January 13, 2010

 

Dear Fellow Stockholder:

 

You are cordially invited to attend Qualcomm’s Annual Meeting on Tuesday, March 2, 2010. The meeting will begin promptly at 9:30 a.m. Pacific Time at the Irwin M. Jacobs Qualcomm Hall, 5775 Morehouse Drive, San Diego, California 92121. I invite you to arrive early at 8:30 a.m. to preview our product displays. We will begin the Annual Meeting with a discussion and vote on the matters set forth in the Notice of Annual Meeting of Stockholders, followed by presentations and a report on Qualcomm’s fiscal 2009 performance. In addition to the election of our directors (Proposal 1) and ratification of our selection of independent public accountants (Proposal 3), there is one other substantive proposal on the agenda that I would like to highlight.

 

Proposal 2 amends our 2006 Long-Term Incentive Plan. We continue to believe that offering a broad-based equity compensation program is critical to attracting and retaining the most talented employees in our industry. Employees with a stake in the future success of our business are highly motivated to achieve long-term growth and increase stockholder value. One of the purposes of Proposal 2 is to provide us with a sufficient share reserve for the next year. These additional shares will allow us to continue to provide new hires, as well as our existing employees, with opportunities for equity ownership in a dynamic and highly competitive employment market. Equity compensation has always been a significant component of our long-term employee compensation program because we do not offer a defined benefit pension plan, and we do not include Company stock in our 401(k) plan. Over 99% of our regular, full-time employees currently have stock options.

 

We take great pride in our accomplishments and believe that our broad-based equity compensation program has contributed significantly to this success. Based on the 4-week moving average at December 15, 2009, the Company’s stock price has increased at a compound annual growth rate of 27.73% compared to 6.03% for the S&P 500 Index since the Company became publicly-traded in December 1991. In each of the past 11 years, Qualcomm has been honored as one of the “100 Best Companies to Work for in America” by Fortune Magazine. The annual retention rate of our employees is higher than other high-technology industry companies, according to Radford, a leading human resources compensation survey company in the high-tech industry.

 

This year, we are again furnishing the proxy materials to stockholders primarily over the Internet. Therefore, most stockholders will not receive paper copies of our proxy materials. We will instead send these stockholders a notice with instructions for accessing the proxy materials and voting via the Internet. The notice also provides information on how stockholders may obtain paper copies of our proxy materials if they so choose. This method expedites the receipt of your proxy materials, lowers the costs of our Annual Meeting and helps to conserve natural resources.

 

Whether or not you plan to attend the Annual Meeting, please vote as soon as possible. As an alternative to voting in person at the Annual Meeting, you may vote via the Internet, by telephone or, if you receive a paper proxy card in the mail, by mailing the completed proxy card. Voting by any of these methods will ensure your representation at the Annual Meeting.

 

Your vote is very important to us. I urge you to vote “FOR” all proposals.

 

I look forward to seeing you in San Diego at the Irwin M. Jacobs Qualcomm Hall on March 2, 2010.

 

Sincerely,

 

Paul E. Jacobs

Chairman and Chief Executive Officer

5775 Morehouse Drive
San Diego, California 92121-1714

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held On March 2, 2010

 

To the Stockholders of QUALCOMM Incorporated:

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the Annual Meeting) of QUALCOMM Incorporated (the Company), a Delaware corporation, will be held at the Irwin M. Jacobs Qualcomm Hall, 5775 Morehouse Drive, San Diego, California 92121, on Tuesday, March 2, 2010 at 9:30 a.m. Pacific Time for the following purposes:

 

 

The Board of Directors has fixed the close of business on January 4, 2010 as the record date for the determination of stockholders entitled to notice of and to vote at this Annual Meeting and at any adjournment or postponement thereof.

 

By Order of the Board of Directors,

 

Donald J. Rosenberg

Executive Vice President,

General Counsel and Corporate Secretary

 

San Diego, California

January 13, 2010

 

How To Vote

 

If your shares are held by a broker, bank or other stockholder of record, in nominee name or otherwise, exercising fiduciary powers (typically referred to as being held in “street name”), you may receive a separate voting instruction form with this Proxy Statement, or you may need to contact your broker, bank or other stockholder of record to determine whether you will be able to vote electronically via the Internet or by telephone.

 

If you are a stockholder with shares registered in your name, you may vote by one of the following three methods:

 

 

PLEASE NOTE THAT IF YOUR SHARES ARE HELD BY A BROKER, BANK OR OTHER STOCKHOLDER OF RECORD AND YOU WISH TO VOTE AT THE ANNUAL MEETING, YOU MUST FIRST OBTAIN A LEGAL PROXY ISSUED IN YOUR NAME FROM THE RECORD HOLDER. OTHERWISE, YOU WILL NOT BE PERMITTED TO VOTE IN PERSON AT THE MEETING.

 

In this document, the words “Qualcomm,” “the Company,” “we,” “our,” “ours” and “us” refer only to QUALCOMM Incorporated and not any other person or entity.

 

INTERNET AVAILABILITY OF PROXY MATERIALS

 

We are furnishing proxy materials to our stockholders primarily via the Internet under rules adopted by the U.S. Securities and Exchange Commission (SEC), instead of mailing printed copies of those materials to each stockholder. On January 13, 2010, we mailed to our stockholders (other than those who previously requested electronic or paper delivery) a Notice of Internet Availability of Proxy Materials containing instructions on how to access our proxy materials, including our Proxy Statement. The Notice of Internet Availability of Proxy Materials also provides instructions on how to access your proxy card to vote via the Internet or by telephone.

 

This process is designed to expedite stockholders’ receipt of proxy materials, lower the cost of the Annual Meeting and help conserve natural resources. If you would prefer to continue to receive printed proxy materials, please follow the instructions included in the Notice of Internet Availability of Proxy Materials. If you have previously elected to receive our proxy materials electronically, you will continue to receive these materials via e-mail unless you elect otherwise.

PROXY STATEMENT

 

TABLE OF CONTENTS

 

QUALCOMM INCORPORATED
5775 Morehouse Drive
San Diego, California 92121-1714

PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
March 2, 2010

 

The enclosed proxy is solicited on behalf of the Board of Directors (the Board) of QUALCOMM Incorporated, a Delaware corporation, for use at the Annual Meeting of Stockholders (the Annual Meeting) to be held on Tuesday, March 2, 2010, at 9:30 a.m. Pacific Time, or at any adjournment or postponement thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting. The Annual Meeting will be held at the Irwin M. Jacobs Qualcomm Hall, 5775 Morehouse Drive, San Diego, California 92121.

 

Only holders of record of common stock at the close of business on January 4, 2010 (the Record Date) will be entitled to notice of and to vote at the Annual Meeting. At the close of business on the Record Date, we had 1,675,613,049 shares of common stock outstanding and entitled to vote.

 

Each holder of record of common stock on the Record Date will be entitled to one vote for each share held on all matters to be voted upon. If no choice is indicated on the proxy, the shares will be voted in favor of all proposals.

 

All votes will be counted by an independent inspector of election appointed for the Annual Meeting, who will separately tabulate affirmative and negative votes, abstentions and broker non-votes.

 

A broker non-vote occurs when a broker, bank or other stockholder of record, in nominee name or otherwise, exercising fiduciary powers (typically referred to as being held in “street name”) submits a proxy for the Annual Meeting, but does not vote on a particular proposal because that holder does not have discretionary voting power with respect to that proposal and has not received voting instructions from the beneficial owner. Abstentions and broker non-votes have no effect on the determination of whether a nominee or the proposal has received the vote of a majority of the shares of common stock present or represented by proxy and voting at the Annual Meeting. Under the rules that govern brokers who are voting with respect to shares held in street name, brokers have the discretion to vote those shares on routine matters, but not on non-routine matters. Routine matters include ratification of independent public accountants. Non-routine matters include the election of directors and actions on stock plans.

 

Any person giving a proxy pursuant to this solicitation has the power to revoke it at any time before it is voted. It may be revoked by filing with our Corporate Secretary at our principal executive offices, 5775 Morehouse Drive, N-510F, San Diego, California 92121-1714, a written notice of revocation or a duly executed proxy bearing a later date, or it may be revoked by attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not, by itself, revoke a proxy.

 

We will bear the entire cost of solicitation of proxies, including preparation, assembly, printing and mailing of the Notice of Internet Availability of Proxy Materials, this Proxy Statement, the proxy card and any additional information furnished to stockholders. Copies of solicitation materials will be furnished to banks, brokerage houses, fiduciaries and custodians holding in their names shares of common stock beneficially owned by others to forward to such beneficial owners. We may reimburse persons representing beneficial owners of common stock for their costs of forwarding solicitation materials to such beneficial owners. In addition, we have retained Morrow & Company to act as a proxy solicitor in conjunction with the meeting. We have agreed to pay that firm $12,500, plus

reasonable out-of-pocket expenses, for proxy solicitation services. Solicitation of proxies by mail may be supplemented by telephone or personal solicitation by our directors, officers or other regular employees. No additional compensation will be paid to directors, officers or other regular employees for such services.

 

The deadline for submitting a stockholder proposal for inclusion in our proxy materials for our 2011 Annual Meeting of Stockholders is September 15, 2010. Stockholder nominations for director and other proposals that are not to be included in such materials must be received no earlier than November 2, 2010 and no later than the close of business on December 2, 2010. Any such stockholder proposals or nominations for director must be submitted to our Corporate Secretary in writing at 5775 Morehouse Drive, N-510F, San Diego, California 92121-1714. Stockholders are also advised to review our Amended and Restated Bylaws, which contain additional advance notice requirements, including requirements with respect to advance notice of stockholder proposals and director nominations. See page 7 for further information.

 

Attached in Appendix 1 is certain financial information from our Annual Report on Form 10-K for fiscal 2009 that we originally filed with the Securities and Exchange Commission (SEC) on November 5, 2009. We have not undertaken any updates or revisions to such information since the date it was originally filed with the SEC. Accordingly, we encourage you to review Appendix 1 together with any subsequent information we have filed with the SEC and other publicly available information.

 

Attached in Appendix 2 is a listing of our executive officers and members of the board of directors.

 

ELECTION OF DIRECTORS

 

Our Restated Certificate of Incorporation and Amended and Restated Bylaws provide that directors are to be elected at the annual meeting to hold office until the next annual meeting of stockholders and until their respective successors are elected and qualified. Vacancies on the Board resulting from death, resignation, disqualification, removal or other causes may be filled by either the affirmative vote of the holders of a majority of the then-outstanding shares of common stock or by the affirmative vote of a majority of the remaining directors then in office, even if less than a quorum of the Board is present. Newly created directorships resulting from any increase in the number of directors may, unless the Board determines otherwise, be filled only by the affirmative vote of the directors then in office, even if less than a quorum of the Board is present. Any director elected as a result of a vacancy shall hold office for a term expiring at the next annual meeting of stockholders and until such director’s successor shall have been elected and qualified.

 

Our Restated Certificate of Incorporation provides that the number of directors shall be fixed exclusively by one or more resolutions adopted from time to time by the Board. The Board has set the current number of directors at twelve. Therefore, twelve directors will stand for election at the Annual Meeting.

 

If a quorum is present, the directors will be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Abstentions and broker non-votes have no effect on the vote. The twelve candidates receiving the highest number of affirmative votes of the shares of common stock entitled to be voted for such directors will be elected directors of the Company. Shares of common stock represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the twelve nominees named below. In the event that any nominee should be unavailable for election as a result of an unexpected occurrence, such shares of common stock will be voted for the election of such substitute nominee as the Board may propose. See page 8 for further information concerning our majority voting policy. Each person nominated for election has agreed to serve, if elected, and the Board has no reason to believe that any nominee will be unable to serve.

The following table sets forth the nominees for election at this meeting and information with respect to their position with Qualcomm, age and tenure as director.

 

Set forth below is biographical information for each person nominated.

