DEF 14A 1 d689842ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

 

Filed by the Registrant    x      Filed by a Party other than the Registrant    ¨

 

Check the appropriate box:

 

¨ Preliminary Proxy Statement

 

¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

x Definitive Proxy Statement

 

¨ Definitive Additional Materials

 

¨ Soliciting Material under Rule 14a-12

 

ADVANCED MICRO DEVICES, INC.


(Name of registrant as specified in its charter)

 


(Name of person(s) filing proxy statement, if other than the registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

x No fee required.

 

¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

 

  (1) Title of each class of securities to which transaction applies:

 

 

  (2) Aggregate number of securities to which transaction applies:

 

 

  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

  (4) Proposed maximum aggregate value of transaction:

 

 

  (5) Total fee paid:

 

 

 

¨ Fee paid previously with preliminary materials.

 

¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1) Amount Previously Paid:

 

 

  (2) Form, Schedule or Registration Statement No.:

 

 

  (3) Filing Party:

 

 

  (4) Date Filed:

 

 

 



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LOGO

 

ADVANCED MICRO DEVICES, INC.

ONE AMD PLACE

P.O. BOX 3453

SUNNYVALE, CALIFORNIA 94088-3453

 


 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 


 

YOUR VOTE IS IMPORTANT AND WE ENCOURAGE YOU TO VOTE PROMPTLY

 

You are cordially invited to attend our 2014 annual meeting of stockholders (our “Annual Meeting”) to be held on Thursday, May 8, 2014 at 9 a.m. Pacific Time at AMD, “Commons Building,” One AMD Place, Sunnyvale, CA 94088. We are holding our Annual Meeting to:

 

   

Elect the 11 director nominees named in this proxy statement;

 

   

Ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the current fiscal year;

 

   

Approve the amendment and restatement of the Advanced Micro Devices, Inc. 2004 Equity Incentive Plan (as amended and restated, the “2004 Plan”) to amend the existing plan to (i) increase the number of shares authorized for issuance under the 2004 Plan by 32.5 million shares, (ii) extend the term of the 2004 Plan until July 31, 2024, and (iii) remove the 180 million share limit for shares issued (counting each reissuance of a share that was previously issued and then forfeited or repurchased by us as a separate issuance) under the 2004 Plan upon exercise of an award;

 

   

Approve on a non-binding, advisory basis the compensation of our named executive officers, as disclosed in this proxy statement pursuant to the compensation disclosure rules of the U.S. Securities and Exchange Commission (the “SEC”); and

 

   

Transact any other business that properly comes before our Annual Meeting or any adjournment or postponement thereof.

 

We are pleased to provide access to our proxy materials over the Internet under the SEC’s “notice and access” rules. As a result, we are mailing to our stockholders (other than those who previously requested printed or emailed materials on an ongoing basis) a Notice of Internet Availability of Proxy Materials (the “Notice”) instead of printed copies of our proxy materials. The Notice contains instructions on how to access our proxy materials on the Internet, how to vote on the Internet and how you can receive printed or emailed copies of our proxy materials. We believe that providing our proxy materials over the Internet will lower our Annual Meeting’s cost and environmental impact, while increasing the ability of our stockholders to access the information that they need.

 

Stockholders of record at the close of business on March 10, 2014 and holders of proxies for those stockholders may attend and vote at our Annual Meeting. To attend our Annual Meeting in person, you must present valid photo identification, and, if you hold shares through a broker, bank, trustee or nominee (i.e., in street name), you must also present a letter from your broker or other nominee showing that you were the beneficial owner of the shares on March 10, 2014.

 

This year, we are also pleased to offer a virtual annual meeting at which our stockholders can view our Annual Meeting at www.virtualshareholdermeeting.com/AMD14. Stockholders at the close of business on March 10, 2014 may also ask questions and vote at our Annual Meeting via the Internet. We hope this will allow our stockholders who are unable to attend our Annual Meeting in person to participate in our Annual Meeting.

 

Sincerely,

LOGO

HARRY A. WOLIN

Senior Vice President, General Counsel & Secretary

 

This notice of annual meeting and proxy statement are dated March 25, 2014 and will first be distributed and made available to the stockholders of Advanced Micro Devices, Inc. on or about March 28, 2014.

 

Important notice regarding Internet availability of proxy materials: This proxy statement and our Annual Report on Form 10-K for the fiscal year ended December 28, 2013 are available at www.proxyvote.com and on the Investor Relations pages of our Web site at www.amd.com or ir.amd.com.


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TABLE OF CONTENTS

 

     Page

 

QUESTIONS AND ANSWERS

     1   

ITEM 1—ELECTION OF DIRECTORS

     8   

Consideration of Stockholder Nominees for Director

     13   

Communications with the Board or Non-Management Directors

     14   

Required Vote

     14   

Recommendation of the Board of Directors

     14   

CORPORATE GOVERNANCE

     15   

Director Independence

     15   

Compensation Committee Interlocks and Insider Participation

     15   

Board Leadership Structure

     16   

Risk Oversight

     16   

Code of Ethics

     17   

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

     18   

Board Meetings and Attendance

     18   

Board Committees

     18   

DIRECTORS’ COMPENSATION AND BENEFITS

     21   

PRINCIPAL STOCKHOLDERS

     25   

SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

     26   

EXECUTIVE OFFICERS

     28   

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     29   

EQUITY COMPENSATION PLAN INFORMATION

     30   

COMPENSATION DISCUSSION AND ANALYSIS

     31   

Executive Summary

     31   

2013 Stockholder Advisory Vote on Executive Compensation

     34   

Executive Compensation Principles

     35   

Executive Compensation Framework

     38   

2013 Executive Compensation Decisions

     40   

Other Aspects of Our Executive Compensation Program

     47   

COMPENSATION COMMITTEE REPORT

     49   

COMPENSATION POLICIES AND PRACTICES

     50   

EXECUTIVE COMPENSATION

     51   

2013 SUMMARY COMPENSATION TABLE

     51   

2013 NONQUALIFIED DEFERRED COMPENSATION

     52   

OUTSTANDING EQUITY AWARDS AT 2013 FISCAL YEAR-END

     54   

GRANTS OF PLAN-BASED AWARDS IN 2013

     57   

OPTION EXERCISES AND STOCK VESTED IN 2013

     59   

SEVERANCE AND CHANGE IN CONTROL ARRANGEMENTS

     59   


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     Page

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     64   

AUDIT AND FINANCE COMMITTEE REPORT

     66   

ITEM 2—RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     67   

Independent Registered Public Accounting Firm’s Fees

     67   

Pre-approval Policies and Procedures

     67   

Required Vote

     67   

Recommendation of the Board of Directors

     68   

ITEM 3—APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 2004 EQUITY INCENTIVE PLAN

     68   

Introduction and Background for Current Request to Increase the Share Reserve

     68   

The Importance of Equity Compensation

     69   

Key Equity Metrics

     69   

Summary of the 2004 Plan

     70   

Federal Tax Aspects

     73   

Amendment and Termination of the 2004 Plan and Prohibition on Repricing or Exchange of Awards Without Stockholder Approval

     75   

Plan Benefits

     75   

Summary

     77   

Required Vote

     77   

Recommendation of the Board of Directors

     77   

ITEM  4—APPROVAL ON A NON-BINDING, ADVISORY BASIS OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS (“SAY-ON-PAY”)

     77   

Required Vote

     78   

Recommendation of the Board of Directors

     79   

INCORPORATION BY REFERENCE

     80   

AVAILABLE INFORMATION

     80   

EXHIBIT:

        

EXHIBIT A—AMENDED AND RESTATED ADVANCED MICRO DEVICES, INC. 2004 EQUITY INCENTIVE PLAN

        

 

In this proxy statement, the words “AMD,” the “Company,” “we,” “ours,” “us” and similar terms refer to Advanced Micro Devices, Inc. and its consolidated subsidiaries, unless the context indicates otherwise.


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ADVANCED MICRO DEVICES, INC.

 


 

PROXY STATEMENT

 


 

2014 ANNUAL MEETING OF STOCKHOLDERS

 

QUESTIONS AND ANSWERS

 

1.

   Q:    WHY DID I RECEIVE A NOTICE IN THE MAIL REGARDING THE INTERNET AVAILABILITY OF PROXY MATERIALS INSTEAD OF A FULL SET OF PROXY MATERIALS?
     A:    In accordance with rules adopted by the SEC, commonly referred to as “Notice and Access,” we may furnish proxy materials by providing access to the documents on the Internet, instead of mailing printed copies. Most stockholders will not receive printed copies of the proxy materials unless they request them. Instead, the Notice was mailed on or about March 28, 2014 to stockholders of record on March 10, 2014 who have not previously requested to receive printed or emailed materials on an ongoing basis. The Notice instructs you as to how you may access our proxy materials on the Internet and how to vote on the Internet.
          In addition, you may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis by following the instructions in the Notice. Choosing to receive your future proxy materials by email will save us the cost of printing and mailing documents to you and will reduce the environmental impact of our annual meetings. If you choose to receive future proxy materials by email, you will receive an email next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by email will remain in effect until you terminate it.

2.

   Q:    WHY AM I RECEIVING THESE MATERIALS?
     A:    Our board of directors (the “Board”) is providing these materials to you in connection with the Board’s solicitation of proxies for use at our Annual Meeting, which will take place on May 8, 2014 at 9 a.m. Pacific Time at AMD, “Commons Building,” One AMD Place, Sunnyvale, CA 94088. Our stockholders as of the close of business on March 10, 2014, the record date for our Annual Meeting, are invited to attend our Annual Meeting and are requested to vote on the items described in this proxy statement. This proxy statement includes information that we are required to provide you under SEC rules and is designed to assist you in voting your shares.

3.

   Q:    WHAT IS INCLUDED IN THE PROXY MATERIALS?
     A:    The proxy materials for our Annual Meeting include the Notice, this proxy statement and our Annual Report on Form 10-K for the year ended December 28, 2013 (our “Annual Report”). If you received a printed copy of these materials, the proxy materials also include a proxy card or voting instruction form.

4.

   Q:    WHO IS SOLICITING MY VOTE?
     A:    This proxy solicitation is being made by the Board of Advanced Micro Devices, Inc. We have retained MacKenzie Partners, Inc., professional proxy solicitors, to assist us with this proxy solicitation. We will pay the entire cost of this solicitation, including MacKenzie’s fees and expenses, which we expect to be approximately $30,000.

 

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5.

   Q:    WHEN WERE MATERIALS MAILED TO STOCKHOLDERS?
     A:    The Notice was first mailed to stockholders on or about March 28, 2014. The proxy materials were first mailed to stockholders who requested a printed version on or about March 28, 2014.
     Q:   

HOW CAN I ACCESS THE PROXY MATERIALS OVER THE INTERNET?

          The Notice, proxy card and voting instruction form contain instructions on how you may access our proxy materials on the Internet and how to vote on the Internet. Our proxy materials are also available at www.proxyvote.com and the Investor Relations pages of our Web site at www.amd.com or ir.amd.com.

6.

   Q:    WHAT AM I BEING ASKED TO VOTE ON?
     A:    You may vote on:
    

•    Proposal 1: Election of 11 directors to serve on our Board.

 

•    Proposal 2: Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the current fiscal year.

 

•    Proposal 3: Approval of the amendment and restatement of the 2004 Plan to amend the existing plan to (i) increase the number of shares authorized for issuance under the 2004 Plan by 32.5 million shares, (ii) extend the term of the 2004 Plan until July 31, 2024, and (iii) remove the 180 million share limit for shares issued (counting each reissuance of a share that was previously issued and then forfeited or repurchased by us as a separate issuance) under the 2004 Plan upon exercise of an award.

 

•    Proposal 4: Approval on a non-binding, advisory basis of the compensation of our named executive officers, as disclosed in this proxy statement pursuant to the compensation disclosure rules of the SEC (Proposal 4 is referred to in this proxy statement as the “Say-On-Pay” proposal).

 

•    Such other business as may properly come before our Annual Meeting or any adjournment or postponement of our Annual Meeting.

7.

   Q:    HOW DOES THE BOARD RECOMMEND I VOTE ON THE PROPOSALS?
     A:   

The Board recommends that you vote:

    

•    FOR each of the 11 director nominees named in this proxy statement.

 

•    FOR the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the current fiscal year.

 

•    FOR the approval of the amendment and restatement of the 2004 Plan.

 

•    FOR the Say-On-Pay proposal.

8.

   Q:    WHO IS ENTITLED TO VOTE?
     A:    Stockholders as of the close of business on March 10, 2014, the record date for our Annual Meeting, are entitled to vote on all items properly presented at our Annual Meeting. On the record date, approximately 761,517,519 shares of our common stock were outstanding. Every stockholder is entitled to one vote for each share of common stock held on the record date. A list of these stockholders will be available during regular business hours at our headquarters, located at One AMD Place, Sunnyvale, California, 94088, from our Secretary at least ten days before our Annual Meeting. The list of stockholders will also be available at the time and place of our Annual Meeting.

 

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9.

   Q:    WHAT IS THE DIFFERENCE BETWEEN HOLDING SHARES AS A STOCKHOLDER OF RECORD AND AS A BENEFICIAL OWNER?
     A:    Most of our stockholders hold their shares as a beneficial owner through a broker or other nominee rather than directly in their own name. As summarized below, there are some distinctions between shares held of record and those owned beneficially.
         

Stockholder of Record. If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered, with respect to those shares, the stockholder of record, and the Notice was sent directly to you. As the stockholder of record, you have the right to grant your voting proxy directly to AMD or to vote at our Annual Meeting. If you requested to receive printed proxy materials, we have enclosed a proxy card for you to use, as described in the Notice and under Question 11 below. You may also vote on the Internet, as described in the Notice and under Question 11 below. You are also invited to attend our Annual Meeting in person or via the Internet.

 

Beneficial Owner. If your shares are held in an account at a brokerage firm, bank, broker-dealer, trust or other similar organization (i.e., in street name), like the vast majority of our stockholders, you are considered the beneficial owner of shares held in street name, and the Notice should be forwarded to you by that organization. As the beneficial owner, you have the right to direct your broker or other nominee how to vote your shares, and you are also invited to attend our Annual Meeting in person or via the Internet.

          Since a beneficial owner is not the stockholder of record, you may not vote your shares in person at our Annual Meeting unless you obtain a “legal proxy” from the broker or other nominee that holds your shares giving you the right to vote the shares at our Annual Meeting and a letter from your broker or other nominee showing that you were the beneficial owner of your shares on March 10, 2014. If you do not wish to vote in person or you will not be attending our Annual Meeting, you may submit voting instructions to your broker or other nominee. You may also vote over the Internet, as described in the Notice and under Question 12 below.

10.

   Q:    WHO CAN ATTEND THE ANNUAL MEETING? CAN I VOTE AT THE ANNUAL MEETING? CAN I ATTEND THE ANNUAL MEETING VIA THE INTERNET?
     A:    You can attend our Annual Meeting in person or you can attend and participate via the Internet.
          Attending in Person. Only stockholders as of the close of business on March 10, 2014 (the record date for our Annual Meeting), holders of valid proxies for those stockholders and other persons invited by us can attend our Annual Meeting in person. To attend our Annual Meeting in person, you must present valid photo identification, such as a driver’s license or passport, and, if you were a beneficial owner you must also present a letter from your broker or other nominee showing that you were the beneficial owner of the shares on March 10, 2014. If you were a stockholder of record on March 10, 2014, you may vote your shares in person at our Annual Meeting. If you were a beneficial owner on March 10, 2014, you must also bring a legal proxy from your broker or other nominee to vote your shares in person at our Annual Meeting.
          Attending and Participating via the Internet. Stockholders may also attend our Annual Meeting via the Internet at www.virtualshareholdermeeting.com/AMD14. Stockholders of record and beneficial owners as of the close of business on March 10, 2014 may also submit questions and vote while attending the meeting via the Internet. Instructions on how to attend and participate at our Annual Meeting via the Internet are posted at www.virtualshareholdermeeting.com/AMD14. To demonstrate proof of stock ownership, you will need to enter the 12-digit control number received with your Notice or proxy materials to submit questions and vote at our Annual Meeting via the Internet. On the day of our Annual Meeting, Broadridge Financial Solutions will be available to answer your questions regarding how to attend and participate at our Annual meeting via the Internet. Broadridge can be contacted by calling 1-855-449-0991 on the day of our Annual Meeting. Broadridge is hosting our virtual annual meeting and has also been retained to distribute, receive, count and tabulate proxies.

 

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11.

   Q:    IF I AM A STOCKHOLDER OF RECORD, HOW DO I VOTE?
     A:    If you are a stockholder of record you may vote by proxy. You can vote by proxy over the Internet by following the instructions provided in the Notice, or, if you requested to receive printed proxy materials, you can vote by mail, telephone (from the United States and Canada) or the Internet pursuant to instructions provided on the proxy card provided to you with your printed proxy materials.
          You may also vote in person at our Annual Meeting. A ballot will be given to you upon request when you arrive at our Annual Meeting. You may also vote while attending our Annual Meeting via the Internet, as described in Question 10 above. Even if you plan to attend our Annual Meeting, we recommend that you also submit your proxy as described above so that your vote will be counted if you later decide not to attend our Annual Meeting.

12.

   Q:    IF I AM A BENEFICIAL OWNER, HOW DO I VOTE?
     A:    If you are a beneficial owner, you may submit your voting instructions over the Internet by following the instructions provided in the Notice, or, if you requested to receive printed proxy materials, you can submit your voting instructions by following the instructions in the voting instruction form provided to you by your broker or other nominee. We urge you to instruct your broker or other nominee how to vote on your behalf. As described more fully under Question 14, your broker or other nominee cannot vote on certain items without your instructions.
          Alternatively, you can vote in person at our Annual Meeting, but you must bring to our Annual Meeting a legal proxy from your broker or other nominee as the record holder and a letter from your broker or other nominee showing that you were the beneficial owner of your shares on March 10, 2014. You may also vote while attending our Annual Meeting via the Internet, as described in Question 10 above. Even if you plan to attend our Annual Meeting, we recommend that you also submit your voting instructions as described above so that your vote will be counted if you later decide not to attend our Annual Meeting.

13.

