetings during the fiscal year
ended December 31, 2006. Additional information regarding
the Audit Committee is set forth in the Report of the Audit
Committee immediately following Proposal No. 3, which
pertains to the ratification of the independent accounting firm
for the fiscal year ending December 31, 2007.
The members of the Compensation Committee are
Messrs. Flanzraich, Power (Chair), Strait, and
Ms. Hjelmquist. Each of the members of the Compensation
Committee is independent for purposes of the AMEX listing
standards. Messrs. Power and Strait were elected to the
Board of Directors at the Company’s 2006 Annual Meeting of
Stockholders on May 17, 2006. Prior to the Company’s
2006 Annual Meeting of Stockholders, Edward C. Ross was a member
of the Compensation Committee. Upon his election to the Board of
Directors, Mr. Power was appointed to serve as the chair of
the Compensation Committee.
The functions of the Compensation Committee include reviewing
and fixing the compensation of our executive officers, including
our Chief Executive Officer, reviewing director compensation,
approving grants of stock options and restricted stock under the
Company’s 2002 Stock Option Plan to eligible employees and
preparing any report required under SEC rules. More
specifically, the Compensation Committee’s responsibilities
include: overseeing the Company’s general compensation
structure, policies and programs; assessing whether the
Company’s compensation structure establishes appropriate
incentives for management and employees; making recommendations
to the Board of Directors with respect to, and administering,
the Company’s incentive compensation and equity-based
compensation plans, including the Company’s stock option
plans; reviewing and approving compensation procedures for the
Company’s executive officers; recommending to the
independent directors for approval the compensation of the Chief
Executive Officer based on relevant corporate goals and
objectives and the Board of Directors’ performance
evaluation of the Chief Executive Officer; reviewing and
recommending to the Board of Directors for approval the
compensation of executive officers other than the Chief
Executive Officer; reviewing and recommending to the Board of
Directors employment and retention agreements and severance
arrangements for executive officers, including
change-in-control
provisions, plans or agreements; and reviewing the compensation
of directors for service on the Board of Directors and its
committees and recommending changes in compensation to the Board
of Directors. The Compensation Committee Charter does not
provide for any delegation of these Compensation Committee
duties. Regarding most compensation matters, including executive
and director compensation, Company management provides
recommendations to the Compensation Committee. The Company has
engaged a consultant with respect to executive
and/or
director compensation matters.
The Compensation Committee held five meetings during the last
fiscal year. The report of the Compensation Committee is
included in this Proxy Statement on page 30.
The members of the Nominating and Governance Committee during
fiscal 2006 were Messrs. Feisel, Flanzraich (Chair), and
Power and Ms. Hjelmquist. Prior to the Company’s 2006
Annual Meeting of Stockholders, Mr. Ross was a member of
the Nominating and Governance Committee. Mr. Flanzraich was
appointed to serve as chair of the Nominating and Governance
Committee.
The Board of Directors has determined that each current member
of the Nominating and Governance Committee is
“independent,” as such term is defined under the
applicable AMEX listing standards and the rules and
regulations of the SEC. The functions of the Nominating and
Governance Committee include identifying individuals qualified
to become members of the Board of Directors, selecting, or
recommending to the Board of Directors director nominees for
each election of directors, developing and recommending to the
Board of Directors criteria for selecting qualified director
candidates, considering committee member qualifications,
appointment and removal, and, if requested by the Board of
Directors, providing oversight in the evaluation of the Board of
Directors and each committee. The Nominating and Governance
Committee held one meeting during the last fiscal year. The
Nominating and Governance Committee met in March 2006 in order
to, among other matters, consider nominees for the Board of
Directors of the Company to be elected at the Annual Meeting of
Stockholders.
When considering the nomination of directors for election at an
Annual Meeting of Stockholders, the Nominating and Governance
Committee will review annually the results of an evaluation
performed by the Board of Directors and each committee, and the
needs of the Board of Directors for various skills, background,
experience, expected contributions and the qualification
standards established from time to time by the Nominating and
Governance Committee. When reviewing potential nominees for
election as director, including incumbents whose term is
expiring, the Nominating and Governance Committee will consider
the perceived needs of the Board of Directors, the
candidate’s relevant background, experience and skills,
such as an understanding of manufacturing, technology, finance
and marketing, international background and expected
contribution to the Board of Directors and the following factors:
•
the appropriate size of the Company’s Board of Directors
and its committees;
•
the perceived needs of the Board of Directors for particular
skills, background and business experience;
•
the skills, background, reputation, and business experience of
nominees compared to the skills, background, reputation, and
business experience already possessed by other members of the
Board of Directors;
•
nominees’ independence from management;
•
nominees’ experience with accounting rules and practices;
•
nominees’ background with regard to executive compensation;
•
applicable regulatory and listing requirements, including
independence requirements and legal considerations, such as
antitrust compliance;
•
the benefits of a constructive working relationship among
directors; and
•
the desire to balance the considerable benefit of continuity
with the periodic injection of the fresh perspective provided by
new members.