 

BARBARA T. ALEXANDER

 

Barbara T. Alexander has served as a director of the Company since July 2006. Ms. Alexander has been an independent consultant since February 2004. From October 1999 to January 2004, she was a senior advisor for UBS, and from January 1992 to September 1999, she was a managing director of Dillon Read & Co., Inc. Prior to Dillon Read, Ms. Alexander was a managing director in the corporate finance department of Salomon Brothers. Ms. Alexander is past Chairman of the Board of the Joint Center for Housing Studies at Harvard University and is currently a member of that board’s executive committee and an executive fellow of the Joint Center for Housing Studies at Harvard University. Ms. Alexander also serves as a director of Allied World Assurance Company Holdings, Ltd. and Federal Home Loan Mortgage Corporation (Freddie Mac). She holds B.S. and M.S. degrees in theoretical mathematics from the University of Arkansas, Fayetteville.

 

STEPHEN M. BENNETT

 

Stephen M. Bennett has served as a director of the Company since August 2008. He was Chief Executive Officer of Intuit, Inc. from January 2000 to January 2008. Prior to Intuit, Mr. Bennett was at General Electric Corporation (GE) for 23 years. From December 1999 to January 2000, he was an executive vice president and a member of the board of directors of GE Capital, the financial services subsidiary of GE. From July 1999 to November 1999, he was President and Chief Executive Officer of GE Capital e-Business, and he was President and Chief Executive Officer of GE Capital Vendor Financial Services from April 1996 through June 1999. Mr. Bennett also serves as a director of Sun Microsystems, Inc. He holds a B.A. degree in finance and real estate from the University of Wisconsin.

 

DONALD G. CRUICKSHANK

 

Sir Donald G. Cruickshank has served as a director of the Company since June 2005. He was Chairman of Clinovia Group Ltd. from 2004 to 2006 and Formscape Group Ltd. from 2003 to 2006 and has been a member of the Financial Reporting Council, the body in the U.K. responsible for oversight of the Accountancy and Actuarial professions and for corporate governance standards, since 2002. Sir Donald has extensive experience in a number of areas, including European regulation and telecommunications. His career has included assignments at McKinsey & Co. Inc., Times Newspapers, Virgin Group plc., Wandsworth Health Authority and the National Health Service in Scotland. Sir Donald served as Chairman of the London Stock Exchange plc. from 2000 to 2003 and as Director

General of the U.K.’s Office of Telecommunications (Oftel) from 1993 to 1998. From 1997 to 2000, he served as Chairman of Action 2000, the U.K.’s Millennium Bug campaign. In 1998, Chancellor Gordon Brown appointed him as Chairman of the Government’s Review of the U.K. banking sector, and from 1999 to 2004, he served as Chairman of SMG plc., one of Scotland’s leading broadcasters. Sir Donald holds a M.A. degree in law and an honorary L.L.D. degree from the University of Aberdeen, a M.B.A. degree from Manchester Business School, the University of Manchester, and is a member of the Institute of Chartered Accountants of Scotland.

 

RAYMOND V. DITTAMORE

 

Raymond V. Dittamore has served as a director of the Company since December 2002. Mr. Dittamore is a retired audit partner of Ernst & Young LLP, an international accounting firm. Mr. Dittamore retired in 2001 after 35 years of service with that firm, including 14 years as the Managing Partner of the firm’s San Diego office. Mr. Dittamore is also a director of Life Technologies Corporation. Mr. Dittamore holds a B.S. degree in accounting from San Diego State University.

 

THOMAS W. HORTON

 

Thomas W. Horton has served as a director of the Company since December 2008. Mr. Horton has been Executive Vice President and Chief Financial Officer of AMR Corporation, the parent company of American Airlines, since March 2006. He served as Vice Chairman and Chief Financial Officer of AT&T Corporation from January 2002 to February 2006. Prior to AT&T, Mr. Horton was Senior Vice President and Chief Financial Officer of AMR from January 2000 to 2002 and served in numerous management positions with AMR since 1985. He holds a B.B.A. degree in accounting from Baylor University and a M.B.A. degree from Southern Methodist University.

 

IRWIN MARK JACOBS

 

Irwin Mark Jacobs, one of the founders of the Company, has served as a director, and as Chairman until March 2009, since we began operations in July 1985. He also served as Chief Executive Officer of the Company from July 1985 to June 2005. Dr. Jacobs received a B.S. degree in electrical engineering from Cornell University and M.S. and Sc.D. degrees from the Massachusetts Institute of Technology. Dr. Jacobs is Chair of the Board of Trustees of the Salk Institute for Biological Studies and Chairman of the National Academy of Engineering. He has received numerous industry, education and business awards, including a Woodrow Wilson Award for Corporate Citizenship in 2004, a fellow of the American Academy of Arts and Sciences in 2001 and the National Medal of Technology in 1994. Dr. Irwin Jacobs is the father of Dr. Paul Jacobs, our Chairman and Chief Executive Officer.

 

PAUL E. JACOBS

 

Paul E. Jacobs has served as Chairman of the Board of Directors since March 2009, as a director of the Company since June 2005 and as our Chief Executive Officer since July 2005. He served as Group President of the Qualcomm Wireless & Internet Group from July 2001 to June 2005. In addition, he served as an executive vice president from February 2000 to June 2005. Dr. Paul Jacobs is also a director of A123 Systems, Inc., a lithium-ion battery developer and manufacturer. Dr. Paul Jacobs holds a B.S. degree in electrical engineering and computer science, a M.S. degree in electrical engineering and a Ph.D. degree in electrical engineering and computer science from the University of California, Berkeley. Dr. Paul Jacobs is the son of Dr. Irwin Jacobs, a director of the Company.

 

ROBERT E. KAHN

 

Robert E. Kahn has served as a director of the Company since February 1997. Dr. Kahn is Chairman, Chief Executive Officer and President of the Corporation for National Research Initiatives (CNRI), which he founded in 1986. From 1972 to 1985, Dr. Kahn was employed at the U.S. Defense Advanced Research Projects Agency, where his last position was Director of the Information Processing Techniques Office. From 1966 to 1972, Dr. Kahn was a senior scientist with Bolt Beranek and Newman, where he was responsible for the system design of the Arpanet, the first packet switched network. Dr. Kahn received numerous awards for his work on the Internet, including the 2008 Japan Prize, the 2005 Presidential Medal of Freedom and the 1997 National Medal of Technology. Dr. Kahn holds a

B.E.E. degree from the City College of New York and M.A. and Ph.D. degrees in electrical engineering from Princeton University. Dr. Kahn holds numerous honorary degrees and is a member of the National Academy of Engineering and is an Inductee of the National Inventors Hall of Fame.

 

SHERRY LANSING

 

Sherry Lansing has served as a director of the Company since September 2006. Ms. Lansing is the Founder and Chair of the Sherry Lansing Foundation, a philanthropic organization focusing on cancer research, health and education. From 1992 to 2005, she was the Chair of the Motion Picture Group of Paramount Pictures where she oversaw the release of more than 200 films, including Academy Award^® winners Forrest Gump, Braveheart and Titanic. From 1984 to 1990, she operated her own production company, Lansing Productions, and co-founded Jaffe/Lansing Productions. In 1980, she became the film industry’s first female to oversee all aspects of a studio’s motion picture production when she was appointed President of Production at 20th Century Fox. She holds additional trustee, chair and advisory positions with the Friends of Cancer Research, the American Association of Cancer Research, the Carter Center and Stop Cancer, a non-profit philanthropic group she founded in partnership with Dr. Armand Hammer. Ms. Lansing is also a regent of the University of California and serves as Chair of the University Health Services Committee. She has earned the 2004 Horatio Alger Humanitarian Award, the 2003 Woodrow Wilson Award for Corporate Citizenship, a 2003 honorary doctorate in fine arts from the American Film Institute, the 1989 Alfred P. Sloan, Jr. Memorial Award, and the 1982 Distinguished Community Service Award from Brandeis University. Ms. Lansing is also a director of Dole Food Company, Inc. She holds a B.S. degree in speech, with a minor in English and mathematics, from Northwestern University.

 

DUANE A. NELLES

 

Duane A. Nelles has served as a director of the Company since August 1988. Mr. Nelles has been in the personal investment business since 1987. Prior to that time, Mr. Nelles was a partner in the international public accounting firm of Coopers & Lybrand LLP, which he joined in 1968. He holds a B.A. degree in economics and mathematics from Albion College and a M.B.A. degree from the University of Michigan.

 

BRENT SCOWCROFT

 

Brent Scowcroft has served as a director of the Company since December 1994. General Scowcroft is the President of The Scowcroft Group, Inc., an international business consulting firm he founded in June 1994. General Scowcroft is also the President of The Forum for International Policy, a non-profit organization he founded in 1993 that promotes American leadership and foreign policy. General Scowcroft served as Assistant to the President for National Security Affairs for President George H.W. Bush from January 1989 until January 1993; he also held that position for President Ford during his term. A retired U.S. Air Force Lieutenant General, General Scowcroft served in numerous national security posts in the Pentagon and the White House prior to his appointments as Assistant to the President for National Security Affairs. General Scowcroft received a B.S. degree in engineering from West Point and M.A. and Ph.D. degrees in political science from Columbia University and holds numerous honorary degrees.

 

MARC I. STERN

 

Marc I. Stern has served as a director of the Company since February 1994. Mr. Stern has been Vice Chairman of The TCW Group, Inc., an asset management firm based in Los Angeles, since October 2005 and Interim Chief Executive Officer of TCW since July 2009. Mr. Stern is also Chairman of Société Générale’s Global Investment Management and Services in North America (GIMS) and has been since October 2005 and a Member of the Management Committee of Société Générale Group, the parent company of GIMS and TCW, since May 2007. Société Générale acquired majority control of TCW in 2001. From May 1992 to October 2005, Mr. Stern served as President of TCW. From 1988 to 1990, Mr. Stern served as President and a director of SunAmerica, Inc., a financial services company. Prior to joining SunAmerica, Mr. Stern was Managing Director and Chief Administrative Officer of The Henley Group, Inc., a diversified manufacturing company, and prior thereto was Senior Vice President of Allied-Signal Inc., a diversified manufacturing company. Mr. Stern is also a director of TCW Funds, Inc., a registered investment company. Mr. Stern holds a B.A. degree from Dickinson College, a M.A. degree from the

Columbia University Graduate School of Public Law and Government and a J.D. degree from the Columbia University School of Law.

 

If a quorum is present and voting, the twelve nominees for director receiving the highest number of votes will be elected as directors. If you hold your shares in your own name and abstain from voting on this matter, your abstention will have no effect on the vote. If you hold your shares through a broker and you do not instruct the broker on how to vote for the twelve nominees, your broker will not have the authority to vote your shares. Abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum but will not have any effect on the outcome of the vote.

 

THE BOARD RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH NAMED NOMINEE.

 

We have adopted a code of ethics that applies to all our employees, including employees of our subsidiaries, as well as each member of the Board. The code of ethics is available on our website at www.qualcomm.com under the “Corporate Governance” section under “Investor Relations.” To date, there have not been any waivers by us of the code of ethics. Any amendments to, or waivers under, the code of ethics that are required to be disclosed by the rules of the SEC will be disclosed on our website at www.qualcomm.com under the “Corporate Governance” section under “Investor Relations.”