   Q:    WHAT IF I AM A STOCKHOLDER OF RECORD AND DO NOT SPECIFY A CHOICE FOR A MATTER WHEN RETURNING A PROXY CARD OR VOTING BY TELEPHONE OR THE INTERNET?
     A:    If you are a stockholder of record and you return a properly executed proxy card or vote by proxy over the Internet but do not mark the boxes showing how you wish to vote, your shares will be voted in accordance with the recommendations of the Board, as specified in Question 7 above. With respect to any other matter that properly comes before our Annual Meeting, the proxy holders will vote as recommended by the Board or, if no recommendation is given, at their own discretion.

14.

   Q:    WHAT IF I AM A BENEFICIAL OWNER AND DO NOT GIVE VOTING INSTRUCTIONS TO MY BROKER OR OTHER NOMINEE? WHAT IS A BROKER NON-VOTE?
     A:    As a beneficial owner, in order to ensure your shares are voted, you must provide voting instructions to your broker or other nominee by the deadline provided in the materials you receive from your broker or other nominee. If you do not provide voting instructions to your broker or other nominee, whether your shares can be voted by such person depends on the type of item being considered for vote.
          Non-Discretionary Items. The election of directors, the amendment and restatement of the 2004 Plan and the Say-on-Pay proposal are non-discretionary items and may not be voted on by brokers or other nominees who have not received specific voting instructions from beneficial owners. A broker non-vote occurs when your broker or other nominee has not received instructions from you as to how to vote your shares on a proposal and does not have discretionary authority to vote on the proposal.

 

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          Discretionary Items. The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the current fiscal year is a discretionary item. Generally, brokers and other nominees that do not receive voting instructions from beneficial owners may vote on this proposal in their discretion.

15.

   Q:    CAN I CHANGE MY VOTE AFTER I HAVE VOTED?
     A:    Yes. You may change your vote at any time before the voting concludes at our Annual Meeting. You may vote by proxy again on the Internet or by telephone (only your latest Internet or telephone proxy submitted prior to our Annual Meeting will be counted), by signing and returning a new proxy card with a later date or by attending our Annual Meeting and voting in person or via the Internet. However, your attendance at our Annual Meeting in person or via the Internet will not automatically revoke your proxy unless you vote again at our Annual Meeting or specifically request in writing that your prior proxy be revoked.

16.

   Q:    WHAT IS A “QUORUM”?
     A:    For the purposes of our Annual Meeting, a “quorum” is the presence, in person or by proxy, by the holders of a majority of the voting power of the outstanding shares entitled to vote at our Annual Meeting. There must be a quorum for our Annual Meeting to be held. Both abstentions and broker non-votes are counted for the purpose of determining the presence of a quorum.

17.

   Q:    WHAT IS THE REQUIRED VOTE FOR EACH PROPOSAL?
     A:    Election of Directors. Each of the 11 director nominees will be elected if each of them receives the affirmative vote of a majority of the votes cast. A majority of the votes cast means that the number of votes cast “for” a director must exceed the number of votes cast “against” that director. Abstentions and broker non-votes will have no effect on the outcome of this proposal. Each director nominee has submitted a written resignation that will be effective if he/she does not receive a majority of the votes cast for such director and the resignation is accepted by the Nominating and Corporate Governance Committee, another authorized committee of the Board or the Board.
          Ratification of the Appointment of our Independent Registered Public Accounting Firm. Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm requires the affirmative vote of a majority of the shares of our common stock entitled to vote and present in person or represented by proxy at the Annual Meeting. Abstentions have the same effect as a vote against this proposal. Because brokers and other nominees have discretionary authority to vote on the ratification, we do not expect any broker non-votes in connection with this item.
          Amendment and Restatement of the 2004 Plan. The proposal to amend and restate the 2004 Plan requires the affirmative vote of a majority of the shares of our common stock entitled to vote and present in person or represented by proxy at the Annual Meeting. Abstentions have the same effect as a vote against this proposal. Broker non-votes will have no effect on the outcome of this proposal.
          Say-On-Pay Proposal. Approval, on an advisory basis, of the compensation of our named executive officers as disclosed in this proxy statement pursuant to the compensation disclosure rules of the SEC, requires the affirmative vote of a majority of the shares of our common stock entitled to vote and present in person or represented by proxy at the Annual Meeting. Because your vote is advisory, it will not be binding on the Board, the Compensation Committee or us. However, the Board and the Compensation Committee will review the voting results and take them into consideration when making future decisions about our executive compensation program. Abstentions have the same effect as a vote against this proposal. Broker non-votes will have no effect on the outcome of this proposal.

 

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18.

   Q:    WHERE CAN I FIND THE VOTING RESULTS OF THE ANNUAL MEETING?
     A:    We will announce preliminary voting results at our Annual Meeting and publish voting results in a Current Report on Form 8-K, which will be filed with the SEC within four business days after our Annual Meeting. If the official results are not available at that time, we will provide preliminary voting results in the Form 8-K and will provide the final results in an amendment to the Form 8-K as soon as they become available.

19.

   Q:    IS MY VOTE CONFIDENTIAL?
     A:    Proxy cards, ballots and voting tabulations that identify individual stockholders are mailed or returned directly to Broadridge and handled in a manner that protects your voting privacy. Your vote will not be disclosed except as needed to permit Broadridge to tabulate and certify the vote and as required by law. However, comments written on the proxy card may be forwarded to management. In that case, your identity may not be kept confidential.

20.

   Q:    HOW WILL VOTING ON ANY BUSINESS NOT DESCRIBED IN THIS PROXY STATEMENT BE CONDUCTED?
     A:    We do not know of any business to be considered at our Annual Meeting other than the items described in this proxy statement. If any other business is presented at our Annual Meeting, your proxy gives authority to each of Rory P. Read, our President and Chief Executive Officer, and Harry A. Wolin, our Senior Vice President, General Counsel and Secretary, to vote on such matters at his discretion.

21.

   Q:    WHEN ARE THE STOCKHOLDER PROPOSALS FOR THE 2015 ANNUAL MEETING DUE?
     A:    For stockholder proposals to be considered for inclusion in the proxy statement for our 2015 annual meeting of stockholders, they must be submitted in writing to Advanced Micro Devices, Inc., One AMD Place, Sunnyvale, California 94088, Attention: Secretary and received by us on or before November 28, 2014. In addition, for directors to be nominated or other stockholder proposals to be properly presented at our 2015 annual meeting of stockholders (but not included in our proxy materials), a separate notice of any nomination or proposal must be received by us between January 8, 2015 and February 7, 2015. If our 2015 annual meeting of stockholders is not held within 30 days of May 8, 2015, to be timely, the stockholder’s notice must be received by us no later than the close of business on the tenth day following the earlier of the day on which the first public announcement of the date of 2015 annual meeting of stockholders was made or the notice of our 2015 annual meeting of stockholders is mailed. The public announcement of an adjournment or postponement of our 2015 annual meeting of stockholders will not trigger a new time period (or extend any time period) for the giving of a stockholder’s notice as described in this proxy statement. More information about the notice period and information required to be included in a stockholder’s notice of a nomination is included under “Consideration of Stockholder Nominees for Director,” below.

 

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22.

   Q:    WHAT IS HOUSEHOLDING AND HOW DO I OBTAIN A SEPARATE SET OF PROXY MATERIALS IF I SHARE AN ADDRESS WITH OTHER STOCKHOLDERS?
    

A.

   We have adopted a procedure called “householding,” which has been approved by the SEC. Under this procedure, we will deliver only one copy of the Notice and, if applicable, our printed proxy materials to stockholders of record who share the same address (if they appear to be members of the same family) unless we have received contrary instructions from an affected stockholder. A separate proxy card for each stockholder of record will be included in the printed materials. This procedure reduces our printing costs, mailing costs and fees. Upon written or oral request, we will promptly deliver a separate copy of the Notice or, if applicable, the printed proxy materials to any stockholder at a shared address to which a single copy of any of those documents was delivered. To receive a separate copy of the Notice or Annual Report or, if applicable, the printed proxy materials, contact us at (408) 749-4000 or at Advanced Micro Devices, Inc., One AMD Place, Sunnyvale, California 94088, Attention: Secretary, or by email to Corporate.Secretary@amd.com. If you would like to revoke your householding consent or you are a stockholder eligible for householding and would like to participate in householding, please contact Broadridge at 1-800-542-1061.
          A number of brokerage firms have instituted householding. If you are a beneficial owner, please contact your broker or other nominee to request information about householding.

 

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ITEM 1—ELECTION OF DIRECTORS

 

Eleven directors will be elected at our Annual Meeting. All directors are elected annually and serve a one-year term until our next annual meeting.

 

The Nominating and Corporate Governance Committee of the Board selected, and the Board approved, the following 11 persons as nominees for election to the Board: Mr. Bruce L. Claflin, Dr. W. Michael Barnes, Mr. John E. Caldwell, Mr. Henry WK Chow, Ms. Nora M. Denzel, Mr. Nicholas M. Donofrio, Mr. Martin L. Edelman, Mr. John R. Harding, Mr. Michael J. Inglis, Mr. Rory P. Read and Mr. Ahmed Yahia. All of the nominees are currently directors of AMD. The Board waived the retirement age requirement set forth in our Principles of Corporate Governance with respect to Mr. Edelman upon his designation as a nominee for election to the Board.

 

Mr. Edelman was first appointed to the Board on February 22, 2013, pursuant to our agreement with Advanced Technology Investment Corporation (“ATIC”) and West Coast Hitech L.P. (“WCH”), which provides that until such time as WCH and its permitted transferees beneficially own, in the aggregate, less than 10% of the outstanding shares of our common stock, WCH has the right to designate a representative to our Board. Mr. Edelman replaced Mr. Waleed Muhairi as WCH’s representative to the Board. Ms. Denzel and Mr. Inglis were first appointed to the Board on March 19, 2014 and were recommended as potential candidates for the Board by a third-party search firm. Ms. H. Paulett Eberhart will not be standing for re-election at the Annual Meeting in order to focus on other matters. Proxies cannot be voted for a greater number of persons than the number of nominees named in this proxy statement. Immediately following our Annual Meeting, the Board intends to reduce the size of the Board from 12 to 11 directors pursuant to our Amended and Restated Bylaws.

 

The Board expects all nominees named below to be available for election. If a nominee declines or is unable to act as a director, your proxy may vote for any substitute nominee proposed by the Board. Your proxy will vote FOR the election of these nominees, unless you instruct otherwise. Directors are strongly encouraged to attend annual meetings of our stockholders, and we expect all of our current Board member nominees to be present at our Annual Meeting. All of the Board member nominees were present at our 2013 annual meeting of stockholders except Ms. Denzel and Messrs. Edelman, Harding and Inglis.

 

Certain information regarding each of the nominees is set forth below, including his or her experience, qualifications, attributes and skills that led the Nominating and Corporate Governance Committee and the Board to conclude that the individual should serve as a director on the Board, as well as his or her principal occupation and directorships during the past five years. Our goal is to assemble a Board that operates cohesively and works with management in a constructive way to deliver long-term value to our stockholders. We believe that the nominees set forth below, all of whom are currently directors of AMD, possess valuable experience necessary to guide us in the best interests of our stockholders. Our current Board consists of individuals with proven records of success in their chosen professions. They possess the highest integrity and a keen intellect. They are collegial, yet independent in their thinking, and are committed to the hard work necessary to be informed about the semiconductor industry, us and our key constituents, including our customers, stockholders and management. Most of our directors have broad technology sector experience, including expertise in semiconductor technology, innovation and strategy. Several members of the Board are current or former chief executive officers, thereby providing the Board with practical understanding of how large organizations operate, including the importance of employee development and retention. They also understand strategy and risk management and how these factors impact our operations.

 

Bruce L. Claflin—Mr. Claflin, 62, has been a director since 2003. On March 2, 2009, he was appointed as the Chairman of the Board. In January 2011, upon the resignation of our former Chief Executive Officer, Mr. Claflin was appointed as non-employee Executive Chairman of the Board, and he held that position until our new Chief Executive Officer was appointed in August 2011, when he resumed acting as our Chairman of the Board. Mr. Claflin was President, Chief Executive Officer and a member of the board of directors of 3Com Corporation, a provider of voice and data networking products and services, from January 2001 until he retired in

 

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2006. He joined 3Com as President and Chief Operating Officer in August 1998. Prior to 3Com, Mr. Claflin served as Executive Vice President, Sales, and prior to that as General Manager of the PC Business Unit for Digital Equipment Corporation. Mr. Claflin also worked for 22 years at International Business Machines Corporation (“IBM”), where he held various sales, marketing and senior management positions, including General Manager of IBM PC Company’s worldwide research and development, product and brand management and President of IBM PC Company, Americas. He was also responsible for the introduction of IBM’s highly successful ThinkPad line of products. In addition to his general management experience, Mr. Claflin has held senior positions where he has been responsible for almost every operation of a global, high technology company, including sales, marketing, research and development and manufacturing. Also, while employed by IBM, Mr. Claflin lived and worked in Hong Kong and Tokyo and was responsible for IBM’s Asia/South Pacific Area, and while employed by 3Com, Mr. Claflin established a joint venture in China in partnership with a leading Chinese global telecom solutions provider. Mr. Claflin was named a distinguished alumnus by Pennsylvania State University. He is also founder, director and President of Kids First! a Virgin Islands non-profit corporation that supports the education of children in St. John, U.S. Virgin Islands. He has been a member of the board of directors of Ciena Corporation since 2006. Mr. Claflin holds a bachelor of arts degree in political science from Pennsylvania State University.

 

Mr. Claflin brings to the Board extensive experience in the IT industry, having held a wide range of senior operating and executive positions at large IT providers. Mr. Claflin has run large PC operations and has extensive global experience particularly in China, which is our largest single market. As a former chief executive, he is familiar with the challenges faced by our senior management, and as a director of a major telecommunications company, he has insights into a segment of the IT industry that strongly influences how technology is use in today’s connected world.

 

Dr. W. Michael Barnes—Dr. Barnes, 71, has been a director since 2003. Between 1968 and 2001, Dr. Barnes held several senior executive positions at Rockwell International Corporation (now Rockwell Automation, Inc.), a major manufacturing corporation that has aircraft, defense electronics, commercial electronics, automotive components, printing presses and industrial automation divisions, including Senior Vice President, Finance and Planning and Chief Financial Officer from 1991 through 2001. Dr. Barnes was also a key member of the management team of Rockwell’s Semiconductor Products division and Vice President and General Manager of the Rockwell Communications Systems division. He was named a distinguished alumnus by Texas A&M University College of Engineering in 1992. Dr. Barnes has been a member of the board of directors of T-Mobile US, Inc. since its April 2013 merger with MetroPCS Communications, Inc. Dr. Barnes served as a member of the board of directors of MetroPCS Communications from 2004 to April 2013. Dr. Barnes holds a PhD in operations research from Texas A&M University. He also holds bachelor’s and master’s degrees in industrial engineering from Texas A&M University.

 

As a result of his numerous senior leadership positions at Rockwell, Dr. Barnes brings to the Board extensive financial management experience and a strong understanding of semiconductor technologies. Dr. Barnes also brings to the Board his experience as a board member of T-Mobile US.

 

John E. Caldwell—Mr. Caldwell, 64, has been a director since October 2006. He was President and Chief Executive Officer of SMTC Corporation, an electronics manufacturing services company, from 2003 until he retired in March 2011. Before joining SMTC, Mr. Caldwell held positions at The Mosaic Group, a marketing services provider, as Chair of the Restructuring Committee of the Board, from October 2002 to September 2003; at GEAC Computer Corporation Limited, a computer software company, as President and Chief Executive Officer from October 2000 to December 2001; and at CAE Inc., a provider of simulation and modeling technologies and integrated training solutions for the civil aviation and defense industries, as President and Chief Executive Officer from June 1993 to October 1999. In addition, Mr. Caldwell served in a variety of senior executive positions in finance, including Senior Vice President of Finance and Corporate Affairs of CAE and Executive Vice President of Finance and Administration of Carling O’Keefe Breweries of Canada. Over the course of his career, Mr. Caldwell has served on the audit committees of ten public companies. Also, for the past

 

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several years, Mr. Caldwell has been a lecturer on board oversight responsibility for enterprise risk as part of an accredited board of director education program through McMaster University in Canada. Mr. Caldwell has been a director of Faro Technologies, Inc., a producer of three dimensional manufacturing measurement systems, since 2002, and of IAMGOLD Corporation, a mid-tier gold producer, since 2006. Mr. Caldwell also served on the board of directors of SMTC from 2003 to 2011, Rothmans Inc. from 2004 to 2008 and Cognos Inc. from 2000 to 2008. Mr. Caldwell holds a bachelor of commerce degree from Carleton University, Ontario, and is a chartered professional accountant with the Ontario Institute of Chartered Accountants.

 

Mr. Caldwell brings to the Board extensive and diversified general management, financial management and risk assessment experience as a result of his experience at SMTC, his other executive management experience and his service as a director on the boards of directors of other public companies.

 

Henry WK Chow—Mr. Chow, 68, has been a director since February 2011. From July 2009 through August 2011, Mr. Chow acted as a corporate business advisor to IBM. Prior to this role, during his 41-year career at IBM, Mr. Chow held a variety of management positions in the services, systems engineering, sales and marketing and human resources divisions across IBM’s Asia Pacific operations, including as General Manager of IBM’s Greater China Group from 1995 until 2007, where he was responsible for IBM’s operations in China, Hong Kong and Taiwan and as Chairman of IBM’s Greater China Group, from January 2007 until his retirement from this position in June 2009. Prior to serving in these positions, Mr. Chow served in a variety of general management positions, including General Manager of IBM China Company Limited and General Manager of IBM PC Company, Asia Pacific South, where he was responsible for IBM’s PC business throughout the Asia Pacific region, excluding Japan. Mr. Chow also held various positions at IBM Australia, IBM Taiwan and IBM Hong Kong. From 2005 until 2009, Mr. Chow served as an observer for IBM at the meetings of the board of directors of Lenovo Group Limited, which acquired IBM’s PC business in 2005. Mr. Chow has been a member of the board of directors of Trina Solar Limited, a solar energy company based in Changzhou, China, since July 2012. In addition, since September 2011, Mr. Chow has been a Vice Chairman of the Advisory Board for Guangtong International Clinical Research Center, a government-owned research center, and since October 2011, he has been a member of the European Advisory Committee for Bridgepoint, an international private equity firm. Mr. Chow completed a one-year fellowship in Advanced Leadership Initiative at Harvard University and holds a bachelor of science degree in electrical engineering from the University of Hong Kong.