The Nominating and Governance Committee’s goal is to
assemble a Board of Directors that brings to the Company a
diversity of experience at policy-making levels in business,
government, education and technology, and in areas that are
relevant to the Company’s global activities. Directors
should possess the highest personal and professional ethics,
integrity and values, and be committed to representing the
long-term interests of our stockholders. They must have an
inquisitive and objective perspective and mature judgment.
Director candidates must have sufficient time available in the
judgment of the Nominating and Governance Committee to perform
all Board of Directors and committee responsibilities. They must
also have experience in positions with a high degree of
responsibility and be leaders in the companies or institutions
with which they are affiliated. Members of the Board of
Directors are expected to rigorously prepare for, attend, and
participate in all Board of Directors and applicable committee
meetings. Other than the foregoing, there are no stated minimum
criteria for director nominees, although the Nominating and
Governance Committee may also consider such other factors as it
may deem, from time to time, are in the best interests of the
Company and its stockholders. The Nominating and Governance
Committee believes that it is preferable that at least one
member of the Board of Directors meet the criteria for an Audit
Committee “financial expert” as defined by SEC rules.
Under applicable AMEX listing requirements, at least a majority
of the members of the Board of Directors must meet the
definition of “independent director” set forth in such
listing requirements. The Nominating and Governance Committee
also believes it appropriate for one or more key members of the
Company’s management to participate as members of the Board
of Directors.
The Nominating and Governance Committee will consider candidates
for directors proposed by directors or management, and will
evaluate any such candidates against the criteria and pursuant
to the policies and procedures set forth above. If the
Nominating and Governance Committee believes that the Board of
Directors requires additional candidates for nomination, the
Nominating and Governance Committee will engage, as appropriate,
a third party search firm to assist in identifying qualified
candidates. All incumbent directors and nominees will be
required to submit a completed form of directors’ and
officers’ questionnaire as part of the nominating process.
The process may also include interviews and additional
background and reference checks for non-incumbent nominees, at
the discretion of the Nominating and Governance Committee.
The Nominating and Governance Committee will also consider
candidates for directors recommended by a stockholder, provided
that any and such recommendation is sent in writing to the
Corporate Secretary, RAE Systems Inc., 3775 North First Street,
San Jose, CA 95134, at least 120 days prior to the
anniversary of the date Proxy Statements were mailed to
stockholders in connection with the prior year’s Annual
Meeting of Stockholders and contains the following information:
•
the candidate’s name, age, contact information and present
principal occupation or employment; and
•
a description of the candidate’s qualifications, skills,
background, and business experience during, at a minimum, the
last five years, including his or her principal occupation and
employment and the name and principal business of any
corporation or other organization in which the candidate was
employed or served as a director.
The Nominating and Governance Committee will evaluate any
candidates recommended by stockholders pursuant to the above
procedures against the same criteria and pursuant to the same
policies and procedures applicable to the evaluation of
candidates proposed by directors or management.
Stockholders may also nominate directors for election at an
annual meeting, provided the advance notice requirements set
forth in the Company’s Bylaws have been met.
Stockholders and other interested parties may communicate with
any and all members of the Board of Directors, by mail addressed
to the intended recipient c/o Corporate Secretary, RAE
Systems Inc., 3775 North First Street San Jose, CA 95134 or
by email to
CorporateSecretary@raesystems.com.
The
Corporate Secretary will maintain a log of such communications
and transmit them promptly to the identified recipient, unless
there are safety or security concerns that mitigate against
further transmission. The intended recipient shall be advised of
any communication withheld for safety or security reasons as
soon as practicable.
The Board of Directors has adopted a code of business conduct
and ethics that applies to all RAE Systems employees, including
employees of RAE Systems’ subsidiaries, and each member of
the Company’s Board of Directors. The code of business
conduct and ethics is available at the Company’s website at
http://www.raesystems.com.
We intend to disclose future
amendments to the code of business conduct and ethics on our
website and any waivers thereof for executive officers and
directors within four days of such action in a
Form 8-K
filed with the SEC
Compensation
Committee Interlocks and Insider Participation
None of the members of the Compensation Committee are or have
been an officer or employee of RAE Systems. During fiscal 2006,
no member of the Compensation Committee had any relationship
with RAE Systems requiring disclosure under Item 404 of
Regulation S-K.
During fiscal 2006, none of RAE Systems’ executive officers
served on the compensation committee (or its equivalent) or
board of directors of another entity any of whose executive
officers served on our Compensation Committee or Board of
Directors.
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