 

During fiscal 2009, the Board held seven meetings. Board agendas include regularly scheduled sessions for the independent directors to meet without management present, and the Board’s presiding independent director leads those sessions. Mr. Dittamore has acted as the Board’s presiding independent director since the Board meeting immediately following the 2009 Annual Meeting of Stockholders. The Board delegates various responsibilities and authority to different Board committees. Committees regularly report on their activities and actions to the full Board. The Board’s current standing committees are: Audit, Compensation, Governance and Finance. Committee assignments are re-evaluated annually and approved by the Board at its annual meeting that follows the annual meeting of stockholders in February or March of each year. Each committee acts according to a written charter approved by the Board. Copies of each charter can be found on our website at www.qualcomm.com as follows:

 

 

The Audit Committee.  The Audit Committee meets at least quarterly with our management and independent public accountants to review the results of the annual audit and quarterly reviews, discuss the financial statements, select and engage the independent public accountants, assess the adequacy of our staff, management performance and procedures in connection with financial controls and receive and consider comments as to internal controls, among other things. At the beginning of fiscal 2009, the Audit Committee was composed of Mr. Dittamore (Committee Chair), Ms. Alexander and Dr. Kahn. Since March 2009, the Audit Committee has been composed of Mr. Dittamore (Committee Chair), Ms. Alexander and Mr. Horton. The Audit Committee met ten times during fiscal 2009. The Board has determined that Messrs. Dittamore and Horton and Ms. Alexander are audit committee financial experts as defined by SEC rules. All of the members of the Audit Committee are independent directors within the meaning of Rule 5605 of the NASDAQ Stock Market LLC (NASDAQ) and SEC Rule 10A-3(b)(1)(ii).

 

The Compensation Committee.  The Compensation Committee makes recommendations concerning salaries and incentive compensation, administers and approves stock offerings under our employee stock purchase

plan and stock option plans and otherwise determines compensation levels for the Chief Executive Officer, the Named Executive Officers (as listed in the “Summary Compensation Table”), the directors and other key employees and performs such other functions regarding compensation as the Board may delegate. At the beginning of fiscal 2009, the Compensation Committee was composed of Messrs. Stern (Committee Chair), Bennett and Dittamore and General Scowcroft. Since March 2009, the Compensation Committee has been composed of Messrs. Bennett (Committee Chair) and Stern and General Scowcroft. The Compensation Committee met six times during fiscal 2009. All of the members of the Compensation Committee are independent directors within the meaning of Rule 5605 of the NASDAQ and outside directors within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended.

 

The Governance Committee.  The Governance Committee reviews, approves and oversees various corporate governance related policies and procedures applicable to us. The Committee also reviews and evaluates the effectiveness of our executive development and succession planning processes and provides active leadership and oversight with respect to these processes. In addition, the Governance Committee evaluates and recommends nominees for membership on the Board and its committees. In fiscal 2009, the Governance Committee was composed of Mses. Lansing (Committee Chair) and Alexander, Sir Donald Cruickshank and Mr. Stern. The Governance Committee met seven times during fiscal 2009. All of the members of the Governance Committee are independent directors within the meaning of Rule 5605 of the NASDAQ.

 

The Finance Committee.  The Finance Committee reviews our financial position, cash management, dividend and stock repurchase programs, securities issuances, acquisitions and other major strategic investment decisions. At the beginning of fiscal 2009, the Finance Committee was composed of Mr. Nelles (Committee Chair), Sir Donald Cruickshank and Dr. Paul Jacobs. Since March 2009, the Finance Committee has been composed of Mr. Nelles (Committee Chair), Sir Donald Cruickshank and Drs. Irwin Jacobs and Kahn. The Finance Committee met seven times during fiscal 2009.

 

During fiscal 2009, each Board member attended at least 75% of the aggregate of the meetings of the Board and of the meetings of the committees on which he or she served and that were held during the period for which he or she was a Board or committee member, respectively.

 

Our Amended and Restated Bylaws contain provisions that address the process by which a stockholder may nominate an individual to stand for election to the Board at our Annual Meeting of Stockholders. The Board has also adopted a formal policy concerning stockholder recommendations of Board candidates to the Governance Committee. This policy is set forth in our Corporate Governance Principles and Practices, which is available on our website at www.qualcomm.com under the “Corporate Governance” section of “Investor Relations.” Under this policy, the Governance Committee will review a reasonable number of candidates recommended by a single stockholder who has held over 1% of our stock for over one year and who satisfies the notice, information and consent requirements set forth in our Amended and Restated Bylaws. To recommend a nominee for election to the Board, a stockholder must submit his or her recommendation to the Corporate Secretary at our corporate offices at 5775 Morehouse Drive, N-510F, San Diego, California 92121-1714. A stockholder’s recommendation must be received by us prior to the date set forth above under “Stockholder Proposals.” A stockholder’s recommendation must be accompanied by the information with respect to stockholder nominees as specified in the Amended and Restated Bylaws, including among other things, the name, age, address and occupation of the recommended person, the proposing stockholder’s name and address, the ownership interests of the proposing stockholder and any beneficial owner on whose behalf the nomination is being made (including the number of shares beneficially owned, any hedging, derivative, short or other economic interests and any rights to vote any shares), and any material monetary or other relationships between the recommended person and the proposing stockholder and/or the beneficial owners, if any, on whose behalf the nomination is being made. The proposing stockholder must also provide evidence of owning the requisite number of shares of our stock for over one year. Candidates so recommended will be reviewed using the same process and standards for reviewing Governance Committee recommended candidates.

In evaluating director nominees, the Governance Committee considers the following factors:

 

 

The Governance Committee’s goal is to assemble a board of directors that brings to us a variety of perspectives and skills derived from high quality business and professional experience. In doing so, the Governance Committee also considers candidates with appropriate non-business backgrounds.

 

Other than the foregoing, there are no stated minimum criteria for director nominees, although the Governance Committee may also consider such other factors as it may deem are in the best interests of the Company and its stockholders. The Governance Committee does, however, believe it appropriate for at least one, and preferably several, members of the Board to meet the criteria for an “audit committee financial expert” as defined by SEC rules, and that a majority of the members of the Board meet the definition of “independent director” under NASDAQ rules. The Governance Committee also believes it is in the stockholders’ best interest for certain key members of our current and former management to participate as members of the Board. The Governance Committee identifies nominees by first evaluating the current members of the Board willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service are considered for re-nomination, balancing the value of continuity of service by existing members of the Board with that of obtaining a new perspective. If any member of the Board does not wish to continue in service or if the Governance Committee or the Board decides not to re-nominate a member for re-election, the Governance Committee identifies the desired skills and experience of a new nominee based on the criteria above. Current members of the Governance Committee and Board are polled for suggestions as to individuals meeting the criteria of the Governance Committee. Research may also be performed to identify qualified individuals. We have, in the past, engaged third parties to assist in identifying and evaluating potential nominees.

 

We adopted a “Majority Voting” policy as a part of our Corporate Governance Principles and Practices. Under this policy, if a director receives in an uncontested election a greater number of “withhold” votes than votes cast “for” his or her election, the Governance Committee will undertake a prompt evaluation of the appropriateness of the director’s continued service on the Board. In performing this evaluation, the Governance Committee will review all factors it deems relevant, including the stated reasons why votes were withheld, the director’s length of service, his or her past contributions to us and the availability of other qualified candidates. The Governance Committee will then make its recommendation to the Board. The Board will review the Governance Committee’s recommendation and consider such further factors and information as it deems relevant. Under this policy, the Governance Committee will make its recommendation, and the Board will act on the Governance Committee’s recommendation no later than 90 days following the date of the stockholders’ meeting. If the Board determines remedial action is appropriate, the director shall promptly take whatever action is requested by the Board. If the director does not promptly take the recommended remedial action or if the Board determines that immediate resignation is in the best

interests of the Company and its stockholders, the director shall promptly tender his or her resignation upon request from the Board. We will publicly disclose the Board’s decision within four business days in a Current Report on Form 8-K with the SEC, providing an explanation of the process by which the decision was reached and, if applicable, the reason for not requesting the director’s resignation. The director in question will not participate in the Governance Committee’s or the Board’s analysis.

 

We adopted stock ownership guidelines for our directors and executive officers to help ensure that they each maintain an equity stake in the Company and, by doing so, appropriately link their interests with those of the other stockholders. The guideline for executive officers is based on a multiple of the executive’s base salary, ranging from two to five times, with the size of the multiple based on the individual’s position with the Company. Only shares actually owned (as shares or as deferred units) count towards the requirement. Executives are required to achieve these stock ownership levels within five years of becoming an executive, or (in the case of persons who were executive officers at the time these guidelines were adopted) by September 2011. For directors, the guideline is three times the annual retainer for Board service. Directors are required to achieve this ownership level within five years of joining the Board, or (in the case of directors serving on the Board at the time the guidelines were adopted) by September 2011. In addition to the preceding ownership guidelines, all directors are expected to own shares of our common stock within one year of joining the Board. See the “Other Key Policies and Practices” section under “Compensation Discussion and Analysis” for additional information.

 

We have adopted a formal process for stockholder communications with the Board. This process is also set forth in our Corporate Governance Principles and Practices. Stockholders who wish to communicate to the Board should do so in writing to the following address:

 

[Name of Director(s) or Board of Directors]

Qualcomm Incorporated

Attn: General Counsel

5775 Morehouse Drive, N-510F

San Diego, California 92121-1714

 

Our General Counsel logs all such communications and forwards those not deemed frivolous, threatening or otherwise inappropriate to the Chair of the Governance Committee for distribution.

 

Our Corporate Governance Principles and Practices set forth a policy on director attendance at annual meetings. Directors are encouraged to attend absent unavoidable conflicts. All of the then-sitting directors attended our last annual meeting except for Mr. Stern.

 

The Board has determined that, except as noted below, all of the members of the Board are “independent directors” within the meaning of Rule 5605 of the NASDAQ. Dr. Paul Jacobs is not considered independent because he is employed by us as an executive officer of the Company, and Dr. Irwin Jacobs is not considered independent because he has been employed as an executive officer of the Company within the last three years.

 

On March 7, 2006, the stockholders approved our 2006 Long-Term Incentive Plan (the 2006 LTIP). The 2006 LTIP is a restatement of our 2001 Stock Option Plan and the successor to the 1991 Stock Option Plan, the 2001 Non-Employee Directors’ Stock Option Plan and their predecessor plans. The 2006 LTIP also serves as the source of shares for the Executive Retirement Matching Contribution Plan (the ERMC Plan).

 

The Board of Directors has adopted the following amendment to the 2006 LTIP, which requires stockholder approval:

 

Increase the maximum number of shares that the Company may issue under the 2006 LTIP from 405,284,432 shares to 418,284,432 shares, which will enable it to continue to grant awards to deserving individuals and remain competitive with its industry peers.

 

Although historically we have granted stock options as our primary form of equity compensation, in order to manage our burn rate and dilution going forward, we are considering making a substantial shift in the form of equity awards, including restricted stock units and performance-based units.

 

We believe that equity incentives are critical to attracting and retaining the most talented employees in our industry. The approval of the proposed amendment will allow us to continue to provide such incentives under the 2006 LTIP.

 

Key Features of the 2006 LTIP:

 

 

Significant Historical Option Grant Information

 

 

Background for the Current Request and Expected Future Grant Practices.

 

Our request to increase the share reserve by 13 million shares considers the following:

 

 

Summary of the 2006 LTIP

 

The following paragraphs summarize material terms of the 2006 LTIP. This summary is qualified in its entirety by the specific terms of the 2006 LTIP, a copy of which is available to any stockholder upon request.

 

General

 

The 2006 LTIP provides for the grant of incentive and nonstatutory stock options, as well as stock appreciation rights, restricted stock, restricted stock units, performance units and shares and other stock-based awards. It is also the source of shares for matching stock awards under the ERMC Plan. Incentive stock options granted under the

2006 LTIP are intended to qualify as “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the Code). Nonstatutory stock options granted under the 2006 LTIP are not intended to qualify as incentive stock options under the Code.

 

Purpose

 

The 2006 LTIP advances the interests of the Company and its stockholders by helping to attract and retain persons of skill and ability to serve the Company and by motivating these individuals to continue their contributions to the growth and profitability of the Company.