 

Mr. Chow brings to the Board his extensive experience and insight in operating a technology business in the Asia Pacific region, a strategic market for us, as well as his significant expertise in general management and operations.

 

Nora M. Denzel—Ms. Denzel, 51, has been a director since March 19, 2014. From February 2008 through August 2012, Ms. Denzel held various executive management positions at Intuit Inc., a provider of cloud financial management software, including Senior Vice President of Big Data, Social Design and Marketing and Senior Vice President and General Manager of the QuickBooks Employee Management business unit. From 2000 to 2006, Ms. Denzel held several executive level positions at Hewlett-Packard Company, a technology software, services and hardware provider, including Senior Vice President and General Manager Software Global Business Unit from May 2002 to February 2006 and Vice President of Storage Organization from August 2000 to May 2002. Prior to Hewlett-Packard, Ms. Denzel also held executive positions at Legato Systems Inc., a data storage management software company purchased by EMC, and IBM. Ms. Denzel is currently a member of the board of directors of Saba Software, Inc., a provider of learning and talent management cloud services, Ericsson, a telecommunications software, hardware and services provider, and Outerwall Inc., an automated retail solutions provider. She holds a master of business administration degree from Santa Clara University and a bachelor of science degree in computer science from the State University of New York.

 

Ms. Denzel brings to the Board more than 25 years of technology and leadership experience as a result of her experience at Intuit, Hewlett-Packard and IBM and her experience on the boards of directors of other public companies.

 

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Nicholas M. Donofrio—Mr. Donofrio, 68, has been a director since November 2009. During his 44-year career at IBM, Mr. Donofrio held a variety of technical management positions, and later, executive positions in IBM’s server, advanced workstations, personal computing, manufacturing and semiconductor development divisions, including as Senior Vice President, Technology and Manufacturing from 1997 to 2005 and as Executive Vice President, Innovation and Technology from 2005 until his retirement in September 2008. Mr. Donofrio holds seven technology patents and is a member of numerous technical and science honor societies. He is a Fellow of the Institute for Electrical and Electronics Engineers, a Fellow of the UK-based Royal Academy of Engineering and a Fellow of the American Academy of Arts and Sciences. He also serves as chairman of the New York Youth Hall of Science, Syracuse University and The MITRE Corporation, a not-for-profit organization that provides systems engineering research and development and information technology support to the U.S. government, the Advisory Boards of the Secretary of Energy, Pennsylvania State University’s School of International Affairs and the Workforce Opportunity Services Academic Advisory Board. Mr. Donofrio is also a member of the U.S.-based National Academy of Engineering. Mr. Donofrio is the recipient of numerous awards. For example, in 2006, he was named among Business Week magazine’s 25 Top Innovation Champions, and in 2008, he was awarded the Excellence in Leadership Award by the U.S. Chamber of Commerce and the Renaissance Engineer Award by the Society of Hispanic Professional Engineers for his commitment and promotion of Science, Technology, Engineering and Mathematics for the U.S. Hispanic Community. In 2003, he was named Technology Leader of the Year by IndustryWeek magazine and the Technical Executive of the Year by the University of Arizona, and he received the Rodney D. Chipp Memorial Award by the Society of Women Engineers for his contributions to the advancement of women in the engineering field. In addition to being on the board of several private companies, including Liberty Mutual Holding Company Inc. and Sproxil, Inc., Mr. Donofrio has been a director of The Bank of New York Mellon Corporation since 1998 and a director of Delphi Automotive PLC since 2009. Mr. Donofrio has a bachelor of science degree in electrical engineering from Rensselaer Polytechnic Institute and a master of science in the same discipline from Syracuse University.

 

Mr. Donofrio brings to the Board significant expertise in the areas of semiconductor technology and manufacturing, system design and integration and is able to provide us with valuable insight and guidance regarding technological and innovation strategies as well as the development and retention of our technical employee population.

 

Martin L. Edelman—Mr. Edelman, 72, has been a director since February 2013. Since 2000, Mr. Edelman has served as Of Counsel to Paul, Hastings, Janofsky & Walker LLP, a New York law firm. Mr. Edelman was a partner with Battle Fowler LLP, which merged with Paul, Hastings, Janofsky & Walker, LLP, from 1972 to 1993 and was Of Counsel to Battle Fowler LLP from 1994 to 2000. In addition to several private corporations, Mr. Edelman has served as a member of the board of directors of Ashford Hospitality Trust Inc., a hospitality property focused REIT, since 2003 and Blackstone Mortgage Trust, Inc. (formerly Capital Trust, Inc.), a real estate finance company, since 1997. He also served on the board of directors of Avis Budget Group, Inc., a rental car company, from 1997 until March 2013. In addition, Mr. Edelman is a senior advisor to Mubadala Development Company PJSC, a strategic investment and development company headquartered in the Emirate of Abu Dhabi (“Mubadala”), and he serves as a member of the board of directors of Aldar Property Group, a real estate development, management and investment company, that is publicly traded in Abu Dhabi. Mr. Edelman also serves on the boards of several charitable entities, including the Intrepid Museum Foundation, the Intrepid Fallen Heroes Fund, the Fisher House Foundation, the Tribeca Film Institute, the Jackie Robinson Foundation and the Fisher Center for Alzheimer’s Research Foundation. Mr. Edelman holds a bachelor of law degree from Columbia Law School and a bachelor of arts degree from Princeton University.

 

Mr. Edelman brings to the Board an extensive legal background as a result of over 40 years of experience in the legal profession and brings to the Board his considerable experience in structuring and negotiating complex transactions.

 

John R. Harding—Mr. Harding, 59, has been a director since August 2012. Mr. Harding co-founded and is President and Chief Executive Officer of eSilicon Corporation (“eSilicon”), a privately held company that

 

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designs and manufactures complex, custom chips for a broad and growing portfolio of large and small firms. Before starting eSilicon in 2000, Mr. Harding served as President, Chief Executive Officer and director of Cadence Design Systems, Inc., a leading global electronic design automation company, which acquired his former employer, Cooper & Chyan Technology, Inc. Mr. Harding has held a variety of senior management positions at Zycad Corporation, and his career also includes positions with TXL and IBM. Mr. Harding has also held leadership roles at Drew University and Indiana University, where he was Vice Chairman of the Board of Trustees and a member of the School of Public and Environmental Affairs Advisory Board, respectively. In addition, Mr. Harding has served as a member of the Steering Committee at the U.S. Council on Competitiveness and was a former National Academies’ Committee member for Software, Growth and Future of the U.S. Economy. In 2012, Mr. Harding was re-elected as the value chain producer director to the board of directors of the Global Semiconductor Alliance. He has been a director of the Global Semiconductor Alliance since 2007. Mr. Harding has been a director of RF Micro Devices, Inc., a global leader in the design and manufacture of high-performance radio frequency components and compound semiconductor technologies, since 2006. He has also served on the advisory board of Atrenta, Inc. since 2007. Mr. Harding holds a bachelor of arts degree in chemistry and economics from Drew University.

 

Mr. Harding’s experience as President and Chief Executive Officer of eSilicon provides the Board with a deep understanding of the challenges and issues facing semiconductor companies. In addition, Mr. Harding brings to the Board substantial general management and operational experience and expertise in corporate strategy development gained from serving as President and Chief Executive Officer of two technology companies and from his experience as an entrepreneur.

 

Michael J. Inglis—Mr. Inglis, 54, has been a director since March 19, 2014. Between 2002 and 2013, Mr. Inglis held several senior executive positions at ARM Holdings plc, a semiconductor intellectual property supplier, including as Executive Vice President, Sales and Marketing, as Executive Vice President, General Manager, Processor Division, and as Chief Commercial Officer. Before joining ARM, Mr. Inglis was a Principal at A.T. Kearney, a global management consulting firm, from 1999 to 2001. Mr. Inglis served as General Manager, Smartcard Division and European Hi-End Microprocessor Operations Manager amongst various roles at Motorola Semiconductor 1991 to 1998. In addition, Mr. Inglis has held a number of operational and marketing positions at Texas Instruments, a global semiconductor company, BIS Macintosh, an electronics market research firm, and Fairchild Camera and Instrument, a semiconductor company. Mr. Inglis served on the board of directors of ARM from 2002 until his retirement in March 2013. Mr. Inglis was also a director at Pace plc from 2008 until April 2013 and was re-appointed as a director to the Pace board of directors in March 2014. Mr. Inglis has a master of business administration degree from Cranfield School of Management and a bachelor of science degree in electronic and electrical engineering from Birmingham University. In addition, Mr. Inglis is a Chartered Engineer and a Member of the Chartered Institute of Marketing.

 

Mr. Inglis brings senior leadership, management, and sales and marketing expertise, as well as his experience gained from serving as a director on the boards of other public companies. He also has a broad understanding of the semiconductor industry.

 

Rory P. Read—Mr. Read, 52, has been a director since August 2011. Mr. Read is our President and Chief Executive Officer. Mr. Read joined us as President and Chief Executive Officer on August 25, 2011. Before joining us, Mr. Read served as President and Chief Operating Officer of Lenovo Group, Ltd., a manufacturer and provider of computers and information technology management software, from February 2009 to August 2011, where he was responsible for leading day-to-day global operations while overseeing the development and implementation of Lenovo’s growth strategy. Prior to serving as Lenovo’s President and Chief Operating Officer, Mr. Read served as Lenovo’s Senior Vice President, Operations, from July 2006 to February 2009. During his five years at Lenovo, Mr. Read helped take the company into dynamic new markets, including Lenovo’s entry into the tablet and smartphone markets, while growing market share and expanding profitability. Prior to Lenovo, Mr. Read had a 23-year career at IBM, where he held various management positions, including Managing Partner for IBM’s Business Consulting Services division where he led the division through a successful turnaround, and

 

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Executive Vice President of Global Business Transformation, IBM Global Services, where he was responsible for worldwide leadership of IT initiatives and business transformation. Mr. Read holds a bachelor’s degree in information systems from Hartwick College.

 

As our President and CEO, Mr. Read brings to the Board his valuable insight into our operations, management and culture, providing an essential link between the management and the Board on management’s perspectives.

 

Ahmed Yahia—Mr. Yahia, 41, has been a director since November 2012. Mr. Yahia is CEO of the Technology & Industry global platform of Mubadala, where he oversees Mubadala’s technology, metals, mining and utilities portfolio. He is also a member of Mubadala’s Investment Committee, which is mandated to develop Mubadala’s investment policies, establish investment guidelines and review all proposed projects and investments to ensure they are in line with Mubadala’s business objectives. He also leads a number of corporate efforts across the Mubadala portfolio, including Enterprise Risk Management, Asset Management/Value Creation and Learning & Development. From March 2001 to February 2010, Mr. Yahia was a partner of McKinsey & Company where the central theme of his work was corporate performance transformations, business building and industrial sector development. Mr. Yahia was also the Managing Partner of McKinsey’s Abu Dhabi practice. Mr. Yahia serves as a director on several private and public company boards in the United Arab Emirates and abroad, including GLOBALFOUNDRIES Inc., Emirates Aluminum Company, Guinea Alumina Corporation, National Central Cooling Company (Tabreed), Mubadala Petroleum and Abu Dhabi Future Energy Company (Masdar). Mr. Yahia holds a master of science degree in mechanical engineering/product strategy from the Massachusetts Institute of Technology and a bachelor of science degree in industrial engineering from the Ecole Centrale Paris.

 

Mr. Yahia’s experience as the CEO of the Technology and Industry platform of Mubadala and as a former partner of McKinsey & Company provides the Board with expertise in corporate strategy development, corporate performance transformations and operations.

 

Consideration of Stockholder Nominees for Director

 

The policy of the Nominating and Corporate Governance Committee is to consider properly submitted stockholder nominations for candidates to serve on the Board. Pursuant to our bylaws, stockholders who wish to nominate persons for election to the Board at our 2015 annual meeting of stockholders must be a stockholder of record, both when they give us notice and at our 2015 annual meeting, must be entitled to vote at our 2015 annual meeting and must comply with the notice provisions in our bylaws. A stockholder’s notice must be delivered to our Secretary not less than 90 nor more than 120 days before the anniversary date of the immediately preceding annual meeting. For our 2015 annual meeting of stockholders, the notice must be delivered between January 8, 2015 and February 7, 2015. However, if our 2015 annual meeting of stockholders is not within 30 days of May 8, 2015, the stockholder’s notice must be delivered no later than the close of business on the tenth day following the earlier of the day on which the first public announcement of the date of our 2015 annual meeting was made or the day the notice of our 2015 annual meeting is mailed. The public announcement of an adjournment or postponement of our 2015 annual meeting of stockholders will not trigger a new time period (or extend any time period) for the giving of a stockholder notice as described in this proxy statement. Notwithstanding the foregoing, if the number of directors to be elected to the Board at an annual meeting is increased and we do not make a public announcement naming all of the nominees for director or specifying the size of the increased Board at least 100 days prior to the first anniversary of the preceding year’s annual meeting, the stockholder’s notice will be considered timely, but only with respect to nominees for any new positions created by the increase, if it is delivered to our Secretary not later than the close of business on the tenth day following the day on which we first make such public announcement. The stockholder’s notice must be updated and supplemented as set forth in our bylaws. The stockholder’s notice must include the following information for the person making the nomination:

 

   

name, age, nationality, business and residence addresses;

 

   

principal occupation and employment;

 

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the class and number of shares owned beneficially or of record;

 

   

any derivative, swap or other transaction which gives economic risk similar to ownership of shares;

 

   

any proxy, agreement, arrangement, understanding or relationship that confers a right to vote any shares;

 

   

any agreement, arrangement, understanding or relationship engaged in to increase or decrease the level of risk related to, or the voting power with respect to, our shares, or that provides the opportunity to profit from a decrease in price or value of shares;

 

   

any performance-related fees that the nominating person is entitled to based on any increase or decrease in the value of any shares; and

 

   

any other information required by the SEC to be disclosed in a proxy statement.

 

The stockholder’s notice must also include the following information for each proposed director nominee:

 

   

financial or other material relationships between the nominating person and the nominee during the past three years;

 

   

the same information as for the nominating person (see above); and

 

   

all information required to be disclosed in a proxy statement in connection with election of directors.

 

The Chair of our Annual Meeting will determine if the procedures in the bylaws have been followed, and if not, declare that the nomination be disregarded. If the nomination was made in accordance with the procedures in our bylaws, the Nominating and Corporate Governance Committee will apply the same criteria in evaluating the nominee as it would any other Board nominee candidate and will recommend to the Board whether or not the stockholder nominee should be nominated by the Board and included in our proxy statement. These criteria are described below in the description of the Nominating and Corporate Governance Committee beginning on page 19 of this proxy statement. The nominee must be willing to provide a written questionnaire, representation and agreement, if requested by us, and any other information reasonably requested by us in connection with our evaluation of the nominee’s independence.

 

Communications with the Board or Non-Management Directors

 

Interested parties who wish to communicate with our Board or with non-management directors may send their communications in writing to One AMD Place, Sunnyvale, California 94088, Attention: Secretary or send an email to Corporate.Secretary@amd.com. Our Secretary will forward all of these communications to our Chairman of the Board.

 

Required Vote

 

At our Annual Meeting, our directors will be elected using a majority vote standard with respect to uncontested elections. This standard requires that each director receive the affirmative vote of a majority of the votes cast. A majority of the votes cast means that the number of votes cast “for” a director must exceed the number of votes cast “against” that director. Abstentions and broker non-votes will have no effect on the outcome of this proposal. In contested elections, where the number of nominees exceeds the number of directors to be elected, the vote standard will be a plurality of votes cast. Each director nominee has submitted a written resignation that will be effective if he/she does not receive a majority of the votes cast for such director and the resignation is accepted by the Nominating and Corporate Governance Committee, another authorized committee of the Board or the Board.

 

Recommendation of the Board Directors

 

The Board of Directors unanimously recommends that you vote FOR each of the director nominees. Unless you indicate otherwise, your proxy will vote FOR the proposed nominees.

 

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CORPORATE GOVERNANCE

 

The Board has adopted the Principles of Corporate Governance (the “Principles”) to address significant corporate governance issues. The Principles provide a framework for our corporate governance matters and include topics such as Board and Board committee composition and evaluation. The Nominating and Corporate Governance Committee is responsible for reviewing the Principles and reporting and recommending any changes to the Principles to the Board.

 

Director Independence

 

The Principles provide that a substantial majority of the members of the Board must meet the criteria for independence as required by applicable law and the listing standards of the New York Stock Exchange (“NYSE”). No director qualifies as independent unless the Board determines that the director has no direct or indirect material relationship with us. On an annual basis, each director and executive officer is obligated to complete a director and officer questionnaire which requires disclosure of any transactions with us in which the director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest. We also review our relationship to any entity employing a director or on which a director currently serves as a member of the board.

 

In determining that Ms. Denzel is independent, the Board considered payments to us by Ericsson AB, a subsidiary of Ericsson, in 2013. Ms. Denzel is a member of the board of directors of Ericsson.

 

In determining that Mr. Donofrio is independent, the Board considered our payments to Liberty Mutual Insurance Company, a subsidiary of Liberty Mutual Holding Company Inc. (“LMHC”) in 2013. Mr. Donofrio is a member of the board of directors of LMHC.

 

In determining that Mr. Harding is independent, the Board considered our payments to eSilicon. Mr. Harding is the President and Chief Executive Officer of eSilicon, which is one of our suppliers. Our payments to eSilicon were less than 2% of eSilicon’s gross revenues in eSilicon’s last full fiscal year. In addition, the Board considered our payments to the Global Semiconductor Alliance and Atrenta, Inc. Mr. Harding is a member of the board of directors of the Global Semiconductor Alliance and a member of the advisory board of Atrenta, Inc.

 

The Board also considered whether any member of the Compensation Committee has a relationship to us which is material to that director’s ability to be independent from management in connection with the duties of a Compensation Committee member, including the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by us to such director, and whether such director is affiliated with us, one of our subsidiaries or an affiliate of one of our subsidiaries.

 

The Board concluded that there are no business relationships that are material or that would interfere with the exercise of independent judgment by any of the independent directors in his or her service on our Board, the Audit and Finance Committee or the Compensation Committee. The Board determined that all directors who served during 2013, other than Messrs. Edelman, Muhairi, Read and Yahia, and all of our director nominees, other than Messrs. Edelman, Read and Yahia, are independent in accordance with SEC and NYSE rules.