 

Administration

 

The Board and its designees administer the 2006 LTIP.  The Board interprets the 2006 LTIP, subject to the requirements of the 2006 LTIP. As permitted under the 2006 LTIP, the Board has delegated administration of the 2006 LTIP to the Compensation Committee of the Board. The Compensation Committee determines the recipients of awards, the number of shares subject to each award, the times when an award will become exercisable, the exercise price, the type of consideration to be paid upon exercise and other terms of the award. For awards to persons other than directors or executive officers, the Compensation Committee in turn has delegated administration of the 2006 LTIP to the Management Stock Option Committee, currently comprised of our Chief Executive Officer, President and Executive Vice President, Human Resources, who act pursuant to the guidelines approved by the Compensation Committee. As used herein with respect to the 2006 LTIP, the “Board” refers to the Compensation Committee and the Management Stock Option Committee, in addition to the full Board.

 

Stock Subject to the 2006 LTIP

 

A total of 405,284,432 shares are currently reserved for issuance under the 2006 LTIP. As discussed above, we propose to increase the number of shares by 13,000,000 shares, for a total of 418,284,432 shares reserved for issuance under the 2006 LTIP. As of September 27, 2009, 219,510,951 shares are subject to outstanding stock options, 55,000 shares are subject to restricted stock units, 12,092 shares subject to deferred stock units, 1,299 shares subject to dividend reinvestment shares related to the restricted and deferred stock units, and 66,329,392 shares remain available for future grants under the 2006 LTIP. Shares underlying awards that expire, are cancelled or otherwise terminate again become available for grant under the 2006 LTIP, as do shares subject to an award under the ERMC Plan that fail to vest under the terms of that plan.

 

Shares subject to stock options and stock appreciation rights that include dividend equivalent rights and all other types of awards are charged against the 2006 LTIP share reserve on the basis of three shares for each one share granted. Any shares returned to the reserve will be returned on the same basis as they were originally charged against the share reserve.

 

Eligibility

 

Awards other than incentive stock options are generally granted only to our employees and directors. Incentive stock options may be granted only to employees, and only certain executives may participate in the ERMC Plan.

 

Any person who, at the time of the grant, owns (or is deemed to own) stock possessing more than 10% of the total combined voting power of the Company, or any of its parent or subsidiary corporations, must be granted an incentive stock option at an exercise price that is at least 110% of the fair market value of the Company’s stock on the date of grant, and the term of the option must not exceed five years. The aggregate fair market value, determined at the time of grant, of the shares of common stock with respect to which incentive stock options granted under the 2006 LTIP are exercisable for the first time by an optionee during any calendar year (under all our plans and our parent and subsidiary corporations) may not exceed $100,000. In order to permit awards to qualify as “performance-based compensation” under Section 162(m) of the Code, no employee may be granted awards during any fiscal year in excess of the following limits:

 

 

 

The 2006 LTIP provides, in general, a mandatory minimum three-year vesting period, based on the participant’s continued service, for restricted stock awards, restricted stock unit awards, performance awards or stock-based awards based on the full value of shares of stock. These vesting rules do not apply to shares granted under the ERMC Plan or to a maximum of 2% of the shares reserved under the 2006 LTIP, which may be issued as awards to non-employee directors. Performance awards generally are subject to achievement of performance goals over a performance period no shorter than 12 months. Acceleration of awards under the 2006 LTIP occurs only in connection with death, disability or a Change-in-Control (as defined under “Effect of Certain Corporate Events”).

 

Stock Options and Stock Appreciation Rights

 

The following is a general description of the terms of options and stock appreciation rights that may be awarded under the 2006 LTIP. Individual grants may have different terms, subject to the overall requirements of the 2006 LTIP.

 

Exercise Price; Payment.  The exercise price of incentive stock options under the 2006 LTIP may not be less than the fair market value of the Company’s common stock subject to the option on the date of grant, and in some cases may not be less than 110% of the fair market value on the grant date (see “Eligibility”). As of January 4, 2010, the fair market value (i.e., closing price) of a share of the Company’s common stock was $46.94. The exercise price of nonstatutory stock options and stock appreciation rights may not be less than the fair market value of the Company’s stock subject to the award on the date of grant. The exercise price of options granted under the 2006 LTIP must be paid: (1) in cash, check or a cash equivalent; (2) by tender of shares of common stock of the Company to the Company subject to attestation to the ownership of the shares and to having a fair market value not less than the exercise price; (3) if permitted by the Board, by means of a cashless exercise that complies with applicable securities and other laws; (4) in any other form of payment acceptable to the Board; or (5) by a combination of the above forms of payment.

 

No Repricing.  The 2006 LTIP does not permit the Company to lower the exercise price of options or stock appreciation rights without stockholder pre-approval.

 

Exercise.  Options and stock appreciation rights granted under the 2006 LTIP vest in cumulative increments as determined by the Board, provided that the holder’s employment by, or service as a director or consultant to, the Company or certain related entities or designated affiliates, continues from the date of grant until the applicable vesting date. Awards granted under the 2006 LTIP may be subject to different vesting terms, subject to an overall minimum three-year vesting requirement applicable to options and stock appreciation rights issued to participants other than non-employee directors. The Board has the power to accelerate the time during which an award may be exercised, subject to this three-year overall limit.

 

Term.  The maximum term of options and stock appreciation rights under the 2006 LTIP is 10 years, except for certain incentive stock options with a maximum term of 5 years (see “Eligibility”). The 2006 LTIP provides for the earlier termination of an award due to the holder’s termination of service.

 

Restrictions on Transfer.  Participants may not transfer incentive stock options granted under the 2006 LTIP, except by will or by the laws of descent and distribution. Participants may not transfer nonstatutory stock options or stock appreciation rights other than: (1) by will or by the laws of descent and distribution; (2) by written designation of a beneficiary taking effect upon the death of the optionee or (3) by delivering written notice to the Company, in a form acceptable to the Company, that the optionee will be gifting the option to certain family members or other specific entities controlled by or for the benefit of such family members, and such other transferees as the Board may approve.

Restricted Stock Units

 

The Board may grant restricted stock units under the 2006 LTIP, which represent a right to receive shares of the Company’s common stock at a future date determined in accordance with the participant’s award agreement. There is no purchase or exercise price associated with the restricted stock units or the shares issued in settlement of the award. The Board may grant restricted stock unit awards subject to the attainment of one or more performance goals, similar to those described below in connection with performance awards, or may make the awards subject to vesting conditions similar to those for restricted stock awards, as described below. Unless the Board provides otherwise, participants forfeit any unvested restricted stock units upon termination of service. Participants have no voting rights or rights to receive cash dividends with respect to restricted stock unit awards until shares of common stock are issued in settlement of such awards. However, the Board may grant restricted stock units that entitle the holders to receive dividend equivalents, which are rights to receive additional restricted stock units based on the value of any cash dividends the Company pays. A total of 56,085 restricted stock units, including dividend equivalents, have been granted under the 2006 LTIP.

 

Restricted Stock Awards

 

The Board may grant restricted stock awards under the 2006 LTIP in the form of either a restricted stock purchase right, an immediate right to purchase common stock, or a restricted stock bonus, for which the participant furnishes consideration in the form of services to the Company. The Board determines the purchase price payable under restricted stock purchase rights, which may be less than the then current fair market value of the Company’s common stock. Restricted stock awards may be subject to vesting conditions based on such service or performance criteria as the Board specifies, including the attainment of one or more performance goals similar to those described below in connection with performance awards. Participants may not transfer shares acquired pursuant to a restricted stock award until the shares vest. Unless otherwise provided by the Board, participants forfeit any unvested shares of restricted stock upon termination of service. Participants holding restricted stock generally may vote the shares and receive any dividends paid; however, such distributions are subject to the same restrictions as the original award.

 

Performance Awards

 

The Board may grant performance awards subject to the fulfillment of conditions and the attainment of performance goals over such periods as the Board determines in writing and sets forth in a written agreement between the Company and the participant. To the extent compliance with Section 162(m) of the Code is desired, a committee comprised solely of “outside directors” under Section 162(m) must act with respect to performance awards, and “Board” as used in this section shall include this committee. These awards may be designated as performance shares or performance units. Performance shares and performance units are unfunded bookkeeping entries generally having initial values equal to the fair market value of a share of stock determined on the grant date and a value set by the Board, respectively. Performance awards specify a predetermined amount of performance shares or performance units that may be earned by the participant to the extent that one or more predetermined performance goals are attained within the predetermined performance period. To the extent earned, performance awards may be settled in cash, shares of common stock (including shares of restricted stock) or a combination thereof.

 

Prior to the start of the applicable performance period, or as permitted pursuant to Section 162(m) of the Code, the Board establishes one or more performance goals applicable to the award. Performance goals are based on the attainment of specified target levels with respect to one or more selected measures of business or financial performance. Performance goals may be based on one or more of the following measures: revenues, gross margin, operating margin, operating income, earnings before tax, earnings before interest, taxes, depreciation and amortization, net income, expenses, the market price of the Company’s common stock, earnings per share, return on stockholder equity, return on capital, return on net assets, economic value added, market share, customer service, customer satisfaction, safety, total stockholder return, free cash flow or other measures as determined by the Board. The degree of attainment of performance measures may be calculated in accordance with GAAP, industry usage or other formulations determined by the Board in its discretion. For example, performance goals may be established

and calculated without regard to the accrual or payment of performance awards and may be based on pro forma formulations of these performance measures, as determined by the Board in its discretion.

 

Following completion of the applicable performance period, the Board certifies in writing the extent to which a participant has attained the applicable performance goals and the resulting value of the participant’s award. The Board retains the discretion to eliminate or reduce, but not increase, the amount that would otherwise be payable to a participant who is a “covered employee” within the meaning of Section 162(m) of the Code. However, no such reduction may increase the amount correspondingly paid to any other participant. The Board may make positive or negative adjustments to performance award payments to participants other than covered employees to reflect individual job performance or other factors. In its discretion, the Board may provide for the payment of dividend equivalents with respect to cash dividends paid on the Company’s common stock to a participant awarded performance shares. The Board may provide for performance award payments in lump sums or installments. If any payment is to be made on a deferred basis, the Board may provide for the payment of dividend equivalents or interest during the deferral period.

 

Unless otherwise provided by the Board, if a participant terminates service due to death or disability prior to completion of the applicable performance period, the final award value is determined at the end of the performance period on the basis of the performance goals attained during the entire performance period, but is prorated for the number of months of the participant’s service during the performance period. If a participant’s service terminates prior to completion of the applicable performance period for any other reason, the participant forfeits the performance award, unless the Board determines otherwise. Participants may not sell or transfer a performance award, other than by will or the laws of descent and distribution, prior to the end of the applicable performance period.

 

Deferred Compensation Awards

 

The 2006 LTIP authorizes the Board to establish a deferred compensation award program in addition to the ERMC Plan. If and when implemented, participants designated by the Board who are officers, directors or members of a select group of highly compensated employees may elect to receive an award of deferred stock units, in lieu of compensation otherwise payable in cash or in lieu of cash or shares of common stock issuable upon the exercise or settlement of stock options, stock appreciation rights, performance shares or performance unit awards. Each such stock unit represents a right to receive one share of common stock at a future date determined in accordance with the participant’s award agreement. Deferred stock units are fully vested upon grant and settled by distribution to the participant of a number of whole shares of common stock equal to the number of stock units subject to the award upon the earlier of the date on which the participant separates from service or a specific date elected by the participant at the time of his or her election to receive the deferred stock unit award. A holder of deferred stock units has no voting rights or other rights as a stockholder until shares of common stock are issued to the participant in settlement of the stock units. However, participants holding deferred stock units may receive dividend equivalents credited in the form of additional stock units as determined by the Board. Prior to settlement, deferred stock units may not be assigned or transferred other than by will or the laws of descent and distribution. A total of 12,306 fully vested deferred stock units, including dividend equivalents, have been granted to non-employee directors in lieu of their annual cash retainer.

 

Other Stock-Based Awards

 

The 2006 LTIP permits the Board to grant other awards based on the Company’s stock or on dividends paid on its stock.

 

Effect of Certain Corporate Events

 

In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change in the capital structure of the Company, the 2006 LTIP provides for appropriate adjustments in the number and class of shares subject to the 2006 LTIP and to any outstanding awards, in the Section 162(m) of the Code per employee grant limit (see “Federal Income Tax Information — Potential Limitation on Company Deductions”), and in the exercise price per share of any outstanding awards. Any fractional share resulting from an

adjustment is rounded down to the nearest whole number, and at no time will the exercise price of any option or stock appreciation right be decreased to an amount less than par value of the stock subject to the award.

 

Change-in-Control.  If a Change-in-Control occurs, the surviving, continuing, successor or purchasing corporation or parent corporation thereof may either assume the Company’s rights and obligations under the outstanding awards or substitute substantially equivalent awards. However, if an outstanding award is not assumed or replaced, the 2006 LTIP provides that the vesting and exercisability of the award shall accelerate, effective 10 days prior to the Change-in-Control. Awards that are not assumed, replaced or exercised prior to the Change-in-Control will terminate. The 2006 LTIP defines a “Change-in-Control” of the Company as any of the following events upon which the stockholders of the Company immediately before the event do not retain immediately after the event, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the event, direct or indirect beneficial ownership of more than 50% of the total combined voting power of the stock of the Company, its successor or the corporation to which the assets of the Company were transferred: (1) a sale or exchange by the stockholders in a single or series of related transactions of more than 50% of the Company’s voting stock; (2) a merger or consolidation in which the Company is a party; (3) the sale, exchange or transfer of all or substantially all of the assets of the Company; or (4) a liquidation or dissolution of the Company.

 

Duration, Amendment and Termination

 

The Board may amend or terminate the 2006 LTIP at any time. If not earlier terminated, the 2006 LTIP expires on the tenth anniversary of the date it was originally approved by the stockholders. No amendment authorized by the Board will be effective unless approved by the stockholders of the Company if the amendment would (1) increase the number of shares reserved under the 2006 LTIP; (2) change the class of persons eligible to receive incentive stock options; or (3) modify the 2006 LTIP in any other way that requires stockholder approval under applicable law.

 

Awards Granted to Certain Persons

 

The aggregate number of shares of common stock subject to awards granted to certain persons under the 2006 LTIP in the last completed fiscal year are as follows: (1) Paul E. Jacobs, Chief Executive Officer, 915,000 shares; (2) William E. Keitel, Executive Vice President and Chief Financial Officer, 375,000 shares; (3) Steven R. Altman, President, 545,000 shares; (4) Len J. Lauer, Executive Vice President and Chief Operating Officer, 295,000 shares; (5) Steven M. Mollenkopf, Executive Vice President and President, Qualcomm CDMA Technologies, 295,000 shares; (6) all current executive officers as a group, an aggregate of 3,445,000 shares; (7) all current directors who are not executive officers as a group, an aggregate of 122,500 shares; and (8) all employees, including current officers who are not executive officers, as a group, an aggregate of 37,272,190 shares.

 

Federal Income Tax Information

 

The following discussion is intended to be a general summary only of the federal income tax aspects of awards granted under the 2006 LTIP and not of state or local taxes that may apply to awards under the 2006 LTIP. Tax consequences may vary depending on particular circumstances, and administrative and judicial interpretations of the application of the federal income tax laws are subject to change. Participants in the 2006 LTIP who are residents of or are employed in a country other than the United States may be subject to taxation in accordance with the tax laws of that particular country in addition to or in lieu of United States federal income taxes.

 

Incentive Stock Options. An optionee recognizes no taxable income for regular income tax purposes as the result of the grant or exercise of an incentive stock option. Optionees who do not dispose of their shares for at least two years following the date the incentive stock option was granted or within one year following the exercise of the option normally will recognize a long-term capital gain or loss equal to the difference, if any, between the sale price and the purchase price of the shares. If an optionee satisfies both such holding periods upon a sale of the shares, the Company will not be entitled to any deduction for federal income tax purposes. If an optionee disposes of shares either within two years after the date of grant or within one year from the date of exercise (referred to as a “disqualifying disposition”), the difference between the fair market value of the shares on the exercise date and the

option exercise price (not to exceed the gain realized on the sale if the disposition is a transaction with respect to which a loss, if sustained, would be recognized) will be taxed as ordinary income at the time of disposition. Any gain in excess of that amount will be treated as a capital gain. If a loss is recognized, it will be a capital loss. A capital gain or loss will be long-term if the optionee’s holding period is more than 12 months. Any ordinary income recognized by the optionee upon the disqualifying disposition of the shares generally should be deductible by the Company for federal income tax purposes, except to the extent such deduction is limited by applicable provisions of the Code or the regulations thereunder. The difference between the option exercise price and the fair market value of the shares on the exercise date of an incentive stock option is an adjustment in computing the optionee’s alternative minimum taxable income and may be subject to an alternative minimum tax, which is paid if such tax exceeds the regular tax for the year. Special rules may apply with respect to certain subsequent sales of the shares in a disqualifying disposition, certain basis adjustments for purposes of computing the alternative minimum taxable income on a subsequent sale of the shares and certain tax credits which may arise with respect to optionees subject to the alternative minimum tax.

 

Nonstatutory Stock Options and Stock Appreciation Rights.  Nonstatutory stock options and stock appreciation rights have no special tax status. A holder of these awards generally does not recognize taxable income as the result of the grant of such award. Upon exercise of a nonstatutory stock option or stock appreciation right, the holder normally recognizes ordinary income in an amount equal to the difference between the exercise price and the fair market value of the shares on the exercise date. If the holder is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of stock acquired by the exercise of a nonstatutory stock option or stock appreciation right, any gain or loss, based on the difference between the sale price and the fair market value on the exercise date, will be taxed as capital gain or loss. A capital gain or loss will be long-term if the holding period of the shares is more than 12 months. The Company generally is entitled to a deduction equal to the amount of ordinary income recognized by the optionee as a result of the exercise of a nonstatutory stock option or stock appreciation right, except to the extent such deduction is limited by applicable provisions of the Code or the regulations thereunder. No tax deduction is available to the Company with respect to the grant of a nonstatutory stock option or stock appreciation right or the sale of the stock acquired pursuant to such grant.

 

Restricted Stock.  A participant acquiring restricted stock generally will recognize ordinary income equal to the fair market value of the shares on the “determination date.” The determination date is the date on which the participant acquires the shares unless the shares are subject to a substantial risk of forfeiture and are not transferable, in which case the determination date is the earlier of (i) the date on which the shares become transferable or (ii) the date on which the shares are no longer subject to a substantial risk of forfeiture. If the determination date is after the date on which the participant acquires the shares, the participant may elect, pursuant to Section 83(b) of the Code, to have the date of acquisition be the determination date by filing an election with the Internal Revenue Service no later than 30 days after the date on which the shares are acquired. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of shares acquired pursuant to a restricted stock award, any gain or loss, based on the difference between the sale price and the fair market value on the determination date, will be taxed as capital gain or loss. The Company generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.

 

Performance and Restricted Stock Unit Awards.  A participant generally will recognize no income upon the receipt of a performance share, performance unit or restricted stock unit award. Upon the settlement of such an award, participants normally will recognize ordinary income in the year of receipt in an amount equal to the cash received and the fair market value of any substantially vested shares received. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. If the participant receives shares of restricted stock, the participant generally will be taxed in the same manner as described under “Restricted Stock.” Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value on the determination date (as defined under “Restricted Stock”), will be taxed as capital gain or loss. The Company generally is entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.

Deferred Compensation Awards.  A participant generally will recognize no income upon the receipt of a deferred compensation award. Upon the settlement of the award, the participant normally will recognize ordinary income in the year of settlement in an amount equal to the fair market value of the shares received. Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value of the shares on the date they were transferred to the participant, will be taxed as capital gain or loss. The Company generally is entitled to a deduction equal to the amount of ordinary income recognized by the participant, except to the extent such deduction is limited by applicable provisions of the Code. Deferred compensation awards, when granted, would generally be subject to the requirements of Section 409A of the Code, which would impose certain restrictions on the timing and form of payment of deferred compensation.

 

Potential Limitation on Company Deductions.  In accordance with applicable regulations issued under Section 162(m), compensation attributable to stock options and stock appreciation rights will qualify as performance-based compensation, provided that: (1) the 2006 LTIP contains a per-employee limitation on the number of shares for which options or stock appreciation rights may be granted during a specified period; (2) the per-employee limitation is approved by the stockholders; (3) the option is granted by a compensation committee comprised solely of outside directors (as defined in Section 162(m) of the Code); and (4) the exercise price of the option or right is not less than the fair market value of the stock on the date of grant. For the above reasons, our 2006 LTIP provides for an annual per employee limitation as required under Section 162(m), and our Compensation Committee is comprised solely of outside directors. Accordingly, options or stock appreciation rights granted by the Compensation Committee qualify as performance-based compensation, and the other awards subject to performance goals may also qualify.

 

Equity Compensation Plan Information

 

Information about our equity compensation plans at September 27, 2009 that were either approved or not approved by our stockholders was as follows (number of shares in millions):

 

 

 

 

Required Vote and Board Recommendation

 

The affirmative vote of a majority of the votes cast at the Annual Meeting, at which a quorum is present, either in person or by proxy, is required to approve the proposed amendment to the 2006 LTIP discussed above. If you hold your shares in your own name and abstain from voting on this matter, your abstention will have no effect on the vote. If you hold your shares through a broker and you do not instruct the broker on how to vote on this proposal, your broker will not have the authority to vote your shares. Abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum, but will not have any effect on the outcome of the proposal.

Should stockholder approval not be obtained, then the proposed amendments will not be implemented, and the 2006 LTIP will continue in effect pursuant to its current terms.

 

The Board believes that the proposed amendment to the 2006 LTIP is in the best interests of the Company and its stockholders for the reasons stated above. THEREFORE, THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THE PROPOSED AMENDMENT TO THE 2006 LTIP FOR THE INCREASE IN THE SHARE RESERVE BY 13,000,000 SHARES.

 

The Audit Committee of the Board has selected PricewaterhouseCoopers LLP as our independent public accountants for the fiscal year ending September 26, 2010, and the Board has directed that management submit the selection of independent public accountants for ratification by the stockholders at the Annual Meeting. PricewaterhouseCoopers LLP has audited our consolidated financial statements since we commenced operations in 1985. Representatives of PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting, will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

 

Stockholder ratification of the selection of PricewaterhouseCoopers LLP as our independent public accountants is not required by our Amended and Restated Bylaws or otherwise. However, the Board is submitting the selection of PricewaterhouseCoopers LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee at its discretion may direct the appointment of a different independent accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.

 

The following table presents fees for professional services rendered by PricewaterhouseCoopers LLP for the audit of our annual financial statements for the years ended September 27, 2009 and September 28, 2008 and fees for other services rendered by PricewaterhouseCoopers LLP during those periods.

 

 

 

 

The Audit Committee’s policy is to pre-approve all audit and non-audit services provided by the independent public accountants. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and is subject to a budget. The Audit Committee has delegated pre-approval authority to certain committee members when expedition of approval is necessary. The independent public accountants and management periodically report to the full Audit Committee regarding the extent of services provided by the independent public accountants and the fees for the services performed to date. All services rendered by PricewaterhouseCoopers LLP during fiscal 2009 and 2008 were pre-approved by the Audit Committee.

 

The affirmative vote of a majority of the votes cast at the meeting at which a quorum is present, either in person or by proxy, is required to approve this proposal. Abstentions will be counted as present for purposes of determining the presence of a quorum but will not have any effect on the outcome of the proposal.

 

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING SEPTEMBER 26, 2010.

 

The following table sets forth certain information regarding the ownership of our common stock as of December 14, 2009 by: (i) each director and nominee for director; (ii) each of our executive officers named in the “Summary Compensation Table” under “Executive Compensation and Related Information” (the Named Executive Officers or NEOs); and (iii) all of our executive officers and directors as a group. Based on currently available Schedules 13D and 13G filed with the SEC, we do not know of any beneficial owners of more than 5% of our common stock.