 

Compensation Committee Interlocks and Insider Participation

 

During 2013, Messrs. Caldwell, Craig A. Conway and Donofrio and Ms. Eberhart served on the Compensation Committee (Mr. Caldwell resigned from the Compensation Committee in May 2013). None of the members of the Compensation Committee is or has been an executive officer or employee of us. None of our executive officers serves on the board of directors or compensation committee of a company that has an executive officer that serves on the Board or Compensation Committee.

 

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Board Leadership Structure

 

The Principles permit the roles of Chairman of the Board and Chief Executive Officer to be filled by the same or different individuals, based on our needs, best practices and the interests of our stockholders. This allows the Board flexibility to determine whether the two roles should be combined or separated based upon our needs and the Board’s assessment of its leadership from time to time. The Board has the experience of functioning effectively either way.

 

Mr. Claflin, who is independent in accordance with SEC and NYSE rules, is our Chairman of the Board. The Board first appointed Mr. Claflin as our independent Chairman of the Board in 2009. Mr. Claflin presides at meetings of our stockholders and directors and leads the Board in fulfilling its responsibilities. The Board benefits from Mr. Claflin’s leadership experience as a technology industry veteran, significant public company board experience and intimate familiarity with our history and business. The Board believes that its current leadership structure, with an independent Chairman of the Board, separate from the Chief Executive Officer, is appropriate at this time and allows the Board to fulfill its duties and effectively and efficiently based on our current needs. The Board believes that this structure allows Mr. Read, our President and Chief Executive Officer, to focus on our strategy and market opportunities as well as on our organizational structure and execution capabilities.

 

Risk Oversight

 

The Board’s role in risk oversight of us is consistent with our leadership structure, with our Chief Executive Officer and other members of management having responsibility for day-to-day risk management activities and processes, and our Board and its committees being actively involved in overseeing our risk management. The Board and management consider “risk” for these purposes to be the possibility that an undesired event could occur that might adversely affect the achievement of our objectives. Examples of the types of risks faced by us include:

 

   

business-specific risks related to our ability to develop new products and services, our strategic position in key existing and new markets, our operational execution and infrastructure, our relationships with our third party manufacturing suppliers and competition in the microprocessor and graphics markets;

 

   

macro-economic risks, such as adverse global economic conditions; and

 

   

“event” risks, such as natural disasters.

 

We engage in activities that seek to take calculated risks that protect the value of our existing assets and create new or future value. Management is responsible for day-to-day risk management activities and processes. Members of senior management participate in identifying risks and risk controls, developing recommendations to determine the appropriate manner in which to control risk and implementing risk mitigation activities. Our Chief Executive Officer has ultimate responsibility for management of our business, including enterprise level risks and the risk management program and processes.

 

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In fulfilling its oversight role, the Board focuses on understanding the nature of our enterprise risks, including reputational risk and risks in our operations, finances and strategic direction, as well as the adequacy of our risk assessment and risk management processes. In addition, the Board implements its oversight function primarily through management reports and committees of the Board. At least annually, the Board discusses with management the appropriate level of risk relative to our corporate strategy and objectives and reviews with management our existing risk management processes and their effectiveness. As well, the Board receives periodic management updates on our business operations, financial results and strategy and, as appropriate, discusses and provides feedback with respect to risks related to these topics. In addition, the Board receives full reports from the following Board committee chairs regarding the committee’s considerations and actions related to the specific risk topics over which the committee has oversight:

 

   

The Audit and Finance Committee assists the Board in overseeing our enterprise risk management process; reviews our portfolio of risk; discusses with management significant financial, reporting, regulatory and legal compliance risks in conjunction with enterprise risk exposures as well as risks associated with our capital structure; and reviews our policies with respect to risk assessment and risk management and the actions management has taken to limit, monitor or control financial and enterprise risk exposure. The Audit and Finance Committee meets with members of our Internal Audit department to discuss any issues that warrant attention.

 

   

The Compensation Committee oversees risk management as it relates to our compensation policies and practices and has reviewed with management whether our compensation programs may create incentives for our employees to take excessive or inappropriate risks which could have a material adverse effect on us. For additional detail regarding the Compensation Committee’s review of risks related to our compensation policies and practices, see “Compensation Policies and Practices,” below.

 

   

The Nominating and Corporate Governance Committee considers potential risks related to the effectiveness of the Board, including succession planning for the Board and our overall governance.

 

   

The Innovation and Technology Committee assists the Board in its oversight responsibilities relating to technical and market risks associated with product development and investment as well as risk mitigation policies and procedures relating to products based on new technology or significant innovations to existing technology.

 

Code of Ethics

 

The Board has adopted a code of ethics that applies to all directors and employees entitled “Worldwide Standards of Business Conduct,” which we designed to help directors and employees resolve ethical issues encountered in the business environment. The Worldwide Standards of Business Conduct covers topics such as conflicts of interest, compliance with laws (including anti-corruption laws), fair dealing, protecting our property and confidentiality of our information and encourages the reporting of any behavior not in accordance with the Worldwide Standards of Business Conduct.

 

The Board has also adopted a Code of Ethics for our executive officers and all other senior finance executives. The Code of Ethics covers topics such as financial reporting, conflicts of interest and compliance with laws, rules, regulations and our policies.

 

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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

 

Board Meetings and Attendance

 

The Board held five meetings during 2013. All members of the Board during 2013 attended at least 75 percent of the meetings of the Board and Committees of the Board on which they served in 2013. Typically, meetings of the Board take place over a two-day period. In addition, on at least an annual basis, the Board holds a formal strategy meeting with management during which the Board and management discuss matters such as our strategic direction, new business opportunities and product roadmap. Independent and non-management directors also meet regularly in scheduled executive sessions with our Chief Executive Officer and other members of senior management. In addition to these formal meetings, members of our Board informally interact with senior management, our Chief Executive Officer, industry leaders and customers on a periodic basis. Sessions of our non-employee directors were held four times in 2013, and three of these meetings included separate sessions where only independent directors were present.

 

Board Committees

 

The Board has four standing committees: an Audit and Finance Committee, a Nominating and Corporate Governance Committee, a Compensation Committee and an Innovation and Technology Committee. The members of the Board committees and their Chairs are nominated by the Nominating and Corporate Governance Committee and appointed by the Board.

 

Each of the Board committees has adopted a written charter, which has been approved by the Board. You can access our current bylaws, committee charters, the Principles, the Worldwide Standards of Business Conduct and the Code of Ethics on the Investor Relations pages of our Web site at www.amd.com or ir.amd.com.

 

The current membership, meetings during 2013 and primary functions of each of the Board committees are described below.

 

LOGO

 

Audit and Finance Committee.    The Audit and Finance Committee assists the Board with its oversight responsibilities regarding the integrity of our financial statements, our compliance with legal and regulatory requirements, risk assessment, the performance of our internal audit function, our financial affairs and policies and the nature and structure of major financial commitments. The Audit and Finance Committee is also directly responsible for the appointment, independence, compensation, retention and oversight of the work of our independent registered public accounting firm, which reports directly to the Audit and Finance Committee. The Audit and Finance Committee meets alone with our senior management, our financial, legal and internal audit personnel and with our independent registered public accounting firm, which has free access to the Audit and

 

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Finance Committee. The Corporate Vice President of our Internal Audit Department reports directly to the Chair of the Audit and Finance Committee and “dotted-line” to our Chief Financial Officer and serves a staff function for the Audit and Finance Committee. The Audit and Finance Committee currently consists of Dr. Barnes, as Chair, and Messrs. Chow and Harding, each determined to be financially literate and “independent” under applicable SEC and NYSE rules. The Board also determined that Dr. Barnes is an “audit committee financial expert,” as defined under applicable SEC rules. The Audit and Finance Committee held 17 meetings during 2013.

 

Nominating and Corporate Governance Committee.    The Nominating and Corporate Governance Committee assists the Board in discharging its responsibilities regarding the identification of qualified candidates to become Board members, the selection of nominees for election as directors at the next annual meeting of stockholders (or special meeting of stockholders at which directors are to be elected), the selection of candidates to fill any vacancies on the Board, the development and recommendation to the Board of corporate governance guidelines and principles, including the Principles. In addition, the Nominating and Corporate Governance Committee oversees the Board’s annual review of its performance (including its composition and organization), leads a process for our non-employee directors to evaluate the performance of our Chief Executive Officer and provides input regarding the evaluation of other Section 16 officers. The Nominating and Corporate Governance Committee retains a search firm for the purpose of obtaining information regarding potential candidates for Board membership. The Nominating and Corporate Governance Committee currently consists of Mr. Claflin, as Chair, Dr. Barnes, Messrs. Caldwell, Chow, Donofrio, Harding and Inglis and Mses. Denzel and Eberhart, each determined by the Board to be “independent” under applicable SEC and NYSE rules. The Nominating and Corporate Governance Committee held four meetings during 2013 and held one meeting during 2014 to consider director nominees for our 2014 Annual Meeting and other matters.

 

In evaluating candidates to determine if they are qualified to become Board members, the Nominating and Corporate Governance Committee looks principally for the following attributes: personal and professional character, integrity, ethics and values; general business experience and leadership profile, including experience in corporate management, such as serving as an officer or former officer of a publicly held company; strategic planning abilities and experience; aptitude in accounting and finance; expertise in domestic and international markets; experience in our industry and with relevant social policy concerns; understanding of relevant technologies; expertise in an area of our operations; communication and interpersonal skills; and practical and mature business judgment. The Nominating and Corporate Governance Committee also considers Board members’ and nominees’ service on the boards of other public companies. Although we do not have a formal diversity policy, to foster and maintain a diversity of viewpoints, backgrounds and experience on the Board, the Nominating and Corporate Governance Committee evaluates the mix of skills and experience of the directors and assesses nominees and potential candidates in the context of the current composition of the Board and our requirements, taking into consideration the diverse communities and geographies in which we operate. Although the Nominating and Corporate Governance Committee uses these and other criteria to evaluate potential nominees, there are no stated minimum criteria for nominees. The Nominating and Corporate Governance Committee uses the same standards to evaluate all director candidates, regardless of who proposes them.

 

Compensation Committee.    The Compensation Committee assists the Board in discharging its responsibilities relating to the compensation of all Section 16 officers, members of the Board and such other employees as delegated from time to time by the Board. In consultation with management, the Board and the Compensation Committee’s compensation consultant, the Compensation Committee designs, recommends to the Board for approval and evaluates employment, severance and change of control agreements and our compensation plans, policies and programs with respect to our Section 16 officers. The Compensation Committee reviews and approves all grants under our equity plans, including grants to persons who are not Section 16 officers. To the extent permitted by its charter, the Compensation Committee may delegate certain authority and certain responsibilities to one or more of its members, our officers or a subcommittee of the Compensation Committee. The Compensation Committee aims to structure our compensation program to encourage high performance, promote accountability and align employee interests with our strategic goals and with the interests of our stockholders. The Compensation Committee also oversees risk management as it relates

 

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to our compensation policies and practices for employees generally. The Compensation Committee currently consists of Mr. Caldwell, as Chair, Mr. Donofrio and Ms. Eberhart, each determined to be “independent” under applicable SEC and NYSE rules. During 2013, the Compensation Committee held six meetings.

 

Innovation and Technology Committee.    The Innovation and Technology Committee was formed in August 2013 and assists the Board in its oversight responsibilities regarding matters of innovation and technology. The Innovation and Technology Committee is responsible for reviewing, evaluating and making recommendations to the members of the Board regarding our major technology plans and strategies, including our research and development activities, as well as the technical and market risks associated with product development and investment; reviewing, evaluating and making recommendations regarding talent and skills of our workforce supporting our technology and research and development activities; monitoring the performance of our technology development in support of our overall business strategy; monitoring and evaluating existing and future trends in technology that may effect our strategic plans; and assessing our risk mitigation policies and procedures relating to products based on new technology or significant innovations to existing technology. The Innovation and Technology Committee consists of Mr. Donofrio, as Chair, and Messrs. Harding and Yahia. During 2013 and since its formation in August 2013, the Innovation and Technology Committee held two meetings.

 

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DIRECTORS’ COMPENSATION AND BENEFITS

 

Our directors play a critical role in guiding our strategic direction and overseeing our management. In order to compensate them for their substantial time commitment, we provide a mix of cash and equity-based compensation. We do not provide pension or retirement benefits to our non-employee directors.

 

Key Directorship Changes.    Effective February 22, 2013, Mr. Waleed Muhairi resigned from the Board and Mr. Edelman was appointed to the Board. Effective May 16, 2013, Mr. Conway no longer served as a member of the Board, as he did not stand for re-election at our 2013 annual meeting of stockholders, and Mr. Robert B. Palmer retired from the Board. Ms. Denzel and Mr. Inglis were appointed to the Board effective March 19, 2014. Ms. Eberhart will not be standing for re-election at our Annual Meeting in order to focus on other matters.

 

Non-Employee Director Compensation.    The table below summarizes the compensation paid to our non-employee directors for our fiscal year ended December 28, 2013. Mr. Read, an employee director, did not receive any compensation for his service as a director on the Board.

 

2013 Non-Employee Director Compensation

 

Name

(a)


   Fees Earned or
Paid in Cash(1)
$
(b)


     Stock
Awards(2)(3)
$
(c)


    Total
$
(d)


 

W. Michael Barnes

   $ 100,800       $ 265,300      $ 366,100   

John E. Caldwell

   $ 73,750       $ 265,300      $ 339,050   

Henry WK Chow

   $ 75,800       $ 265,300      $ 341,100   

Bruce L. Claflin

   $ 126,458       $ 530,601 (4)    $ 657,059   

Nicholas M. Donofrio

   $ 71,567       $ 265,300      $ 336,867   

H. Paulett Eberhart

   $ 71,250       $ 265,300      $ 336,550   

Martin L. Edelman

   $ 54,167       $ 166,940      $ 221,107   

John R. Harding

   $ 78,200       $ 265,300      $ 343,500   

Ahmed Yahia

   $ 67,400       $ 265,300      $ 332,700   

Craig A. Conway

   $ 27,083       $ 0      $ 27,083   

Waleed Muhairi

   $ 10,833       $ 0      $ 10,833   

Robert B. Palmer

   $ 27,083       $ 0      $ 27,083   

(1) The amounts reflected in this column consist of the annual retainer, additional retainers for directors who chair a Board committee and attendance fees, where applicable. Messrs. Edelman’s, Conway’s, Muhairi’s and Palmer’s annual retainers were pro-rated because of the timing of their respective appointments to and resignations from the Board. Messrs. Caldwell’s and Donofrio’s and Ms. Eberhart’s retainers as chairs of Board committees were prorated based on the duration of their respective chairmanships.
(2) This column reflects the aggregate grant date fair value of the respective director’s 2013 restricted stock unit (“RSU”) award(s) computed in accordance with ASC Topic 718, except no assumptions for forfeitures were included. For a discussion of the assumptions made in the valuations reflected in this column, see Note 14 of the Notes to Consolidated Financial Statements in our Annual Report. The actual value that a director may realize from a RSU award is contingent upon the satisfaction of the conditions to vesting of that award. Thus, there is no assurance that the value, if any, eventually realized by the director will correspond to the amounts shown.

 

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The following table reflects each RSU awarded to each non-employee director in 2013.

 

Name


   Grant Date

     RSUs
Granted
#


 

W. Michael Barnes

     5/16/2013         69,269   

John E. Caldwell

     5/16/2013         69,269   

Henry WK Chow

     5/16/2013         69,269   

Bruce L. Claflin

     5/16/2013         138,538   

Nicholas M. Donofrio

     5/16/2013         69,269   

H. Paulett Eberhart

     5/16/2013         69,269   

Martin L. Edelman

     2/22/2013         30,080   

Martin L. Edelman

     5/16/2013         23,089   

John R. Harding

     5/16/2013         69,269   

Ahmed Yahia

     5/16/2013         69,269   

Craig A. Conway

     —           —     

Waleed Muhairi

     —           —     

Robert B. Palmer

     —           —     

 

(3) The aggregate number of outstanding RSUs and stock options held by our non-employee directors as of December 28, 2013 are in the following table. Messrs. Caldwell, Chow, Edelman and Harding and Ms. Eberhart elected to defer the issuance of 133,374; 28,125; 53,169; 99,349; and 50,000 underlying shares, respectively, subject to certain RSU awards until the termination of their directorship pursuant to our Outside Director Equity Compensation Policy. The deferred RSUs are included in the following table:

 

Name


   RSUs Outstanding
as of December 28,
2013


     Options Outstanding as of
December 28,
2013


 

W. Michael Barnes

     78,311         78,710   

John E. Caldwell

     202,643         50,000   

Henry WK Chow

     97,394         0   

Bruce L. Claflin

     160,071         92,500   

Nicholas M. Donofrio

     78,311         0   

H. Paulett Eberhart

     128,311         72,224   

Martin L. Edelman

     53,169         0   

John R. Harding

     99,349         0   

Ahmed Yahia

     69,269         0   

Craig A. Conway

     0         0   

Waleed Muhairi

     0         0   

Robert B. Palmer

     0         75,000   

 

(4) As Chairman of the Board, Mr. Claflin’s annual 2013 RSU award was two times the annual RSU award of the other non-employee directors, or 138,538 RSUs.

 

Determining Non-Employee Director Compensation.    The Compensation Committee annually reviews our non-employee directors’ compensation. Based on this review, the Compensation Committee recommends any changes to our non-employee director’s compensation to the Board for approval.

 

In addition, the Compensation Committee periodically evaluates how our director pay levels and pay policies compare to the competitive market. In 2013, the Compensation Committee reviewed competitive market data compiled by Compensia, Inc., its independent compensation consultant (“Compensia”). While competitive market data is important to the evaluation of the directors’ compensation, it is just one of several factors considered by the Board in approving director compensation, and the Board has discretion in determining the nature and extent of its use.

 

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In 2013, the Board approved changes to the annual retainer and equity award received by our Chairman of the Board, as described under “Cash Retainer and Meeting Fees for Non-Employee Directors” and “Equity Awards,” below.

 

Cash Retainer and Meeting Fees for Non-Employee Directors.    During 2013, each of our non-employee directors, with the exception of the Chairman of the Board, received an annual retainer of $65,000 for serving as a director and each of the applicable additional retainers and attendance fees set forth below for serving as a chair of one of the Board committees.

 

Additional Retainers for Committee Chairs   

Audit and Finance Committee

   $ 25,000   

Compensation Committee

   $ 15,000   

Nominating and Corporate Governance Committee

   $ 10,000   

Innovation and Technology Committee

   $ 10,000   

 

In addition, when the Board or a Board committee, other than the Innovation and Technology Committee, has met more than eight times during the year, we pay an attendance fee to our non-employee directors for each additional meeting attended, in the amounts set forth below.

 

Board meeting attendance

   $ 2,000   

Committee meeting attendance

   $ 1,200   

 

Members of the Innovation and Technology Committee receive $1,200 for each Innovation and Technology Committee meeting that they attend.

 

In 2013, the Board changed the annual retainer received by our Chairman of the Board, effective June 1, 2013. As a result, for his service as Chairman of the Board, Mr. Claflin received an annual retainer of $116,458, representing 1.5 times the annual retainer fee of the other non-employee directors from January 1, 2013 until May 31, 2013 and 2 times the annual retainer fee of the other non-employee directors effective June 1, 2013.

 

Equity Awards.    In order to align the long-term interests of our directors with those of stockholders, a substantial portion of director compensation is provided in the form of equity. Non-employee directors participate in our 2004 Plan and are generally eligible to receive an annual equity award in the form of RSUs (the “Annual RSU Award”) at each annual meeting of stockholders.

 

The Annual RSU Award for each non-employee director (other than the Chairman of the Board) who has served on the Board for at least six months prior to an annual meeting of stockholders is calculated based on the following formula, with no discretionary component: the quotient of (i) $225,000 divided by (ii) the trailing average closing price of our common stock for the 30-day period preceding and ending with the date of the respective RSU grant. In 2013, the Board changed the Annual RSU Award for our Chairman of the Board. As a result, commencing with the 2013 annual meeting of stockholders, the Chairman of the Board receives an Annual RSU Award equal to 2 times the Annual RSU Award received by the other non-employee directors.

 

If a non-employee director is appointed to the Board other than on the date of an annual meeting of stockholders, as was the case with Mr. Edelman in 2013 and Mr. Inglis and Ms. Denzel in 2014, such director is entitled to receive an initial RSU award (each, an “Off-Cycle RSU Grant”) equal to the Annual RSU Award granted to the other non-employee director at the immediately preceding annual meeting of stockholders. In addition, in the case of a non-employee director who has served on the Board for less than six months prior to an annual meeting of stockholders, such director’s Annual RSU Award is prorated based on the number of months of service before the respective annual meeting of stockholders. For purposes of the pro-rata calculation, service during any portion of a month counts as a full month of service. The Annual RSU Awards and the Off-Cycle RSU Grants vest as to 100% on the one-year anniversary of the respective grant date.

 

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Deferral.    Pursuant to our Outside Director Equity Compensation Policy, our non-employee directors may elect to defer the issuance of shares of our common stock that become issuable upon vesting of the RSUs granted pursuant to the 2004 Plan (and the recognition of taxable income associated with such RSUs) until such time as the director ceases to serve on our Board. A non-employee director can make this election by completing a Restricted Stock Unit Award Deferral Election Agreement before the scheduled date of an RSU grant. If a director makes this election, the issuance of the common stock subject to the RSUs may not be accelerated or changed once the Election Agreement is submitted to us. Any common stock deferred under our Outside Director Equity Compensation Policy is issued to the director, in one lump sum, within 30 days after his or her resignation from our Board.

 

Acceleration of Vesting.    Pursuant to our Outside Director Equity Compensation Policy, in the event of our change of control, all of our non-employee directors’ equity compensation awards will become fully vested. In addition, in the event of the termination of a non-employee director’s service to the Board as a result of death, disability or retirement, all of his or her non-employee director’s equity compensation awards will become fully vested, provided that such non-employee director served as a member of the Board for at least three years prior to the date of termination and satisfied our stock ownership guideline requirements during his or her service as a Board member.

 

Other Benefits.    We reimburse our directors for their travel and expenses in connection with attending Board meetings and Board-related activities, such as AMD site visits and sponsored events, as well as for continuing education programs.

 

Stock Ownership Guidelines.    Under our stock ownership guidelines, our non-employee directors, other than the Chairman of the Board, are required to hold the lesser of (i) the number of shares equivalent to three times the then-current annual retainer divided by the average closing price of our common stock for the 30-day period immediately preceding and ending with the date of the annual meeting of stockholders or (ii) 30,000 shares. The ownership guideline for the Chairman of the Board is the lesser of (i) the number of shares equivalent to three times the then-current annual retainer divided by the average closing price of our common stock for the 30-day period immediately preceding and ending with the date of the annual meeting of stockholders or (ii) 45,000 shares.

 

The stock ownership guidelines must be achieved by each non-employee director within the later of (i) October 2016, which is the five-year anniversary of the adoption of our current stock ownership guidelines, or (ii) the five-year anniversary of the respective director’s first election or appointment to the Board or first appointment as Chairman of the Board, as applicable.

 

As of December 28, 2013, all of our non-employee directors were on target to meet the requirements of our stock ownership guidelines within the established compliance time frame.

 

Until the requirements of our stock ownership guidelines are achieved, each non-employee director is encouraged to retain at least 10% of the “net shares” (as defined below) obtained through our stock incentive plans. Shares counted toward the minimum stock ownership requirements include (i) shares held directly by a director, (ii) RSUs that have vested, but where the issuance of the shares have been deferred by the director pursuant to our Outside Director Equity Compensation Policy, and (iii) 50% of exercisable, “in the money” stock options. “Net shares” are the number of shares from the sale of stock options or the vesting of restricted stock, less the number of shares the director sells to cover the exercise price of stock options and sells or has withheld to pay taxes.

 

As of December 28, 2013, all of our non-employee directors retained at least 10% of the net shares obtained through our stock incentive plans.

 

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PRINCIPAL STOCKHOLDERS

 

The following table shows each person or entity we know to be the beneficial owner of five percent or more of our common stock as of March 10, 2014.

 

Name and Address of Beneficial Owner


  

Number of Shares Beneficially Owned


   Percent
of  Class(1)


West Coast Hitech, L.P.(2)

   141,906,166    18.6%

P.O. Box 309 GT

Ugland House, South Church Street

George Town, Grand Cayman, Cayman Islands

  

(shared voting and shared dispositive power

as to all shares)

    

The Vanguard Group(3)

   38,026,762    5.0%

100 Vanguard Blvd.

Malvern, PA 19355

  

(sole dispositive power as to 37,688,891shares, shared dispositive power as to 337,871shares and sole voting power as to 380,871 shares)

    

(1) Based on 761,517,519 shares of our common stock outstanding as of March 10, 2014.
(2) Based on Amendment No. 5 of Schedule 13D filed with the SEC on March 10, 2014 by Mubadala, WCH and West Coast Hitech G.P. Ltd. (“WCH GP”) pursuant to a joint filing agreement. Mubadala is a public joint stock company incorporated in the Emirate of Abu Dhabi, United Arab Emirates and is wholly-owned by the Government of the Emirate of Abu Dhabi. WCH, a Cayman Islands exempted limited partnership, and its general partner, WCH GP, a Cayman Islands corporation, are wholly owned by Mubadala. The 141,906,166 shares of our common stock are held by WCH and beneficially owned by Mubadala, WCH and WCH GP. The shares include 34,906,166 shares of our common stock purchased by WCH on March 7, 2014 as a result of WCH’s cashless exercise of its warrants to purchase an additional 35,000,000 shares of our common stock at an exercise price of $0.01 per share (as adjusted pursuant to the terms of the warrants).
(3) Based on Amendment No. 2 of Schedule 13G filed with the SEC on February 10, 2014 by The Vanguard Group. The Vanguard Group is an investment adviser deemed to be the beneficial owner of 38,026,762 shares of our common stock. Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 337,871 shares of our common stock as a result of its serving as investment manager of collective trust accounts. Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 43,000 shares of our common stock as a result of its serving as investment manager of Australian investment offerings.

 

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SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

 

The table below shows the number of shares of our common stock beneficially owned as of March 10, 2014 by our current directors, our Named Executive Officers (as defined in “Compensation Discussion and Analysis,” below) and all of our current directors and executive officers as a group. Except as otherwise indicated, each person has sole investment and voting power with respect to the shares shown as beneficially owned. Ownership information is based upon information provided by the individuals.

 

Name


   Amount and
Nature
of Beneficial
Ownership(1)(2)


     Percent
of  Class(3)


 

Rory P. Read

     2,109,193         *   

W. Michael Barnes

     255,264         *   

John E. Caldwell

     201,938         *   

Henry WK Chow

     52,189         *   

Bruce L. Claflin

     456,088         *   

Nora M. Denzel(4)

     0         *   

Nicholas M. Donofrio

     107,204         *   

H. Paulett Eberhart

     249,344         *   

Martin L. Edelman

     30,080         *   

John R. Harding

     30,080         *   

Michael J. Inglis(4)

     0         *   

Ahmed Yahia

     22,260         *   

John Byrne

     445,024         *   

Devinder Kumar

     945,333         *   

Mark D. Papermaster

     658,071         *   

Lisa T. Su

     1,036,624         *   

All current directors and executive officers as a group (17 persons)

     7,757,318         1.0   

* Less than one percent
(1) Some of the individuals may share voting power with their spouses with respect to the listed shares.
(2) Includes beneficial ownership of the following number of shares of our common stock that are issuable upon exercise of stock options that are exercisable by May 9, 2014 (within 60 days of March 10, 2014) and upon vesting of RSUs that will vest by May 9, 2014 (within 60 days of March 10, 2014). Also includes beneficial ownership of the following number of shares of our common stock issuable upon the vesting of RSUs that vested as of March 10, 2014 or will vest by May 9, 2014 (within 60 days of March 10, 2014) where the issuance of shares of our common stock upon vesting was deferred by the director (the “Deferred RSU Shares”) pursuant to our Outside Director Equity Compensation Policy until such director ceases to serve on the Board:

 

     Shares

     Deferred
RSU Shares


 

Rory P. Read

     1,637,898         —     

W. Michael Barnes

     87,752         —     

John E. Caldwell

     50,000         133,374   

Henry WK Chow

     0         28,125   

Bruce L. Claflin

     110,583         —     

Nora M. Denzel

     0         —     

Nicholas M. Donofrio

     9,042         —     

H. Paulett Eberhart

     81,266         50,000   

Martin L. Edelman

     0         30,080   

John R. Harding

     0         30,080   

Michael J. Inglis

     0         —     

Ahmed Yahia

     0         —     

John Byrne

     337,028         —     

Devinder Kumar

     764,071         —     

Mark D. Papermaster

     460,335         —     

Lisa T. Su

     662,816         —     

All current directors and executive officers as a group (17 persons)

     5,042,727         271,659   

 

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(3) Based on 761,517,519 shares of our common stock outstanding as of March 10, 2014. Also, with respect to each individual, the calculation includes shares of our common stock that are issuable upon exercise of stock options held by that individual that are exercisable by May 9, 2014 (within 60 days of March 10, 2014) and upon vesting of RSUs held by that individual that will vest by May 9, 2014 (within 60 days of March 10, 2014), ignoring the withholding of shares of common stock to cover applicable taxes. These shares, however, were not deemed to be outstanding for the purpose of computing the percentage ownership of any other individual.
(4) Effective March 19, 2014, Ms. Denzel and Mr. Inglis were appointed to the Board and were each granted 69,269 RSUs, none of which will vest by May 9, 2014 (within 60 days following March 10, 2014). Mr. Inglis elected to defer the issuance of 69,269 shares of our common stock subject to these RSUs until the termination of his directorship pursuant to our Outside Director Equity Compensation Policy.

 

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EXECUTIVE OFFICERS

 

The following persons were our executive officers as of March 10, 2014:

 

Rory P. Read—Mr. Read, 52, is our President and Chief Executive. Mr. Read has also been a member of the Board since August 2011. Mr. Read joined us as President and Chief Executive Officer on August 25, 2011. Before joining us, Mr. Read served as President and Chief Operating Officer of Lenovo Group Limited, a manufacturer and provider of computers and information technology management software, from February 2009 to August 2011, where he was responsible for leading day-to-day global operations while overseeing the development and implementation of Lenovo’s growth strategy. Prior to serving as Lenovo’s President and Chief Operating Officer, Mr. Read served as Lenovo’s Senior Vice President, Operations, from July 2006 to February 2009. During his five years at Lenovo, Mr. Read helped take the company into dynamic new markets, including Lenovo’s entry into the tablet and smartphone markets, while growing market share and expanding profitability. Prior to Lenovo, Mr. Read had a 23-year career at IBM, where he held various management positions, including Managing Partner for IBM’s Business Consulting Services division where he led the division through a successful turnaround, and Executive Vice President of Global Business Transformation, IBM Global Services, where he was responsible for worldwide leadership of IT initiatives and business transformation. Mr. Read holds a bachelor’s degree in information systems from Hartwick College.

 

John Byrne—Mr. Byrne, 43, is our Senior Vice President and Chief Sales Officer. Mr. Byrne joined us in 2007 as Vice President, Worldwide Graphics Sales. In 2009, he was promoted to Vice President, Channel, where he was responsible for our worldwide channel sales. In 2011, he was promoted to Vice President, Americas Region, where he was responsible for managing our Americas sales and marketing organization. In February 2012, he was promoted to Senior Vice President, Global Accounts, and in August 2012, he was appointed as Chief Sales Officer. Prior to joining us, Mr. Byrne was the Chief Executive Officer of Advanced Technologies, Ltd., a leading European sales and marketing organization that collaborated with global hardware and software companies, including ATI Technologies and Cyberlink, to successfully define and activate local channel sales and marketing strategies.

 

Devinder Kumar—Mr. Kumar, 58, is our Senior Vice President and Chief Financial Officer. Prior to being appointed as our Senior Vice President and Chief Financial Officer in January 2013, Mr. Kumar was our Senior Vice President, Interim Chief Financial Officer and Corporate Controller. He was appointed as Corporate Controller in 2001, as Senior Vice President in 2006 and as Interim Chief Financial Officer in September 2012. Mr. Kumar also served as our Treasurer from April 2009 to July 2010 and as our Assistant Treasurer from February 2007 to April 2009. Mr. Kumar joined us in 1984 as a financial analyst and spent ten years in Asia as financial controller for AMD Penang and group finance director for our Manufacturing Services Group across Singapore, Thailand, China and Malaysia. Starting in 1998, Mr. Kumar assumed several corporate roles including leadership positions in Corporate Accounting and Corporate Finance. Mr. Kumar holds a bachelor’s degree in ecology from the University of Malaya, Malaysia, a master’s degree in biology from the University of California, Santa Barbara, and an MBA in finance from the University of California, Los Angeles.

 

Mark D. Papermaster—Mr. Papermaster, 52, is our Chief Technology Officer and Senior Vice President—Technology and Engineering. Mr. Papermaster joined us in October 2011. From November 2010 to October 2011, Mr. Papermaster served as Vice President of the Silicon Engineering Group of Cisco Systems, Inc., a company that designs, manufactures and sells Internet Protocol-based networking and other products related to the communications and IT industry, where he was responsible for the silicon strategy, architecture and development of the company’s switching and routing businesses. Prior to Cisco, Mr. Papermaster served as Senior Vice President of Device Hardware Engineering at Apple Inc. from November 2008 to August 2010 and was responsible for iPod and iPhone hardware development. Prior to his employment at Apple, Mr. Papermaster held a number of senior leadership roles at IBM, most recently as VP of Blade Server Development from October 2006 to October 2008. He also served on IBM’s technical leadership team and oversaw development of key microprocessors and blade server technologies. Mr. Papermaster is a member of the University of Texas Cockrell

 

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School of Engineering Advisory Board, the Olin College President’s Council and the Juvenile Diabetes Research Foundation IT Advisory Committee. From 2011 to 2012, he also served on the Technical Advisory Board of Philips Lumileds Lighting Company, a leading manufacturer of high-power LEDs and a pioneer in the use of solid-state lighting solutions. Mr. Papermaster holds a bachelor’s degree in electrical engineering from The University of Texas at Austin and a master’s degree in electrical engineering from The University of Vermont.

 

Lisa T. Su—Dr. Su, 44, is our Senior Vice President and General Manager, Global Business Units. Dr. Su joined us in January 2012. Prior to joining us, Dr. Su served as Senior Vice President and General Manager, Networking and Multimedia at Freescale Semiconductor, Inc., a company that designs and manufactures embedded processors, where she was responsible for global strategy, marketing, product management and engineering for their embedded communications and applications processor businesses. Dr. Su joined Freescale in 2007 as Chief Technology Officer, where she led the company’s technology roadmap and research and development efforts. She was promoted to Senior Vice President and General Manager, Networking and Multimedia in September 2008. Prior to her employment with Freescale, Dr. Su spent 13 years with IBM in various engineering and business leadership positions, including Vice President of the Semiconductor Research and Development Center, responsible for the strategic direction of IBM’s silicon technologies, joint development alliances and semiconductor R&D operations. Dr. Su has served on the board of directors of Analog Devices since June 2012. Dr. Su holds a bachelor’s, master’s and doctorate degrees in electrical engineering from the Massachusetts Institute of Technology (MIT), has been published in more than 40 technical publications and was named a Fellow of the Institute of Electronics and Electrical Engineers (IEEE) in 2009. Dr. Su was also named in MIT Technology Review’s Top 100 Young Innovators in 2002.

 

Harry A. Wolin—Mr. Wolin, 51, is our Senior Vice President, General Counsel and Secretary. Mr. Wolin was appointed as our Secretary in April 2010. Prior to becoming General Counsel in 2003, Mr. Wolin was our Vice President, Intellectual Property. Before joining us in 2000, Mr. Wolin spent 12 years at Motorola, Inc. (now known as Motorola Mobility Holdings, Inc.), a provider of technologies, products and services that enable a broad range of mobile, wireline, digital communication, information and entertainment experiences, where his last role was Vice President and Director of Legal Affairs for the Semiconductor Products Sector. Mr. Wolin served as a member of the board of directors of GLOBALFOUNDRIES Inc. from February 2011 through March 2012. Mr. Wolin received the 2008 Magna Stella award for innovative management from the Texas General Counsel Forum. He is a member of the State Bars of Arizona and Texas and is registered to practice before the United States Patent and Trademark Office. Mr. Wolin holds a bachelor’s degree in chemistry from the University of Arizona and a juris doctor degree from Arizona State University.