 

 

 

 

 

Section 16(a) of the Securities Exchange Act requires our directors, executive officers and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Officers, directors and greater-than-10-percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.

 

To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, all Section 16(a) filing requirements were complied with during fiscal 2009, except for the following: a late Form 4 was filed to report a grant of phantom stock under the Executive Retirement Matching Contribution Plan (the ERMC Plan) for Mr. Altman in fiscal 2009; a late Form 5 was filed to report a gift by Mr. Altman in fiscal 2006; three late Forms 4 were filed to report a sale of shares and distributions from a Grantor Retained Annuity Trust by Dr. Paul Jacobs in fiscal 2009 that were reported late by his broker; a Form 5 was filed to report a late transaction for the distribution of shares to Dr. Irwin Jacobs from the ERMC Plan and the related sale of shares to cover taxes on the distribution upon his transition from being an employee of the Company in fiscal 2009; and a late Form 5 was filed to report a gift by Dr. Irwin Jacobs in fiscal 2009 that was reported late by his broker.

 

None of the members of our Compensation Committee are, or have been, employees or officers of the Company. During fiscal 2009, no member of the Compensation Committee had any relationship with us requiring disclosure under Item 404 of Regulation S-K. During fiscal 2009, none of our executive officers served on the compensation committee (or equivalent) or board of another entity whose executive officer(s) served on our Compensation Committee or Board.

 

Our code of ethics states that our executive officers and directors, including their immediate family members, are charged with avoiding situations in which their personal, family or financial interests conflict with those of the Company. In accordance with its charter, the Audit Committee is responsible for reviewing and approving related-person transactions between the Company and any directors or executive officers. The Compensation Committee reviews compensation-related transactions with directors or executive officers (such as base salary and annual cash incentives). Any request for us to enter into a transaction with an executive officer or director, or any of such person’s immediate family members or affiliates, which would be reportable as a related-person transaction, must be presented to our Audit Committee for review and approval. In considering the proposed agreement, our Audit Committee will consider the relevant facts and circumstances and the potential for conflicts of interest or improprieties.

 

During fiscal 2009, we employed the family members of certain directors and executive officers. Those employees whose compensation exceeded $120,000 are discussed below, all of whom were adults who did not live with the related director or executive officer. Each family member is compensated according to our standard practices, including participation in our employee benefit plans generally made available to employees of a similar responsibility level. We do not view any of the directors or executive officers as having a beneficial interest in the described transactions that is material to them or the Company. Moreover, none of the following directors or executive officers believe that they have a direct or indirect material interest in the employment relationships of the listed family members. Options were granted under our 2006 Long-Term Incentive Plan and have exercise prices that were equal to the closing price of our stock on the date of grant. Such options vest according to the following schedule: 10% of the shares subject to the option vest on the six-month anniversary of the date of grant, with ratable monthly vesting over the remaining five-year vesting period. Generally, vesting is contingent upon continued service with the Company. Options granted under any of our stock option plans have a term of 10 years.

Dr. Paul E. Jacobs and Jeffrey A. Jacobs are the sons of Dr. Irwin Mark Jacobs, a director of the Company. Dr. Paul Jacobs serves as our Chairman and Chief Executive Officer (CEO). Dr. Paul Jacobs was compensated as described below under the heading “Executive Compensation and Related Information.”

 

Dr. Irwin Mark Jacobs serves as a director of the Company. Dr. Irwin Jacobs served as an executive officer of the Company through March 3, 2009 and earned $321,111 in base salary during fiscal 2009.

 

Jeffrey A. Jacobs served as Executive Vice President and Chief Marketing Officer through July 8, 2009 and earned $169,714 in base salary during fiscal 2009.

 

Duane A. Nelles’s son, Duane A. Nelles III, serves as Vice President, Business Development. During fiscal 2009, Duane A. Nelles III earned $227,307 in base salary and $107,000 in cash incentives and received a stock option grant for 11,500 shares of our stock at an exercise price of $34.99 per share and a second grant for 20,000 shares at an exercise price of $41.36 per share.

 

Steven R. Altman’s brother, Jeffrey S. Altman, serves as Vice President, Business Development. Jeffrey Altman earned $185,423 in base salary and $45,000 in cash incentives during fiscal 2009 and received a stock option grant for 3,500 shares of our common stock at an exercise price of $34.99 per share and a second grant for 5,500 shares at an exercise price of $41.36 per share.

 

The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis (CD&A) with management. Based on this review and discussion, the Compensation Committee recommended to the Board that the CD&A be included in our 2010 Proxy Statement.

 

COMPENSATION COMMITTEE

 

Stephen M. Bennett, Chair

Brent Scowcroft

Marc I. Stern

 

In this section we discuss and analyze our compensation program and the specific amounts of compensation paid to our Chief Executive Officer (CEO), Chief Financial Officer (CFO) and the other three most highly compensated executive officers for fiscal 2009. Collectively, we refer to these individuals as the “Named Executive Officers” or the “NEOs.” They are:

 

 

We paid for performance.  Our pay-for-performance approach encourages our NEOs to achieve our annual financial objectives and build value for long-term stockholders.

 

In fiscal 2009, global demand for 3G-enabled products and services remained strong despite the economic environment. We reduced our selling, general and administrative expenses and staffing levels while continuing to grow our research and development program. We achieved 98% of our pro forma revenues objective and 107% of our adjusted pro forma operating income objective. Compared to fiscal 2008, pro forma revenues were down 7% and adjusted pro forma operating income was down 11%. Because we place more relative weight on adjusted pro forma operating income performance relative to pro forma revenues performance, our annual cash incentive program was funded at 25% more than the target incentive for meeting our financial performance objectives.

 

Dr. Jacobs’s fiscal 2009 annual cash incentive was $3.6 million, which was 28% more than the target annual cash incentive of $2.8 million. The annual cash incentives for the other NEOs ranged from approximately 10% to 31% more than their respective target annual cash incentives. With the exception of Dr. Jacobs and Mr. Mollenkopf, the annual cash incentives for fiscal 2009 were less than the annual cash incentives for fiscal 2008. At the beginning of fiscal 2009, the Compensation Committee increased Dr. Jacobs’s base salary and target annual cash incentive (expressed as a percentage of base salary) to position his target annual cash compensation at the median of our peer group. This higher target amount contributed to Dr. Jacobs’s fiscal 2009 annual cash incentive being more than the $2.9 million he received for fiscal 2008. Mr. Mollenkopf’s fiscal 2008 annual cash incentive reflected his partial-year tenure as President of QCT and therefore was less than his fiscal 2009 annual cash incentive.

 

The stock options our NEOs received during the first quarter of fiscal 2009 were granted at an option exercise price of $35.66, the closing price of our stock on the date of grant. The closing price of our stock on the last day of fiscal 2009 was $44.70, a 25% appreciation from the price on the grant date. These options become fully vested five years after the grant date and have a 10 year term.

 

We continued to enhance our compensation program structure.  We introduced the following two enhancements to our compensation program, both of which were effective on January 1, 2009:

 

 

We continued the foundation of our compensation program.  The foundation of our compensation program includes the following features, which have been in place for several years:

 

 

 

Our compensation program has five primary objectives:

 

 

Our compensation program rewards our NEOs when they achieve our annual financial performance objectives, build stockholder value and maintain long-term careers with Qualcomm. We reward these three aspects so that the executive team will make annual and long-term decisions that appropriately consider opportunities and risks and result in consistent financial performance, product innovation and collaboration within Qualcomm and with its customers and suppliers.

 

The following practices ensure consistent leadership, decision-making and actions among our NEOs in a manner that requires innovation, execution and partnering without taking inappropriate or unnecessary risks:

 

 

The following three tables summarize the key components of our NEO compensation program. The first table includes the principal components of our pay-for-performance approach. The second table includes benefit programs that are available only to our NEOs and other employees in vice president or senior vice president

roles. The third table includes benefit programs that are generally available to all of our U.S.-based employees, including our NEOs.

 

Principal Components of our Pay-for-Performance Approach (1)

 

 

 

 

Other Components of Our Compensation Program Available Only to U.S.-Based Executive-Level
Employees

 

Other Components of Our Compensation Program Available to All U.S.-Based Employees

 

 

We do not have employment agreements.  We employ all U.S.-based employees, including our NEOs, “at will,” without severance agreements or employment contracts. This is consistent with our objective of providing

compensation related to individual contributions that improve our market leadership, competitive advantage and stockholder value. It enables our Board to terminate employment with discretion as to the terms and conditions of any separation.

 

We do not have a pre-defined severance plan.  We do not have a pre-defined severance plan covering the involuntary termination of employees, including the NEOs. While a portion of unvested stock options may be accelerated in certain severance situations under the provisions of our stock option plans, we do not accelerate unvested stock options in the event of an involuntary “for cause” termination. Such terminations may involve theft, dishonesty, falsification, actions that are detrimental to the Company, conviction of a criminal act that impairs the performance of duties required by the Company or violation of a material Company policy.

 

Treatment of unvested stock options following involuntary termination without good cause.  We accelerate 10% of unvested stock options under certain involuntary terminations that are not for cause, subject to execution of a general release of claims. The award agreements for stock options granted on or after September 28, 2009, provide for accelerating 10% of unvested stock options plus a prorated amount based on the months of service since the last vesting tranche. We made this change concurrent with changes to our standard vesting schedule from five-year vesting to four-year vesting and from monthly vesting following the initial vesting tranche to six-month vesting following the initial vesting tranche.

 

Treatment of unvested stock options following a change-in-control.  If a change-in-control (as defined in our 2006 Long-Term Incentive Plan (LTIP)) occurs and our outstanding stock options are not assumed or substituted with a substantially similar award, the Compensation Committee may accelerate the vesting of all outstanding stock options. In addition, our stock option agreements include a “double trigger” in which vesting of stock options is accelerated if, within 24 months after a change-in-control, the stock option recipient is involuntarily terminated for any reason other than for cause or if the stock option recipient voluntarily resigns “for good reason” (as defined in the stock option award agreements).

 

 

The amount of compensation we provide our NEOs is intended to be:

 

 

We consider competitive compensation practices.  One objective of our compensation program is to provide amounts that are competitively reasonable and appropriate in the talent market for our business needs and circumstances. We conduct analyses using compensation data disclosed in SEC filings for the purpose of establishing reference points (i.e., the statistical median and the 75th percentile) that we use to compare our NEOs’ compensation to that provided by peer companies.

 

Peer companies for fiscal 2009.  The Compensation Committee’s independent compensation consultant, Frederic W. Cook & Co., Inc. (FWC), identified potential peer companies that had all of the following characteristics with regard to Qualcomm:

 

 

 

Peer Companies for Fiscal 2009 (1)

 

 

 

 

Peer Company Data for Fiscal 2009 (1)
(Dollars in billions)

 

 

 

 

We consider business and individual factors.  In addition to compensation amounts that are competitively reasonable and appropriate, we intend for our compensation amounts to be internally fair and equitable relative to roles, responsibilities and relationships among our NEOs. Accordingly, we also consider many other factors in the process of determining compensation levels for each NEO, including:

 

 

 

We do not have a predefined framework that determines which of these factors may be more or less important, and the emphasis placed on specific factors may vary among the NEOs. Ultimately, it is the Compensation Committee’s judgment of these factors, along with competitive data, that form the basis for determining the CEO’s compensation. The Compensation Committee and the CEO follow a similar practice to determine the basis of the other NEOs’ compensation.

 

We consider tax regulations.  A goal of the Compensation Committee is to comply with the requirements of Internal Revenue Code Sections 162(m) and 409A. Section 162(m) places a $1 million annual limit on the amount that a public company may deduct for compensation paid to the CEO and the other three most highly compensated NEOs, excluding the CFO. We refer to these four executive officers as 162(m) covered officers. The $1 million limit does not apply if the compensation meets Section 162(m) requirements for performance-based compensation (i.e., the compensation is based on pre-established objective performance goals based on criteria approved by stockholders and is determined and administered according to related regulations). Compliance with Section 162(m) did not influence the allocation of compensation among base salary, target annual cash incentives and long-term incentives for fiscal 2009. We designed and administered our fiscal 2009 cash incentive program as cash-denominated performance units granted under the 2006 LTIP to be eligible for tax deductions to the extent permitted by the relevant tax regulations, including Section 162(m). The 2009 cash incentive program established the maximum amounts payable to covered officers, which were not exceeded by the target or actual payments to those individuals. Stock options granted under the 2006 LTIP also qualify as performance-based compensation. From time-to- time, we may pay compensation to our 162(m) covered officers that may not be tax deductible if there are compelling business reasons to do so.

 

Under Section 409A, amounts deferred by a NEO under a nonqualified deferred compensation plan (such as the ERMC Plan) may be included in gross income when earned and subject to a 20% additional federal tax for the individual, unless the plan complies with certain requirements related to the timing of deferral election and distribution decisions. Nonqualified stock options are generally exempt from Section 409A if the option satisfies certain requirements (i.e., the exercise price is not less than the fair market value of our stock on the grant date, the number of shares subject to the options is fixed on the grant date, and there is no deferral feature beyond exercise). We administer the ERMC Plan and stock option awards in accordance with Section 409A requirements.

 

Other factors that may influence the amount of compensation for our NEOs.

 

Consultants and advisors.  The Compensation Committee has the authority to retain and terminate any independent, third-party compensation consultant and to obtain independent advice and assistance from internal and external legal, accounting and other advisors. During fiscal 2009, the Compensation Committee engaged an independent executive compensation consulting firm, FWC, to advise them on compensation matters. FWC reported directly to the Compensation Committee. We did not engage FWC for any additional services during fiscal 2009 beyond its support of the Compensation Committee. Pursuant to this engagement, FWC:

 

 

Representatives from FWC attended all Compensation Committee meetings during fiscal 2009 and interacted with the Committee Chair, members of our human resources staff and outside legal counsel prior to and following

Compensation Committee meetings. We paid $181,349 in fees to FWC during fiscal 2009, all for work that was directly in support of the Compensation Committee and execution of its charter.

 

The Compensation Committee also sought and received advice from our outside legal counsel, DLA Piper. The total rewards management department within our human resources organization supported the Compensation Committee in its work, collaborated with FWC and DLA Piper, conducted analyses and managed our compensation and benefit programs.

 

Compensation or amounts realizable from prior compensation.  FWC prepared and reviewed with the Compensation Committee an analysis of the carried interest and wealth accumulation of our NEOs based on the current and potential values of their stock options and ownership of our stock. The Compensation Committee and the CEO reviewed these analyses as part of their broader consideration of alignment with stockholder interests and NEO retention and determined that the potential values provide strong alignment between the interests of the NEOs and stockholders. The Compensation Committee also determined to not include the amounts of annual cash incentives and the amounts realized or realizable from prior stock option awards in establishing compensation amounts for fiscal 2009 because annual cash incentives are awarded for fiscal year performance, and stock options are forward-looking long-term incentives awarded as part of the direct compensation that the Compensation Committee establishes each year. The Compensation Committee believes that reducing stock option awards because of prior gains could penalize our executive officers for their long-term service and past performance.

 

CEO involvement in compensation decisions.  After the end of the fiscal year, the Compensation Committee and the CEO discussed our business performance, his performance and his evaluation of and compensation recommendations for the other NEOs. The Compensation Committee, without the CEO present, determined the CEO’s base salary, annual cash incentive and stock option award. The Compensation Committee also approved the base salaries, annual cash incentives and stock option awards for the other NEOs.

 

We have a cash incentive compensation repayment (“claw back”) policy.  Effective January 1, 2009, we adopted a policy that would require an executive officer, including a NEO, to repay to us the amount of any annual cash incentive that an executive officer received to the extent that:

 

 

The Compensation Committee is responsible for the interpretation and enforcement of this repayment policy.

 

We have long-standing practices regarding the timing, grant date and exercise price for stock option awards.  We have a long-standing and consistent practice of awarding annual stock options to the NEOs during the first quarter of our fiscal year. The Compensation Committee approves base salaries, annual cash incentives and stock options at the same time to facilitate consideration of total direct compensation to NEOs. We may award stock options upon hiring a new NEO, and we may award stock options upon a promotion or change in roles and responsibilities of a NEO. The exercise price of all stock options is the fair market value (i.e., closing price) on the grant date and the number of shares subject to the options is fixed on the grant date.

 

We have stock ownership guidelines.  Our stock ownership guidelines for all of our executive officers, including our NEOs, help ensure that they maintain an equity stake in the Company, and by doing so, appropriately link their interests with those of other stockholders. Only shares actually owned and deferred stock units under the ERMC Plan count towards the equity ownership requirement. Outstanding unexercised stock options do not count towards the requirement. Dr. Jacobs and Messrs. Altman and Keitel are required to achieve these stock ownership levels by September 2011 (five years after the Board of Directors adopted the guidelines). Mr. Mollenkopf is required to achieve these guidelines by May 2013 (five years after becoming an executive officer). If a NEO has not

met the guidelines by the deadline, we will require that the NEO, upon a stock option exercise, hold at least 50% of the net shares remaining after required tax withholdings until they meet the minimum guideline. The guidelines are as follows:

 

 

Although no NEO is required to satisfy the guideline until 2011 at the earliest, four of the NEOs (Dr. Jacobs and Messrs. Altman, Keitel and Mollenkopf) have met their ownership guidelines as of September 27, 2009.

 

In the first quarter of fiscal 2009, the Compensation Committee determined base salaries, target annual cash incentives and long-term incentives for the NEOs. The Compensation Committee considered information from FWC’s competitive analysis, the business and individual factors described above, tax efficiency and the CEO’s recommendations for the other NEOs in determining these amounts. The “Fiscal 2009 Target Direct Compensation” table reports the base salary, target annual incentive and long-term incentives for NEOs, the resulting target direct compensation (TDC) and how it compares to competitive practice, the portion that is “at risk” and the internal relationship of the CEO to the other NEOs. The Compensation Committee reviewed these relationships but did not use or attempt to establish specific internal compensation relationships among the NEOs.

 

Fiscal 2009 Target Direct Compensation

 

 

 

 

Fiscal 2009 annual cash incentive program.  During the first quarter of fiscal 2009, the Compensation Committee, after consultation with the CEO and review by the Board of Directors, established pro forma revenues

and pro forma operating income objectives for the fiscal 2009 annual cash incentive program. These two pro forma operating objectives were used because they:

 

 

Pro forma objectives exclude the Qualcomm Strategic Initiatives (QSI) segment, certain estimated share-based compensation, certain tax items and acquired in-process research and development expense. The Compensation Committee determined that pro forma objectives, rather than objectives based on generally accepted accounting principles (GAAP), enable evaluation of operating results on a consistent and comparable basis. The QSI segment, estimated share-based compensation and certain tax items are excluded because we view such items as unrelated to our operational performance. Acquired in-process research and development is excluded because we view such expense as unrelated to the operating activities of our ongoing business. To encourage profitable growth, we have a 60% relative weighting on pro forma operating income and a 40% relative weighting on pro forma revenues. Prior to fiscal 2009, pro forma earnings before tax (EBT) was used for the earnings measure rather than pro forma operating income. This change was made because, unlike pro forma EBT, pro forma operating income does not include net investment income, which is not related to company operations that is the plan’s performance focus. The major disruptions in U.S. and foreign credit and financial markets that emerged during 2008 could have continued to impact the value of our marketable securities portfolio in a manner that may not have reflected our NEOs’ performance in 2009. Given the unprecedented volatility and the significant judgments involved, establishing appropriate objectives for the performance of our investment portfolio would have been extremely difficult.

 

The “Fiscal 2009 Annual Cash Incentive Calculation” table below reports our pro forma revenues, pro forma operating income objectives and the adjusted pro forma results for fiscal 2009. We achieved 98% and 107% of our pro forma revenues and adjusted pro forma operating income objectives for fiscal 2009, respectively. These levels of performance, when applied to the formula approved by the Compensation Committee at the beginning of fiscal 2009, resulted in an incentive target multiple of 1.25. (See the narrative under “Grants of Plan-Based Awards” that provides a detailed description of the cash incentive program design and formula.) To calculate each NEO’s performance-adjusted incentive amount, we multiplied (a) the target incentive multiple by (b) the target annual cash incentive. (See the table titled “Fiscal 2009 Company Performance-Adjusted Incentive Amounts.”)

 

Fiscal 2009 Annual Cash Incentive Calculation

 

 

 

 

The fiscal 2009 annual cash incentive program authorized the Compensation Committee to exclude certain items from pro forma revenues and pro forma operating income for calculating financial performance. For fiscal 2009, the Compensation Committee adjusted pro forma operating income to exclude the following items:

 

 

Compared to fiscal 2008, our fiscal 2009 pro forma revenues and adjusted pro forma operating income used to calculate the target incentive multiple were 7% and 11% lower, respectively. The fiscal 2009 target incentive multiple of 1.25 is 21% below the fiscal 2008 target incentive multiple of 1.59. Results of applying the 1.25 target incentive multiple to each NEO’s target annual cash incentive are shown in the following table.

 

Fiscal 2009 Company Performance-Adjusted Incentive Amounts

 

 

Fiscal 2009 annual stock option awards.  We do not have a formulaic approach for calculating the number of stock options awarded to each NEO. Rather, the Compensation Committee exercises its discretion to award an amount that is reasonable and appropriate after it has considered several factors, including:

 

 

Discussion of compensation for Dr. Paul Jacobs, Chairman and CEO.

 

Dr. Jacobs’s total direct compensation for fiscal 2009 was 6.8% less than his fiscal 2008 amount. During the first quarter of fiscal 2009, the Compensation Committee increased Dr. Jacobs’s base salary to $1,125,010 and his target annual cash incentive to 250% of base salary from 175% for fiscal 2008 to position his target annual cash compensation near the median of our peer group. At Dr. Jacobs’s request, the Compensation Committee reduced his base salary by 25% to an annual rate of $843,752, effective February 14, 2009. His voluntary reduction was in conjunction with several company-wide cost-containment initiatives that included foregoing the non-executive employees’ semi-annual merit increase in the Spring of 2009 and the executive level employees’ annual merit increase in the fall of 2009. At the time the Compensation Committee reduced Dr. Jacobs’s base salary, it determined that his base salary would be readjusted to the previous amount of $1,125,010 at the beginning of fiscal 2010 and that the fiscal 2009 annual cash incentive would be calculated based on the original salary level, not the voluntarily reduced amount. The stock option award granted in November 2008 (see the “Grants of Plan-Based Awards” table) had a grant date fair value of $12.2 million. This, combined with the total cash compensation of $4.6 million, resulted in total direct compensation of $16.8 million.

 

Total Direct Compensation

 

 

After the end of fiscal 2009, the Compensation Committee awarded Dr. Jacobs a fiscal 2009 annual cash incentive of $3.6 million. This was approximately 24% more than the $2.9 million annual cash incentive he received for fiscal 2008 due to the increases in base salary and target annual cash incentive described above. In determining Dr. Jacobs’s annual cash incentive, the Compensation Committee considered the performance-adjusted incentive amount of $3.5 million and his leadership in the following accomplishments:

 

 

Discussion of compensation for Mr. Keitel, CFO.

 

Mr. Keitel’s total direct compensation for fiscal 2009 was 18% less than his fiscal 2008 amount. During the first quarter of fiscal 2009, the Compensation Committee increased Mr. Keitel’s base salary from the 2008 level. Base salary includes vacation match payments payable under our vacation policy. The stock option award granted in November 2008 (see the “Grants of Plan-Based Awards” table) had a grant date fair value of $5.0 million. This, combined with the total cash compensation of $1.6 million, resulted in total direct compensation of $6.7 million.