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

We believe that during 2013, none of our directors, Section 16 officers or beneficial owners of more than 10% of our common stock failed to file on a timely basis reports required by Section 16(a) of the Securities Exchange Act of 1934, as amended. In making the above statement, we have relied solely upon a review of information provided to us and upon the written representations of our directors and Section 16 officers.

 

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EQUITY COMPENSATION PLAN INFORMATION

 

The following table provides information as of December 28, 2013 with respect to shares of our common stock that may be issued under our existing equity compensation plans. Our 2004 Plan, which was approved by our stockholders, is our only equity incentive plan available for the grant of new equity awards. Outstanding options and any full value awards are not transferable for consideration.

 

Equity Compensation Plan Information

 

     Fiscal Year Ended December 28, 2013

 
     Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights


    Weighted-
Average
Exercise
Price of
Outstanding
Options,
Warrants
and Rights


     Number of
Securities
Remaining
Available for
Future Issuance Under
Equity Compensation
Plans (excluding
securities reflected in
column(a))


 
     (a)

    (b)

     (c)

 

Equity compensation plans approved by stockholders(1)

     74,763,193        —           5,669,393   

Options

     31,896,177      $ 5.53         —     

Awards

     42,867,016        —           —     

Equity compensation plans not approved by stockholders

     3,418,455 (2)      —           —     

Options

     3,418,455      $ 0.92         —     

Awards

     —          —           —     
    


 


  


Total

     78,181,648                 5,669,393   

(1) Includes (i) 1,987,108 shares of our common stock issuable upon the exercise of performance-based options and (ii) 7,528,324 shares of our common stock issuable from performance-based RSUs, in each case representing the number of shares that could be earned assuming maximum achievement of the applicable performance conditions. See Note 14 of the Notes to Consolidated Financial Statements in our Annual Report for additional information.
(2) Includes 3,321,523 shares of our common stock to be issued upon exercise of outstanding options assumed from SeaMicro, Inc. (“SeaMicro”) stock plans as part of our acquisition of SeaMicro in March 2012. We do not intend to grant any awards under these plans in the future. See Note 14 of the Notes to Consolidated Financial Statements in our Annual Report for additional information.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

This compensation discussion and analysis provides information regarding our executive compensation program in 2013 for the following executive officers (the “Named Executive Officers”):

 

   

Rory P. Read, our President and Chief Executive Officer;

 

   

Devinder Kumar, our Senior Vice President and Chief Financial Officer;

 

   

John Byrne, our Senior Vice President and Chief Sales Officer;

 

   

Mark D. Papermaster, our Chief Technology Officer and Senior Vice President—Technology and Engineering; and

 

   

Lisa T. Su, our Senior Vice President and General Manager, Global Business Units.

 

Executive Summary

 

Fiscal 2013 Business Highlights.    During the fourth quarter of 2012, we embarked on a three-phase transformation plan designed to restructure, accelerate and transform us to better align our business to the changing computing landscape and to position ourselves to take advantage of new opportunities in high-growth adjacent markets. As of the end of 2013, we completed the first two phases of our transformation. We restructured our company and created a more efficient business with significantly lower operating expenses. During 2013, we also began laying the foundation for execution of the third phase of our transformation plan, in which we intend to expand our business beyond a transitioning traditional PC industry by creating a more diverse product portfolio and expanding our revenue base into new high-growth adjacent markets, with the goal of transitioning approximately 50% of revenue to come from high-growth adjacent markets by the end of 2015.

 

Overview of our 2013 Financial and Operational Performance.    In 2013, we achieved key corporate and financial milestones tied to our transformation plan, including:

 

   

Reducing operating expenses (as measured in accordance with U.S. generally accepted accounting principles (“GAAP”)) by approximately 31% from the first quarter of 2012 to the fourth quarter of 2013.

 

   

Deriving more than 30% of our net revenues in the second half of 2013 from semi-custom and embedded products.

 

   

Increased our cash balance (i.e., cash, cash equivalents and marketable securities, including long-term marketable securities) by managing working capital, preserving cash and other actions, resulting in a cash balance at the end of 2013 of $1.2 billion.

 

   

Launching new products in accordance with our product roadmap and ramping our new semi-custom design capabilities.

 

Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report for a more detailed description of our 2013 financial results.

 

We believe that the quality, skills, engagement and dedication of our senior leadership team, including our Named Executive Officers, are vital to the successful execution of each phase and milestone of our transformation plan and other key objectives that are designed to continue to drive stockholder value. As we explain in detail below, we believe that our 2013 executive compensation program successfully supported the execution of our turnaround plan and other business objectives, demonstrated our strong pay-for-performance philosophy and further aligned the interests of our Named Executive Officers with those of our stockholders.

 

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Significant Aspects of our 2013 Executive Compensation Program. The Compensation Committee took the following key actions with respect to the 2013 compensation of our Named Executive Officers:

 

Compensation Action


  

Summary of Compensation Action


Did not increase base salaries, with one exception    Except in the case of Mr. Kumar, the Compensation Committee did not increase the base salaries of any of the Named Executive Officers in 2013. The Compensation Committee increased Mr. Kumar’s base salary by 23.5% (from $405,000 to $500,000) effective January 2, 2013, in connection with his appointment as our Senior Vice President and Chief Financial Officer. The Compensation Committee left unchanged the base salaries of the other Named Executive Officers because it believed that they were competitive based on its review of competitive market data compiled by Compensia, its independent compensation consultant.
Changed a key financial measure used in the Executive Incentive Plan and adopted a single annual performance period for fiscal 2013    Annual cash performance bonuses for the Named Executive Officers are provided under our Executive Incentive Plan (the “EIP”). For the fiscal 2013 EIP, the Compensation Committee replaced non-GAAP gross margin with adjusted non-GAAP free cash flow and replaced non-GAAP net income with adjusted non-GAAP net income, as financial measures upon which the annual cash performance bonuses would be determined. The Compensation Committee also changed the performance period under the EIP from two semiannual performance periods to a single annual performance period and made the payment of any annual cash performance bonus under the EIP contingent on our maintaining a cash balance (i.e., cash, cash equivalents and marketable securities, including long-term marketable securities) of at least $700 million on the last day of each quarter of fiscal 2013. These changes were intended to more closely align the bonus opportunities under the EIP with the objectives and timeline of our transformation plan.
Paid annual cash performance bonuses at below-target levels    Based on our fiscal 2013 performance as measured against pre-established performance levels, the Compensation Committee approved annual cash performance bonuses under the EIP for each of the Named Executive Officers at 47% of target.
Awarded performance-based restricted stock unit awards tied to our financial performance and subject to reduction/increase based on our relative total shareholder return   

In 2013, the Compensation Committee awarded 50% of the target value of the Named Executive Officers’ 2013 long-term equity awards in the form of performance-based restricted stock unit awards (“pRSUs”). The number of shares of our common stock that may be earned under these pRSUs is based in part on our non-GAAP operating income plus interest expense, and in part on our total shareholder return (“TSR”) measured against the TSR of the S&P 500 IT Sector, as measured in each case over the 18-month performance period beginning on July 1, 2013 and ending on December 31, 2014. Any shares earned vest 50% on June 30, 2015, six months after the end of the performance period, and the remaining 50% vest on June 30, 2016, in each case subject to the Named Executive Officer’s continued employment with us through each vesting date. We designed this delayed vesting component to act as a retention device.

     The remaining 50% of target value of the Named Executive Officers’ 2013 long-term equity awards was divided equally between a time-

 

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Compensation Action


  

Summary of Compensation Action


     based stock option that vests over three years, 33.33% on June 17, 2014, and thereafter 8.33% per quarter over the next eight quarters, and a time-based restricted stock unit (“RSU”) award which vests in three equal annual installments beginning August 9, 2014, subject to the Named Executive Officer’s continued employment with us through each vesting date. The vesting requirements are designed to act as a retention device.
Approved Mr. Kumar’s compensation as our Chief Financial Officer   

In connection with Mr. Kumar’s appointment as our Senior Vice President and Chief Financial Officer on January 2, 2013, the Compensation Committee approved the following principal compensation and benefits for him:

    

Ÿ

   an initial annual base salary of $500,000;
    

Ÿ

   target annual cash performance bonus opportunity under the EIP of 100% of base salary;
    

Ÿ

   long-term equity awards consisting of (i) a time-based RSU award for 336,322 shares of our common stock, which vests in three equal annual installments, and (ii) a time-based stock option to purchase 726,556 shares of our common stock, which vests over three years, 33.33% of which vested on January 15, 2014, and the remainder of which will vest 8.33% per quarter over the next eight following quarters; and
    

Ÿ

   a change in control agreement, which he entered into in February 2013 and which replaced his management continuity agreement.
Granted special retention awards to certain Named Executive Officers   

To promote continuity and stability at the leadership positions of the three key executive management functions primarily responsible for executing our transformation plan, in January 2013 the Compensation Committee granted special retention awards to Messrs. Byrne and Papermaster and Dr. Su.

 

Each of these special retention awards is comprised of an RSU award and a time-based cash retention bonus. With respect to these special retention awards, half of the shares of our common stock subject to the RSUs vested, and half of the time-based cash retention bonuses were paid, on January 15, 2014. The remaining shares of our common stock subject to the RSUs will vest, and the remainder of the time-based cash retention bonuses will be paid, on January 15, 2015, subject to the respective Named Executive Officer’s continued employment through January 15, 2015.

 

These special retention awards were as follows:

 

Named Executive Officer


  

Cash Retention
Bonus


    

Shares
Underlying
RSUs


 
John Byrne    $ 450,000         205,450   
Mark D. Papermaster    $ 450,000         205,450   
Lisa T. Su    $ 600,000         273,935   

 

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Compensation Action


  

Summary of Compensation Action


Approved the Executive Severance Plan for Senior Vice Presidents   

In June 2013, the Compensation Committee approved the adoption of the Advanced Micro Devices, Inc. Executive Severance Plan for Senior Vice Presidents (the “SVP Severance Plan”). Each of the Named Executive Officers participates in the SVP Severance Plan, except for Mr. Read, whose severance is governed solely by his employment agreement.

 

Under the SVP Severance Plan, participants who incur an involuntary termination, not for cause, and who execute a full release of claims following such termination are eligible to receive severance benefits of (i) a single lump sum payment of one-time the participant’s annual base salary, (ii) Company-paid COBRA continuation coverage under our group health plan for up to twelve months, and (iii) use of our Employee Assistance Plan for up to twelve months. A Named Executive Officer will not receive severance benefits under the SVP Severance Plan if he or she receives severance benefits in connection with a change in control pursuant to his or her change in control agreement.

 

In addition, during 2013 we maintained the following executive compensation policies and practices:

 

   

All stock options, RSUs and pRSUs granted to our Named Executive Officers include a compensation recovery (“claw-back”) provision;

 

   

Under our Worldwide Standards of Business Conduct, we expressly reserve the right to claw-back incentive-based or other compensation (including equity-based compensation) paid to a Named Executive Officer if we are required to prepare an accounting restatement as a result of our material noncompliance with any financial reporting laws;

 

   

Our policy provides that we will not enter into any change in control agreement or arrangement that provides for an excise tax gross-up payment or that provides for a cash severance payment in excess of (i) two times the sum of the executive officer’s base salary and target annual cash performance bonus, plus (ii) the executive officer’s prorated target annual cash performance bonus for the year in which the termination occurs; and

 

   

Our employees, including the Named Executive Officers, are not permitted to hedge their economic exposure to our equity securities, meaning that they may not engage in buying or selling puts or calls or short-selling our securities.

 

2013 Stockholder Advisory Vote on Executive Compensation

 

The Compensation Committee has reviewed the results of the stockholder advisory vote (commonly referred to as the “say-on-pay” vote) on the 2012 compensation of our then-named executive officers, which was conducted at our 2013 annual meeting of stockholders. At this meeting, our stockholders approved our 2012 named executive officer compensation, with 85.79% of shares voted in favor of this proposal. The Compensation Committee did not make any changes to our executive compensation program solely in response to the results of our 2013 say-on-pay vote. Although the say-on-pay vote is non-binding, the Board and the Compensation Committee considers the outcome of the vote when making decisions about our executive compensation program.

 

During 2013, we continued our standing practice of proactive engagement with our stockholders to discuss executive compensation and other governance matters. After publishing our 2013 proxy statement, our Corporate Vice President of Investor Relations conducted conference calls and other discussions with our top 50 stockholders entitled to vote at our 2013 annual meeting to solicit their views on our executive compensation structure and pay practices. Our Chief Human Resources Officer, our Senior Vice President, General Counsel and Secretary and other members of our senior management were also available to answer stockholder questions. Based on this dialogue, we learned that these stockholders generally felt our compensation program was aligned with their interests. We were also pleased that our stockholders approved our 2013 say-on-pay vote. The Compensation Committee continues to advocate an active dialogue with our stockholders regarding compensation and governance practices.

 

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For 2014, the Compensation Committee continues to focus compensation design to align it with the objectives of the transformational phase of our transformation plan and to promote stability and continuity at our senior leadership positions. In the first quarter of 2014, the Compensation Committee made the following changes to our EIP to better align the annual cash performance bonus opportunity under the EIP for fiscal 2014 with the objectives of our 2014 annual operating plan and our three-phase transformation plan:

 

   

Adopted two semi-annual performance periods, weighted 33.33% for the first half of 2014 and 66.66% for the second half of 2014; and

 

   

Adopted adjusted non-GAAP net income (weighted 40%), revenue (weighted 25%), adjusted non-GAAP free cash flow (weighted 20%) and adjusted non-GAAP gross-margin (weighted 15%) as the EIP performance measures and weightings for 2014.

 

Annual cash performance bonuses earned under the EIP will continue to be paid in one installment after the end of the fiscal year and be subject to the Compensation Committee’s discretion to reduce any Named Executive Officer’s annual cash performance bonus for any reason prior to payment. The Compensation Committee will consider each Named Executive Officer’s individual performance over the full fiscal year when determining whether to exercise its discretion to reduce his or her annual cash performance bonus under the EIP.

 

Executive Compensation Principles

 

In designing and implementing our executive compensation program, the Compensation Committee is guided by the following principles:

 

Design Principle


  

Discussion


Pay-for-performance   

The Compensation Committee places a strong emphasis on performance-based compensation, which is designed to incentivize our Named Executive Officers to drive the creation of stockholder value. To this end, a significant portion of the Named Executive Officers’ target total direct compensation opportunity (i.e., base salary, annual target cash performance bonus opportunity and target value of annual long-term equity awards, but excluding the special retention awards, non-recurring new hire awards and promotional awards) is delivered in the form of a cash performance bonus and long-term equity awards.

The following charts show the allocation of the 2013 target total direct compensation opportunity for Mr. Read and the average 2013 target total direct compensation opportunity for the other Named Executive Officers:

 

LOGO              LOGO

 

 

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Design Principle


  

Discussion


     The Compensation Committee believes that the above compensation structures and mixes provided an appropriate balance for 2013 by focusing the Named Executive Officers on the goal of achieving our business objectives, including the execution of our transformation plan, without encouraging or rewarding excessive risk-taking.
Competitive compensation   

The Compensation Committee generally seeks to position each Named Executive Officer’s target total direct compensation opportunity (i.e., base salary, annual target cash performance bonus opportunity and target value of annual long-term equity awards, but excluding special retention awards, non-recurring new hire awards and promotional awards) between the 50th and 75th percentile of the competitive market (the “Target Positioning”). However, from time to time a Named Executive Officer’s target total direct compensation opportunity may vary from the Target Positioning as the result of the impact of one or more factors that the Compensation Committee believes to be significant to the best interests of us and our stockholders.

 

For 2013, the target total direct compensation opportunity for Messrs. Read, Byrne and Papermaster were within the Target Positioning. Mr. Kumar’s and Dr. Su’s 2013 target total direct compensation opportunity fell below the Target Positioning because the Compensation Committee took into account, in Mr. Kumar’s case, the promotional long-term equity award he received on January 15, 2013, and, in Dr. Su’s case, the sign-on bonus and new hire long-term equity award she received on January 15, 2012 and the special retention award she was granted on January 15, 2013 in determining their respective target total direct compensation opportunity.

Align pay practices with sound risk management   

The Compensation Committee seeks to structure our executive compensation program to motivate and reward the Named Executive Officers for appropriately balancing opportunity and risk, such as investment in key initiatives designed to advance our growth in existing and new markets, while at the same time avoiding pay practices that encourage excessive risk-taking.

 

The Compensation Committee believes that our executive compensation program fosters our objectives while mitigating potentially excessive risk-taking, through the following means:

    

  

multiple internal controls and approval processes intended to prevent manipulation of outcomes;

        pay mixes that represent an appropriate balance of fixed pay versus variable pay and short-term versus long-term incentives;
        caps on performance-based compensation opportunities;
        incentive programs that include multiple Company-wide financial measures (e.g., adjusted non-GAAP net income, adjusted non-GAAP free cash flow and revenue (in the case of the EIP) and non-GAAP operating income plus interest expense and TSR (in the case of the pRSUs)) that are quantitative and measurable;
        time-based and performance-based vesting conditions for long-term equity awards spanning multiple years;
        compensation recovery (“claw-back”) policies/provisions; and
        stock ownership requirements.

 

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Design Principle


  

Discussion


Compensation recovery   

We have adopted the following compensation recovery (“claw-back”) provisions/policies:

        Form of Stock Option, RSU and pRSU Agreements.    Each stock option, RSU and pRSU awarded since May 2010 to an employee at or above the level of senior vice president (which includes the Named Executive Officers) has included a compensation recovery (“claw-back”) provision. The claw-back provides the Compensation Committee with the right to recover all or a portion of the compensation attributable to the award if the employee’s direct involvement with fraud, misconduct or his or her gross negligence contributes to or results in us being required to prepare an accounting restatement due to our material noncompliance with any financial reporting requirement under the securities laws. The claw-back does not apply to any award awarded more than 18 months prior to the date of the first public issuance or SEC filing of the financial document embodying the reporting requirement. The Compensation Committee may exercise this claw-back right by cancelation, forfeiture, repayment and/or disgorgement of profits realized by the employee from the sale of our securities.
        Worldwide Standards of Business Conduct.    Our Worldwide Standards of Business Conduct provide that we may pursue all remedies available under applicable law to recover any incentive-based or other compensation (including equity awards) paid or granted to our employees or agents if we are required to prepare an accounting restatement as a result of our material noncompliance with any financial reporting laws.
     We continue to monitor the rulemaking activities of the SEC and NYSE with respect to the development, implementation and disclosure of compensation recovery provisions/policies. We expect to revise our compensation recovery provisions/policies in the future if and as required by applicable law.
The Named Executive Officers are subject to stock ownership requirements   

Our stock ownership requirements are designed to increase our Named Executive Officers’ stakes in us and to align their interests more closely with those of our stockholders.

 

The guidelines provide that on or before the Ownership Achievement Date (defined below), the President and/or Chief Executive Officer should attain an investment position in our common stock equal to three-times his base salary, and the other Named Executive Officers should attain an investment position equal to one-and-one-half times their base salary.

 

Shares counted toward the minimum stock ownership requirements include any shares held directly or indirectly by an executive officer and shares underlying vested but unexercised stock options, with 50% of the in-the-money value or shares (as applicable) of such stock options being used for this calculation.

 

The “Ownership Achievement Date” is the later of October 2016 or five years from first appointment as an executive officer.

 

As of December 28, 2013, each of the Named Executive Officers was on target to comply with his or her applicable stock ownership requirement by the Ownership Achievement Date.

 

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Executive Compensation Framework

 

Executive Compensation Philosophy and Objectives.    Our executive compensation philosophy is intended to (i) provide compensation and benefit programs that enable us to attract, retain and motivate high-caliber executive officers, (ii) motivate these executive officers to achieve our short-term and long-term objectives, and (iii) support our career development and succession plans.

 

To implement this philosophy, the Compensation Committee has established the following objectives:

 

   

link rewards to the achievement of our objectives that are intended to drive the creation of stockholder value;

 

   

reward corporate and individual performance;

 

   

manage the incentives for executive officers to discourage excessive risk-taking by, among other things, balancing fixed/variable pay and short-term/long-term incentives;

 

   

seek to provide an appropriate return on investment on the overall executive compensation program spending; and

 

   

require equity ownership to help align the interests of our executive officers and stockholders.

 

Role of Management.    In 2013, the Compensation Committee worked closely with three members of our management team—our President and Chief Executive Officer, our Senior Vice President and Chief Human Resources Officer and our Senior Vice President, General Counsel and Secretary—to formulate the specific plan and award designs, including performance measures and performance levels, necessary to align our executive compensation program with our business objectives and strategies.

 

Our President and Chief Executive Officer evaluates, at least annually, the performance of each of the other Named Executive Officers. The President and Chief Executive Officer reviews these evaluations with the Compensation Committee and provides recommendations regarding the compensation for the other Named Executive Officers, including base salary adjustments, annual cash performance bonuses and long-term equity awards. The Board and the Compensation Committee each conduct their own performance assessment of the President and Chief Executive Officer, and no management recommendation is made with regard to his compensation.

 

While certain members of management attended the meetings of the Compensation Committee and the Board in 2013 upon invitation, they did not attend either executive sessions or portions of any other meetings of the Compensation Committee or the Board where their own executive compensation determinations were made.

 

Role of the Compensation Committee.    The Compensation Committee regularly reviews the alignment of our executive compensation program with the strategies and needs of our business, market trends, changes in competitive practices, individual performance, our performance and the interests of our stockholders. Based on this review, the Compensation Committee approves the compensation of the Named Executive Officers, including, without limitation, base salary, short-term incentive awards (in the form of an annual cash performance and other bonuses), long-term equity awards and other benefits.

 

In general, the Named Executive Officers’ compensation is influenced by their individual performance. At least annually, the Board evaluates the performance of our President and Chief Executive Officer. The Compensation Committee will review and consider the Board’s evaluation in making its recommendations to the Board regarding the compensation and other terms of employment of our President and Chief Executive Officer. The Compensation Committee also at least annually assesses the performance of the other Named Executive Officers, taking into consideration the President and Chief Executive Officer’s evaluation of such Named Executive Officer’s individual performance. All decisions regarding the compensation of the Named Executive Officers other than that of Mr. Read are made by the Compensation Committee. Mr. Read’s compensation is approved by the Board.

 

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The assessment of each of the Named Executive Officer’s individual performance is an objective and subjective assessment of his or her accomplishments and contributions to us during the preceding fiscal year.

 

Role of Compensation Consultant.    The Compensation Committee has the authority to engage independent advisors to assist it in carrying out its responsibilities. During 2013, the Compensation Committee retained Compensia, a national compensation consulting firm, as its compensation consultant to provide assistance on executive and director compensation matters. Compensia advised the Compensation Committee on a variety of compensation-related matters in 2013, including:

 

   

the competitiveness of our executive compensation program;

 

   

the pay levels of the Named Executive Officers;

 

   

our executive compensation program design, including short-term incentive plan design, long-term incentive plan design and pay mix; and

 

   

the pay levels of the Board.

 

In 2013, Compensia did not provide any services to us or receive any payments from us, except in its capacity as a consultant to the Compensation Committee. The Compensation Committee has assessed whether the services provided by Compensia raised any conflicts of interest pursuant to applicable SEC and NYSE rules and has concluded that no such conflicts of interest existed.

 

In the course of its engagement, Compensia attended meetings of the Compensation Committee and presented its findings and recommendations for discussion. During 2013, Compensia also met with senior management to obtain and validate market data, review materials and discuss management recommendations.

 

Competitive Pay Analysis.    The Compensation Committee generally seeks to set each Named Executive Officer’s total direct compensation opportunity (i.e., base salary, target annual cash performance bonus opportunity and target value of annual long-term equity awards, but excluding non-recurring new hire and promotional awards) between the 50th and 75th percentile of the competitive market, with the opportunity for the Named Executive Officer to realize a higher level of pay in connection with superior performance. The Compensation Committee seeks to set compensation at this level to attract and retain a senior leadership team capable of executing our objectives and managing our business in a competitive industry environment. Each Named Executive Officer’s total direct compensation opportunity may vary between or fall outside of the 50th and 75th percentile of the competitive market, however, as the result of the impact of one or more factors that the Compensation Committee deems significant to the best interests of us and our stockholders.

 

Each year, the Compensation Committee reviews the compensation data and pay practices of a custom group of peer companies, in combination with industry-specific compensation survey data, to develop a subjective representation of the “competitive market” with respect to our executive compensation levels and related policies and practices. The Compensation Committee then evaluates how our pay practices and the Named Executive Officers’ compensation levels compare to the competitive market. As part of its evaluation, the Compensation Committee reviews the performance measures and performance goals generally used within the competitive market to reward performance.

 

Methodology Used to Perform the Competitive Pay Analysis.    In 2013, Compensia conducted a competitive pay analysis for the Compensation Committee for each Named Executive Officer using (i) compensation data developed from publicly available information (as of January 1, 2013) of companies included in a custom peer group (the “2013 Custom Peer Group”) and (ii) compensation data for the companies included in the 2013 Custom Peer Group as reported in the Radford Custom Executive Compensation Survey.

 

The companies comprising the 2013 Custom Peer Group were selected primarily based on their industry and revenues (generally 0.5x to 2.5x our revenues), in each case based on publicly available information as of November 7, 2012. There were no changes in the composition of the 2013 Custom Peer Group from the prior

 

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year’s compensation peer group, except that EMC Corporation and Qualcomm Incorporated were removed because of their high revenues and KLA-Tencor Corporation and ON Semiconductor Corporation were added because their industry and revenues fell within the Compensation Committee’s peer group selection guidelines. Our revenues for the four fiscal quarters ending September 30, 2012 would have placed us in approximately the 56th percentile of the 2013 Custom Peer Group based on publicly available information as of November 7, 2012. The Compensation Committee believes that the composition of the 2013 Custom Peer Group reflects an appropriate set of comparator companies for purposes of assessing our executive compensation program.

 

The Compensation Committee used the 2013 Custom Peer Group competitive pay analysis developed by Compensia as its reference source in analyzing the competitiveness of Named Executive Officers’ compensation.

 

The companies comprising the 2013 Custom Peer Group were as follows:

 

Company      GICS Sub-Industry

Applied Materials, Inc.

     Semiconductor Equipment

Broadcom Corporation

     Semiconductors

CA, Inc.

     Systems Software

Corning Incorporated

     Electronic Components

Freescale Semiconductor, Ltd.

     Semiconductors

Harris Corporation

     Communications Equipment

Juniper Networks, Inc.

     Communications Equipment

KLA-Tencor Corporation

     Semiconductor Equipment

Lexmark International, Inc.

     Computer Storage & Peripherals

Marvell Technology Group Ltd.

     Semiconductors

Micron Technology, Inc.

     Semiconductors

NetApp, Inc.

     Computer Storage & Peripherals

NVIDIA Corporation

     Semiconductors

ON Semiconductor Corporation

     Semiconductors

SanDisk Corporation

     Computer Storage & Peripherals

Seagate Technology plc

     Computer Storage & Peripherals

Symantec Corporation

     Systems Software

Texas Instruments Incorporated

     Semiconductors

Western Digital Corporation

     Computer Storage & Peripherals

 

2013 Executive Compensation Decisions

 

Elements of Compensation.    For 2013, our executive compensation program included the following principal elements:

 

Element


  

Basis of Design


Base Salary    Base salaries are provided to the Named Executive Officers as compensation for day-to-day responsibilities and services to us and to attract and retain key talent needed to manage our business. Base salaries also provide the Named Executive Officers with a consistent cash flow assuming ongoing employment.
     The annual base salaries of the Named Executive Officers as of the beginning and end of fiscal 2013, including any adjustments made during the year, were as follows:

Named Executive Officer


   Base Salary
as of
12/30/12


     Base Salary
as of
12/28/13


     Percentage
Increase


 

Rory P. Read

   $ 1,000,000       $ 1,000,000         —     

Devinder Kumar(1)

   $ 405,000       $ 500,000         23.5

John Byrne

   $ 455,000       $ 455,000         —     

Mark D. Papermaster

   $ 550,000       $ 550,000         —     

Lisa T. Su

   $ 575,000       $ 575,000         —     

 

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(1)    Mr. Kumar was appointed as our Senior Vice President and Chief Financial Officer effective January 2, 2013.
From September 17, 2012 until January 1, 2013, Mr. Kumar served as our Senior Vice President, Interim Chief
Financial Officer and Corporate Controller.

 

Effective January 2, 2013, the annual base salary of Mr. Kumar was increased by $95,000 in
connection with his promotion from Senior Vice President, Interim Chief Financial Officer and
Corporate Controller to Senior Vice President and Chief Financial Officer. The Compensation
Committee determined that this increase to Mr. Kumar’s base salary was appropriate to increase
the competitiveness of his base salary.

 

Annual Cash
Performance
Bonuses
  

Generally, short-term incentives in the form of an annual cash performance bonus are provided
to the Named Executive Officers under the EIP. These bonuses are designed to reward short-
term performance and the achievement of our annual operating plan.

 

Under the EIP, the amount of the Named Executive Officers’ annual cash performance bonus
for a performance period is calculated based on (i) the Named Executive Officer’s target annual
cash performance bonus opportunity and (ii) our corporate financial performance as measured
against pre-established performance levels. The financial measures and related performance
levels for a given performance period are approved by the Compensation Committee shortly
after the commencement of the performance period. Bonuses earned under the EIP are paid in a
single lump-sum amount after the end of the fiscal year.

 

The fiscal 2013 EIP performance period began on December 30, 2012 and ended on
December 28, 2013. The Compensation Committee used the following financial measures and
weightings to determine the amount of each Named Executive Officer’s 2013 bonus under the
EIP:

 

Financial Measure


   Weighting

 

Adjusted Non-GAAP Net Income

     50

Adjusted Non-GAAP Free Cash Flow

     25

Revenue

     25

 

The performance levels for each financial measure were established by the Compensation
Committee at the beginning of the fiscal 2013 performance period in consultation with senior
management. The performance levels were structured to align with our fiscal 2013 financial
objectives under our transformation plan, which contemplated, among other things, the facility
consolidations and other income generating opportunities, such as entry into licenses and
settlement agreements regarding patent-related matters. The adjusted non-GAAP net income
performance levels include adjustments by the Compensation Committee to exclude the impact
of the accrued employee bonus expense under the EIP and AIP for fiscal 2013, and the adjusted
non-GAAP free cash flow performance levels include adjustments by the Compensation
Committee to exclude the impact of cash payments of the fiscal 2012 EIP and AIP bonuses,
which were paid in March 2013.

 

The following table sets forth the performance levels for each of the financial measures for the
fiscal 2013 performance period at the 25%, 50%, 100% (target) and 200% (maximum) levels
and our actual performance for each of the financial measures. Since our actual performance
fell between these performance levels, the weighted performance level was linearly interpolated
to determine the actual bonus payment.

 

2013 Executive Incentive Plan Performance Levels  

Financial Measure

(millions)


  25%

    50%

    100%
(Target)

    200%
(Maximum)

    Actual
Performance


 

Adjusted Non-GAAP Net Income

  $ 33      $ 92      $ 295      $ 650      $ 39   

Adjusted Non-GAAP Free Cash Flow

  $ (379   $ (175   $ 43      $ 440      $ 47   

Revenue

  $ 5,197      $ 5,500      $ 5,800      $ 6,702      $ 5,299   

 

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Notwithstanding the adjusted non-GAAP net income, adjusted non-GAAP free cash flow and revenue financial goals, the funding and payment of any annual cash performance bonus under the EIP was contingent on our maintaining a cash balance (i.e., cash, cash equivalents and marketable securities, including long-term marketable securities) of at least $700 million on the last day of each quarter of fiscal 2013. We exceeded this cash balance on the last day of each quarter of fiscal 2013.

 

Our “adjusted non-GAAP net income” was calculated as our GAAP net loss for the fiscal 2013 performance period, adjusted to exclude the impact of the following items:

 

(i)   Amortization expenses of acquired identifiable intangible assets in connection with the acquisitions of ATI Technologies Inc. and SeaMicro, Inc.
(ii)   Net restructuring and other special charges, primarily consisting of the sale and lease back of buildings in various locations, the sale of a building in Austin, Texas and restructuring costs related to facility consolidation and site closures, which were partially offset by the release of estimated employee-related severance costs.
(iii)   Amounts accrued as of December 28, 2013 for fiscal 2013 employee bonuses under the EIP and AIP.

 

The Compensation Committee chose this measure of adjusted non-GAAP net income because it reflects our bottom-line financial performance or profitability, which the Compensation Committee believes is directly tied to stockholder value creation on a short-term basis.

 

Our “adjusted non-GAAP free cash flow” was calculated by adjusting our GAAP net cash used in operating activities for the fiscal 2013 performance period for:

(i)   Purchase of property, plant and equipment.
(ii)   Cash provided by net proceeds from the sale and lease back of buildings in various locations and the sale of a building in Austin, Texas. The Compensation Committee believes this adjustment reflects the fiscal 2013 financial performance objectives of our transformation plan, which contemplated facility consolidations.
(iii)   Cash payments for fiscal 2012 employee bonuses under the EIP and AIP, which were paid in March 2013.

 

The Compensation Committee chose this measure of adjusted non-GAAP free cash flow because it believes effective cash management is a key component of our transformation plan, the successful execution of which the Compensation Committee believes will help drive growth of stockholder value. In addition, the Compensation Committee believes that this measure avoids artificial deflation of the annual bonus due to unusual items in the performance period and items that are not indicative of operating performance or the underlying performance of our core business.

 

Our “revenue” was calculated as our GAAP net revenue for the fiscal 2013 performance period. The Compensation Committee chose revenue as a financial measure because it reflects our top line growth, which the Compensation Committee believes is a strong indicator of our long-term ability to create stockholder value.

 

Each Named Executive Officer’s annual cash performance bonus, to the extent earned, was determined as the product of (i) his or her base salary during the performance period, (ii) his or her annual target cash performance bonus opportunity (i.e., 150% of base salary for Mr. Read and 100% of base salary for the other Named Executive Officers), and (iii) the weighted performance level (based upon actual adjusted non-GAAP net income, adjusted non-GAAP free cash flow and revenue) attained for the performance period, which can range from 0% to 200%.

 

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Based on our fiscal 2013 performance as measured against the performance levels discussed above, the Compensation Committee approved annual cash performance bonuses under the EIP for each of the Named Executive Officers at 47% of target. Each Named Executive Officer’s 2013 target annual cash performance bonus, together with his or her actual 2013 bonus, was as follows:

 

2013 Executive Incentive Plan Awards

 

Named Executive
Officer


  Base Salary
During 2013


    Fiscal 2013
Target
Annual
Bonus
Opportunity


  Weighted Performance
Level
(Based upon actual
Adjusted Non-GAAP
Net Income, Adjusted
Non-GAAP Free Cash
Flow and Revenue)
(% of Target)


  Target
Performance
Bonus


    Actual
Performance
Bonus


      Minimum

  Maximum

   

Rory P. Read

  $ 1,000,000      150%   0%   200%   $ 1,500,000      $705,000

Devinder Kumar

  $ 500,000      100%   0%   200%   $ 500,000      $235,000

John Byrne

  $ 455,000      100%   0%   200%   $ 455,000      $213,850

Mark D. Papermaster

  $ 550,000      100%   0%   200%   $ 550,000      $258,500

Lisa T. Su

  $ 575,000      100%   0%   200%   $ 575,000      $270,250

 

The Compensation Committee reviews and certifies our level of achievement for each performance measure before any payments are made. This review and certification is generally performed at the first regularly scheduled Compensation Committee meeting following the end of the year with any payout of the annual cash performance bonus occurring shortly thereafter. Under the terms of the EIP, the Compensation Committee has the authority to reduce any Named Executive Officer’s annual cash performance bonus prior to payment. For 2013, the Compensation Committee did not exercise this authority in connection with any of the Named Executive Officers.
Long-Term Equity Awards (in the form of pRSUs, RSUs and Stock Options)   

Grants of stock awards to our Named Executive Officers are approved by the Compensation Committee. Generally, the grant date of a stock award is the fifteenth day of the month of the Compensation Committee’s approval or, if the Compensation Committee’s approval occurs after the fifteenth day of the month, the grant date is the fifteenth day of the following month. However, the Compensation Committee may approve grants of stock awards with a later, pre-established grant date.

 

For 2013, the Compensation Committee granted the Named Executive Officers long-term equity awards under the 2004 Plan.

 

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     On July 22, 2013, each of the Named Executive Officers received long-term equity awards in the form of pRSUs, RSUs and stock options. The allocation of the aggregate target values of the 2013 long-term equity awards for each of the Named Executive Officers was as follows:

 

    

LOGO

 

The Compensation Committee believes that this award mix balances the incentives for pursuing stock price performance (primarily through stock options) and corporate financial and relative stock price performance (primarily through pRSUs), while encouraging continued employment and rewarding stable value delivery (primarily through pRSUs and RSUs).