 

Total Direct Compensation

 

 

 

After the end of fiscal 2009, the Compensation Committee awarded Mr. Keitel a fiscal 2009 annual cash incentive of $950,000. This was approximately 17% less than the $1.2 million annual cash incentive he received for fiscal 2008, primarily due to the lower target incentive multiple. In determining Mr. Keitel’s cash incentive, the Compensation Committee considered Dr. Jacobs’s assessment of Mr. Keitel’s performance, the performance-adjusted incentive amount of $921,263 and his leadership in the following accomplishments:

 

 

Discussion of compensation for Mr. Altman, President.

 

Mr. Altman’s total direct compensation for fiscal 2009 was 14% less than his fiscal 2008 amount. During the first quarter of fiscal 2009, the Compensation Committee increased Mr. Altman’s base salary from the 2008 level to $810,014. At Mr. Altman’s request, the Compensation Committee reduced his base salary by 25% to an annual rate of $607,506, effective February 14, 2009. His voluntary reduction was in conjunction with several company-wide cost-containment initiatives that included foregoing the non-executive employees’ semi-annual merit increase in the Spring of 2009 and the executive level employees’ annual merit increase in the fall of 2009. At the time the Compensation Committee reduced Mr. Altman’s base salary, it determined that his base salary would be readjusted to the previous amount of $810,014 at the beginning of fiscal 2010 and that the fiscal 2009 annual cash incentive would be calculated based on the original salary level, not the voluntarily reduced amount. The stock option award granted in November 2008 (see the “Grants of Plan-Based Awards” table) had a grant date fair value of $7.3 million.

This, combined with the total cash compensation of $2.0 million, resulted in total direct compensation of $9.3 million.

 

Total Direct Compensation

 

 

After the end of fiscal 2009, the Compensation Committee awarded Mr. Altman a fiscal 2009 annual cash incentive of $1.3 million. This was approximately 15% less than the $1.5 million annual cash incentive he received for fiscal 2008 primarily due to the lower target incentive multiple. In determining Mr. Altman’s cash incentive, the Compensation Committee considered Dr. Jacobs’s assessment of Mr. Altman’s performance, the performance-adjusted incentive amount of $1.27 million and his leadership in the following accomplishments:

 

 

Discussion of compensation for Mr. Lauer, EVP & COO.

 

Mr. Lauer’s total direct compensation for fiscal 2009 was 20% less than his fiscal 2008 amount. During the first quarter of fiscal 2009, the Compensation Committee increased Mr. Lauer’s base salary from the 2008 level to recognize his expanded responsibilities following his promotion to COO in August 2008. The stock option award granted in November 2008 (see the “Grants of Plan-Based Awards” table) had a grant date fair value of $3.9 million. This, combined with the total cash compensation of $1.4 million, resulted in total direct compensation of $5.4 million.

 

Total Direct Compensation

 

 

After the end of fiscal 2009, the Compensation Committee awarded Mr. Lauer a fiscal 2009 annual cash incentive of $800,000. This was approximately 20% less than the $1.0 million annual cash incentive he received for fiscal 2008 due to the lower target incentive multiple. In determining Mr. Lauer’s cash incentive, the Compensation

Committee considered Dr. Jacobs’s assessment of Mr. Lauer’s performance, the performance-adjusted incentive amount of $907,507 and his leadership in the following accomplishments:

 

 

Discussion of compensation for Mr. Mollenkopf, EVP and President of QCT.

 

Mr. Mollenkopf’s total direct compensation for fiscal 2009 was 72% more than his fiscal 2008 amount. During the first quarter of fiscal 2009, the Compensation Committee increased Mr. Mollenkopf’s base salary from the 2008 level to recognize his expanded responsibilities following his promotion to President of QCT in August 2008. The stock option award granted in November 2008 (see the “Grants of Plan-Based Awards” table) had a grant date fair value of $3.9 million. This, combined with the total cash compensation of $1.6 million, resulted in total direct compensation of $5.5 million.

 

Total Direct Compensation

 

 

After the end of fiscal 2009, the Compensation Committee awarded Mr. Mollenkopf a fiscal 2009 annual cash incentive of $950,000. This was approximately 19% more than the $800,000 annual cash incentive he received for fiscal 2008, primarily due to the increases in his base salary and resulting target annual cash incentive. In addition, Mr. Mollenkopf’s fiscal 2008 annual cash incentive reflected his tenure as President of QCT for only a portion of the fiscal year. In determining Mr. Mollenkopf’s annual cash incentive, the Compensation Committee considered Dr. Jacobs’s assessment of Mr. Mollenkopf’s performance, the performance-adjusted incentive amount of $907,507 and his leadership in the following accomplishments:

 

 

 

This section provides an update to compensation decisions and actions we made after the end of fiscal 2009. The Compensation Committee reviewed a competitive compensation analysis prepared by its compensation consultant, FWC, during the fourth quarter of fiscal 2009. The Compensation Committee met on November 9, 2009 and approved base salary, target annual cash incentives and long-term incentives that are summarized in the “Fiscal 2010 Compensation Decisions” table below.

 

During the past several years, we have monitored the evolution of our peer companies’ practices from a stock options only approach to a portfolio approach when providing equity to their NEOs. In previous years, the Compensation Committee had determined that stock options were the preferred equity vehicle to align the interests of our NEOs’ with our stockholders’ interests and to appropriately encourage, engage and retain our NEOs. We believe this has been an effective strategy and has benefitted our NEOs and all of our employees along with our long-term stockholders.

 

Starting in fiscal 2010, the Compensation Committee established a strategy to implement a portfolio approach for equity compensation for executive officers. Fiscal 2010 is a transition year that includes grants of stock options and performance-based stock units. The stock options have a 10-year term and vest 12.5% at the end of each six-month period over four years. The performance-based stock units are designed to award a variable amount of Qualcomm shares based on the relative performance of our total shareholder return compared to the NASDAQ 100. If our total shareholder return matches that of the NASDAQ 100, the NEO will receive 100% of the award amount. The maximum number of shares that may be earned is 125% of the award amount if our specified formula for total shareholder return on Company stock is 150% or greater than that of the NASDAQ 100. The minimum number of shares that may be earned is 75% of the award amount if our relative total shareholder return is 50% or less than that of the NASDAQ 100. The performance period is three years, from November 2, 2009 to October 31, 2012, and the performance-based stock units cliff-vest at the end of the performance period. The Compensation Committee, after consulting with Dr. Paul Jacobs and FWC, determined that this performance-based approach was appropriate based on the following considerations:

 

 

We believe we continue to offer an attractive capital investment opportunity to our stockholders. Providing a portfolio of stock-based compensation vehicles to our NEOs and other employees enables us to focus on certain strategic compensation objectives, including:

 

 

The Compensation Committee met on December 15, 2009 and, based on discussions with the CEO, CFO and following review by the Board, approved pro forma revenues and pro forma operating income objectives for the fiscal 2010 annual cash incentive program.

 

 

We believe the relative difficulty of achieving the fiscal 2010 objectives is consistent with the difficulty of achieving the fiscal 2009 objectives given the uncertain global economic conditions, which may lower consumer demand for our products and services and negatively affect our revenues and operating results.

 

Fiscal 2010 Compensation Decisions

 

 

 

 

The following tables, narratives and footnotes describe the total compensation and benefits for our NEOs for fiscal 2009. The values presented in the tables do not always reflect the actual compensation received by our NEOs during the fiscal year. In the narratives and footnotes, we disclose values actually realized by the NEOs.

 

Base Salary.  We have a long-standing practice of establishing NEOs’ base salaries concurrent with the calendar year. Salary increases during fiscal 2009 were effective on December 27, 2008. Thus, the base salaries reported in this table reflect approximately three months of earnings at the calendar 2008 rates and approximately nine months of earnings at the calendar 2009 rates. We reported the calendar year 2009 base salaries in the CD&A and noted that both Dr. Jacobs and Mr. Altman voluntarily asked that their base salaries be reduced by 25% during a portion of fiscal 2009. Base salary for certain NEOs as presented in this table includes vacation match payments payable under our vacation policy.

 

Bonus.  The amounts in this column represent discretionary bonuses to the NEOs including amounts received under our patent award program and new hire bonuses. We disclose the annual cash incentives in the “Non-Equity Incentive Plan Compensation” column.

 

Stock Awards.  The amounts in this column represent the fair value of fully vested, unrestricted stock awarded as part of the fiscal 2007 annual cash incentive program or the estimated fair value of restricted stock units recognized by us for accounting purposes as share-based compensation expense in fiscal 2009 because service was provided during fiscal 2009. The estimated fair value amounts were determined based on the fair value of our stock on the date of grant.

Option Awards.  Option awards granted to NEOs include annual grants, promotion grants and new hire grants. The amounts in this column represent the estimated fair value of stock option awards recognized by us for accounting purposes as share-based compensation expense in fiscal 2009 because service was provided during fiscal 2009. The stock options that vested in fiscal 2009 were awarded in fiscal 2009 and in prior years under our 2001 Stock Option Plan and our 2006 LTIP. The estimated fair value amounts were determined using option-pricing models and are not indicative of whether the NEO has or will realize the estimated fair value or any financial benefit from the award. See the “Grants of Plan-Based Awards” table for details on the stock option awards granted to the NEOs during fiscal 2009.

 

Non-Equity Incentive Plan Compensation.  The amounts in this column represent cash awards under our annual cash incentive program. The relevant performance period was fiscal 2009. The Compensation Committee approved the annual cash incentives after the end of fiscal 2009; the NEOs received payment of their fiscal 2009 annual cash incentives in November 2009. See the CD&A section and the “Grants of Plan-Based Awards” table and narrative for a description of the incentive program mechanics.

 

Change in Pension Value and Nonqualified Deferred Compensation Earnings.  We do not offer a pension plan or other defined benefit retirement plan. The amounts in this column represent the combined earnings from the ERMC Plan (see the “Voluntary Retirement Savings Plans” section in the CD&A). Earnings include the change in the fair values of investments held in the ERMC Plan and the fair values of the Match Shares as established on the match date that vested under the ERMC Plan during fiscal 2009, as well as dividend earnings on the vested shares. We do not provide above-market or preferential earnings on deferred compensation, nor do we provide dividends on stock in the ERMC Plan at a rate higher than dividends on our common stock. These values do not represent actual compensation realized by the NEOs in fiscal 2009 because deferred compensation is not realized until it is paid to the NEO.

 

All Other Compensation.  See the “All Other Compensation” table for an itemized account of all other compensation.

 

Summary Compensation Table

 

 

 

 

The “All Other Compensation” table provides an itemized account of all other compensation reported in the “Summary Compensation Table.” Any individual item of compensation exceeding $10,000, except as discussed below under “Perquisites and Other Personal Benefits,” have been identified and quantified in accordance with SEC requirements.

All Other Compensation

 

Perquisites and Other Personal Benefits.  The amounts disclosed represent the full amount of perquisites if the aggregate annual value exceeded $10,000, and each perquisite and other personal benefit is identified by type. If the aggregate annual value of perquisites was less than $10,000, no disclosure was made. We have identified and quantified individual perquisite amounts that exceeded $25,000 or 10% of the aggregate amount of all perquisites for any NEO.

 

Executive Retirement Matching Contribution Plan.  The amounts disclosed represent the dollar values of common stock used to match up to 10% of the aggregate of the participant’s base salary plus annual cash incentives, less any 401(k) contributions, deferred on a pre-tax basis under the ERMC Plan. The dollar values are based on the average of the fair market value of the stock over the 10 trading days preceding the match date. (See the “Voluntary Retirement Savings Plans” section in the CD&A for a description of the ERMC Plan.)

 

Charitable Match.  The amounts disclosed represent our matching contributions for NEO contributions to qualified, eligible IRS recognized non-profit organizations.

 

Company Match on 401(k) Contributions.  The amounts disclosed represent the cash value of our matches to employee contributions to the 401(k) plan.

 

Life Insurance Premiums.  The amounts disclosed represent the premiums paid for group term life insurance greater than $50,000 and executive life insurance.

 

All Other Compensation