 

Performance-Based Restricted Stock Unit Awards.    In 2013, the Compensation Committee awarded 50% of the target value of the Named Executive Officers’ 2013 long-term equity awards in the form of pRSUs. Each pRSU award provides for a grant of a target number of shares of our common stock (the “Target Shares”). The actual number of shares the Named Executive Officer receives following vesting is determined based on (i) our non-GAAP operating income plus interest expense over the 18-month performance period beginning July 1, 2013 and ending December 31, 2014, and (ii) our TSR relative to the TSRs of the companies comprising the S&P 500 IT Sector over the same 18-month performance period.

 

The minimum, target and maximum levels for the non-GAAP operating income plus interest expense measure were established at the inception of the award. This performance criterion was chosen because the Compensation Committee believes it reflects a commonly recognized measure of overall company performance and is associated with the creation of value for our stockholders. At the end of the performance period, the initial number of shares varies between 0% of the Target Shares, if performance is below the minimum level, and 160% of the Target Shares, if performance is at or above the maximum level. For performance between the minimum level and maximum level, a proportionate percentage between 40% and 160% is applied to the Target Shares based on relative performance between the minimum and maximum levels. We are not disclosing specific minimum, target and maximum performance levels used in this calculation because we believe such disclosure would cause us competitive harm and we consider this information to be confidential business information. We believe that the target level is reasonably challenging to achieve, while the minimum level is more likely to be achieved and the maximum level more difficult to achieve.

 

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The initial number of shares is then adjusted based on our TSR relative to the TSRs of the companies comprising the S&P 500 IT Sector over the same 18-month performance period. If our TSR for the performance period is at or below the 25th percentile, then the Named Executive Officer will earn 75% of the initial number of shares. If our TSR for the performance period is at or above the 75th percentile, then the Named Executive Officer will earn 125% of the initial number of shares. If our TSR for the performance period is above the 25th percentile and below the 75th percentile, a proportionate adjustment between 75% and 125% is applied to the initial number of shares based on relative performance between the 25th and 75th percentile.

 

The earned shares vest 50% on June 30, 2015, six months after the end of the performance period, and the remaining 50% vest on June 30, 2016, subject to the Named Executive Officer’s continued employment with us through each vesting date.

 

Stock Options.    The stock options are intended to align the Named Executive Officers’ interests with our stockholders’ interests, because they will not realize any financial benefit from these awards unless our stock price appreciates over the option term. These stock options have an exercise price equal to 100% of the fair market value of our common stock on the grant date. The shares of our common stock subject to the options vest as to one-third of the shares on the first anniversary of the grant date and, as to the remaining two-thirds of such shares, at a rate of 8.333% per quarter for the following eight quarters, and expire seven years after the grant date.

 

Restricted Stock Unit Awards.    The RSUs are intended to encourage executive retention, manage share dilution, recognize individual performance and align the Named Executive Officers’ interests with our stockholders’ interests, because the value of the awards is tied to the market value of our common stock. The shares of our common stock subject to the RSUs vest as to one-third of the shares on each of August 9, 2014, August 9, 2015 and August 9, 2016.

 

Aggregate Target Value of Annual Equity Award Grant.    The Compensation Committee set the aggregate target value for the long-term equity awards granted on July 22, 2013 to each Named Executive Officer consistent with the target range of the competitive market data compiled by Compensia. In determining the aggregate target value for Mr. Kumar’s July 22, 2013 equity award, the Compensation Committee took account of the RSUs and stock options awarded to him on January 15, 2013, in connection with his appointment as our Senior Vice President and Chief Financial Officer. In determining the aggregate target value for Messrs. Byrne’s and Papermaster’s and Dr. Su’s July 22, 2013, equity awards, the Compensation Committee factored in the RSU component of their special retention awards.

 

The Compensation Committee then converted the aggregate target value of each July 22, 2013 equity award into a mix of pRSUs, RSUs and stock options with (i) the number of pRSUs determined by dividing one-half of the aggregate target value by $4.00 (the greater of $4.00 or the 30-day trailing average closing price of our common stock on the grant date), (ii) the number of RSUs determined by dividing one-quarter of the aggregate target value by $4.00, and (iii) the number of shares of our common stock subject to stock options determined by dividing one-quarter of the aggregate target value by $4.00 and multiplying that by 41.59%, the then-current binomial discount factor.

 

Additionally, in approving the 2013 equity awards for the Named Executive Officers, the Compensation Committee considered an affordable annual share usage, executive retention objectives and continuity within senior management and, in the case of each of the Named Executive Officers, the following individual performance factors:

 

•       Rory P. Read—Mr. Read’s (i) leadership in the challenging macroeconomic environment, including, in particular, his refinements to and execution of our business strategy and our talent development objectives, and (ii) expected future contributions;

    

 

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•      Devinder Kumar—Mr. Kumar’s (i) contributions to our global finance function (including related financial planning and analysis), (ii) management and oversight of various treasury functions, and (iii) expected future contributions;

 

•      John Byrne—Mr. Byrne’s personal performance in managing our worldwide sales organization and his expected future contributions;

 

•      Mark D. Papermaster—Mr. Papermaster’s (i) management and oversight of our Technology and Engineering organization, which includes engineering, research and development and product development responsibilities, and (ii) expected future contributions; and

 

•      Lisa T. Su—Dr. Su’s (i) management and oversight of our global business units, which drive end-to-end business execution of our products, including strategy and product definition, (ii) management and development of our partnerships with software developers, and (iii) expected future contributions.

 

The equity awards (including the annual long-term equity awards and the special retention awards and promotion awards) approved by the Compensation Committee in 2013 for the Named Executive Officers were as follows:

 

2013 Long-Term Equity Awards

 

 

Named Executive Officer


   Grant Date

     Target
Value of
Equity
Award(1)


     Shares
Underlying
Stock
Options


     Shares
Underlying
pRSUs


     Shares
Underlying
RSUs


 

Rory P. Read

     07/22/2013       $ 6,500,000         976,797         812,500         406,250   

Devinder Kumar

     07/22/2013       $ 1,700,000         255,470         212,500         106,250   
       01/15/2013       $ 1,500,000         726,556         N/A         336,322   

John Byrne

     07/22/2013       $ 1,800,000         270,497         225,000         112,500   
       01/15/2013       $ 450,000         N/A         N/A         205,450   

Mark D. Papermaster

     07/22/2013       $ 1,800,000         270,497         225,000         112,500   
       01/15/2013       $ 450,000         N/A         N/A         205,450   

Lisa T. Su

     07/22/2013       $ 2,000,000         300,553         250,000         125,000   
       01/15/2013       $ 600,000         N/A         N/A         273,935   

(1)    This column reflects the target value of the Named Executive Officers’ time-based stock options, RSUs and pRSUs (as applicable), which may be greater or less than the aggregate grant date fair value of such awards or the value that the respective Named Executive Officer realizes upon exercise of the time-based stock options and vesting of the pRSU and RSU awards.

Special Retention Awards    In January 2013, the Compensation Committee granted special retention awards to Messrs. Byrne and Papermaster and Dr. Su described under “—Executive Summary—Significant Aspects of our 2013 Executive Compensation Program,” above.
Deferred Compensation   

In 2013, the Named Executive Officers were eligible to participate in our Deferred Income Account Plan (the “DIA”). Participation in the DIA is intended to assist the Named Executive Officers in their retirement planning, as well as restore Company contributions that are lost due to IRS limits applicable to contributions in our Section 401(k) plan.

 

For further information about the DIA, see “2013 Nonqualified Deferred Compensation,” below.

 

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Health, Welfare and Other Personal Benefits (Perquisites)   

In 2013, a broad population of our employees, including the Named Executive Officers, were eligible to receive the following health, welfare and other personal benefits:

 

•      participation in our U.S. benefit programs, including our Section 401(k) plan, health care coverage, paid time-off and paid holidays;

 

•      Company matching contributions under our Section 401(k) plan, which were equal to 75% of an employee’s annual contribution, up to the first 6% of compensation deferred under the plan; and

 

•      patent awards, if earned.

    

In addition to the above, the Named Executive Officers were eligible to receive an annual physical examination and executive life insurance.

 

We also provide for air and other travel for the Named Executive Officers for business purposes only, which may include air travel on aircraft charted by us. From time-to-time we may request that a Named Executive Officer’s spouse, significant other or dependent (an “invitee”) accompany the Named Executive Officer on such business-related travel. Occasionally, invitees may ride along on Company-chartered aircraft for personal reasons when the aircraft is already going to a specific destination for a business reason, the travel does not result in any significant incremental cost to us and the Named Executive Officer pays us an amount equal to the economy fare of the most directly comparable commercial aircraft flight plus any incremental costs to us. No tax protection is provided to a Named Executive Officer related to his or her invitee’s use of Company-chartered aircraft or Company-provided travel, whether or not the invitee’s travel is at our request for business purposes. All use of Company-chartered aircraft in 2013 by invitees of our Named Executive Officers complied with our guidelines for invitee’s use of Company-chartered aircraft.

 

The health, welfare and other personal benefits described above are intended to be part of a competitive overall compensation program and help attract and retain employee talent.

 

For further information regarding the health, welfare and other personal benefits paid to the Named Executive Officers during 2013, see “2013 Summary Compensation Table,” below.

 

Other Aspects of Our Executive Compensation Program

 

Change in Control Agreements and Other Change in Control Arrangements.    Mr. Read’s change in control arrangement is set forth in his employment agreement, the terms of which were the result of arms-length negotiations between him and the Compensation Committee. Each of the other Named Executive Officers is subject to a change in control agreement with us. These arrangements are designed to encourage the Named Executive Officers’ continued services in the event of a potential change in control of us and to allow for a smooth leadership transition upon such a change in control. In addition, these arrangements are intended to provide incentives to the Named Executive Officers to effectively execute the directives of the Board, even in the event that such actions may result in the elimination of a Named Executive Officer’s position.

 

Under the terms and conditions of these arrangements, a Named Executive Officer is eligible to receive certain specified compensatory payments and benefits only if (i) a “change in control” of us occurs and (ii) the Named Executive Officer’s employment is terminated or the Named Executive Officer is constructively discharged within two years of the change in control. The Compensation Committee believes this structure strikes a balance between our incentive arrangements and our executive hiring and retention objectives without providing “windfall” payments and benefits to any Named Executive Officers who continue employment with an acquiring entity following our change in control.

 

We have a policy of not entering into any new management continuity agreements, change in control agreements or other change in control arrangements (i) containing an excise tax gross-up provision or (ii) providing for a cash severance payment in excess of (A) two times the sum of the executive’s base salary and annual target bonus, plus (B) a prorated annual target bonus for the year in which the termination occurs.

 

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Mr. Read’s change in control arrangement and the change in control agreements with the other Named Executive Officers comply with this policy.

 

For a detailed description of the payments and benefits payable under these arrangements, see “Severance and Change in Control Arrangements,” below.

 

Severance Arrangements.    Any severance payable to Mr. Read is governed solely by his employment agreement, the terms of which were the result of arms-length negotiations between him and the Compensation Committee. Under his employment agreement, Mr. Read is eligible to receive certain specified payments and benefits in the event that his employment is terminated as further described in “Severance and Change in Control Arrangements,” below.

 

With the exception of Mr. Read, all of the Named Executive Officers participate in the SVP Severance Plan. The SVP Severance Plan was adopted by the Compensation Committee in June 2013 to implement a uniform process for handling potential future involuntary departures of U.S. senior executives (except Mr. Read) and to provide a level of transition assistance in the event of an involuntary termination of employment with the goal of keeping executives focused on our business rather than their personal circumstances. Under the SVP Severance Plan, participants who incur an involuntary termination, not for cause, and who execute a full release of claims following such termination are eligible to receive severance benefits of (i) a single lump sum payment of one-times the participant’s annual base salary, (ii) Company-paid COBRA continuation coverage under our group health plan for up to twelve months, and (iii) use of our Employee Assistance Plan for up to twelve months. A Named Executive Officer will not receive severance benefits under the SVP Severance Plan if he or she receives severance benefits in connection with a change in control pursuant to his or her change in control agreement.

 

Although the majority of each Named Executive Officer’s 2013 target total direct compensation opportunity is performance-based and contingent upon achievement of our financial goals and/or our stock price performance, the Compensation Committee believes that the SVP Severance Plan provides important protections to the participating Named Executive Officers and is appropriate for attraction and retention of executive talent.

 

Compliance with Financial Accounting Standards.    We apply Financial Accounting Standard Board Accounting Standards Codification Topic 718 (“ASC Topic 718”) to account for our share-based compensation awards. ASC Topic 718 requires us to measure and recognize compensation expense in our consolidated financial statements for all share-based payment awards made based on the grant date “fair value” of such awards. In accordance with ASC Topic 718, compensation cost is recognized in the consolidated financial statements over the period in which a recipient is required to provide services in exchange for the stock-based awards (the “requisite service period”). Reported in the compensation tables below is the aggregate grant date fair value of awards granted during the fiscal year, even though our Named Executive Officers may never realize any value from their awards upon vesting.

 

Deductibility of Executive Compensation.    Section 162(m) of the Internal Revenue Code (the “Code”) generally disallows public companies a tax deduction for federal income tax purposes of remuneration in excess of $1 million paid to our Chief Executive Officer and each of the three other most highly compensated executive officers (other than our Chief Financial Officer) in any taxable year. Generally, remuneration in excess of $1 million may only be deducted if it is “performance-based compensation” within the meaning of the Code.

 

The Compensation Committee believes that, in establishing the cash and equity incentive compensation plans and arrangements for our executive officers, the potential deductibility of the compensation payable under those plans and arrangements should be only one of a number of relevant factors taken into consideration and not the sole governing factor. For that reason, the Compensation Committee may deem it appropriate to provide one or more executive officers with the opportunity to earn incentive compensation, whether through cash incentive awards or equity incentive awards, which may not be deductible by reason of Section 162(m) or other provisions of the Code.

 

The Compensation Committee believes it is important to maintain cash and equity incentive compensation at the requisite level to attract and retain the individuals essential to our financial success, even if all or part of that compensation may not be deductible by reason of the Section 162(m) limitation.

 

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COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this proxy statement. Based on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

 

COMPENSATION COMMITTEE

John E. Caldwell, Chair
Nicholas M. Donofrio
H. Paulett Eberhart

 

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COMPENSATION POLICIES AND PRACTICES

 

The Compensation Committee reviewed our compensation policies and practices for employees generally and concluded that these policies and practices do not create risks that are reasonably likely to have a material adverse effect on us.

 

In reaching this conclusion, the Compensation Committee, with the assistance of management, assessed our executive and broad-based compensation and benefits programs to determine if any of them created undesired or excessive risks of a material nature. The assessment included (i) a review of our compensation policies and practices for employees generally, (ii) identification of the risks that could result from such policies and practices, (iii) identification of the risk mitigators and controls, and (iv) analysis of the potential risks against the risk mitigators and controls and our business strategy and objectives. Although the Compensation Committee reviewed all of our compensation programs, the Compensation Committee focused on the programs that have variability of payout and in which employees could directly affect the payout of incentives. These programs included the EIP, AIP, Sales Incentive Plan and 2004 Plan.

 

In performing the assessment and reaching its conclusion, the Compensation Committee noted the following factors that the Compensation Committee believes may reduce the likelihood of undesired or excessive risk-taking:

 

   

Our overall compensation levels are competitive with the market.

 

   

Our compensation practices and policies appropriately balance base pay versus variable pay and short-term versus long-term incentives.

 

   

Although the EIP, AIP and Sales Incentive Plan have variability of payout, the Compensation Committee believes that any potential risks associated with such plans are controlled or mitigated by one or more of the following: (i) the performance goals being multi-dimensional (e.g., adjusted non-GAAP net income, adjusted non-GAAP free cash flow and revenue), thereby increasing the range of performance over which incentives are paid, (ii) the performance goals being aligned with our transformation plan and business objectives and being quantitative financial measures, (iii) the use of sliding payout scales, with the payouts in certain instances being linearly interpolated for performance falling between the performance levels set by the Compensation Committee, (iv) the ability of the Compensation Committee and/or management to exercise discretion to reduce payouts, (v) the existence of multiple internal controls and approval processes that are intended to prevent manipulation of outcomes by any employee, including the Named Executive Officers, and (vi) the incentive opportunities being capped.

 

   

Although the grant of equity awards under the 2004 Plan could incentivize our employees to, among other things, focus on increasing our short-term stock price rather than the creation of stockholder value, the Compensation Committee believes that potential risks are controlled or mitigated by one or more of the following: (i) awarding a combination of stock options, pRSUs and RSUs, (ii) the vesting provisions of stock options and RSUs occurring over multi-year periods, (iii) the performance goals of the pRSUs being multi-dimensional (i.e., our non-GAAP operating income plus interest expense and our TSR) and vesting of pRSUs occurring over an 18-month period following the end of the performance period, (iv) caps on performance-based compensation opportunities, and (v) our stock ownership guidelines for our executive officers. In addition, we prohibit our employees, including Named Executive Officers, from engaging in hedging transactions in our securities.

 

   

We have implemented claw-back provisions and policies, as described in more detail in “Compensation Discussion and Analysis,” above.

 

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EXECUTIVE COMPENSATION

 

The following table shows compensation information for the individuals serving as our Chief Executive Officer and Chief Financial Officer during 2013 and our three most highly compensated executive officers other than our Chief Executive Officer and Chief Financial Officer who were serving as executive officers at the end of 2013.

 

2013 SUMMARY COMPENSATION TABLE

 

Name and Principal Position


  Year

    Salary
($)(1)

    Bonus
($)(2)

    Stock
Awards
($) (3)

    Option
Awards
($) (4)

    Non-Equity
Incentive Plan
Compensation
($)(5)

    All Other
Compensation
($)(6)

    Total
($)

 

(a)

 

(b)

   

(c)

   

(d)

   

(e)

   

(f)

   

(g)

   

(i)

   

(j)

 

Rory P. Read(7)

    2013      $ 1,000,002      $ 0      $ 4,891,250      $ 1,582,411      $ 705,000      $ 32,827      $ 8,211,490   

President and

Chief Executive Officer

    2012      $ 1,000,002      $ 0      $ 3,744,848      $ 1,596,407      $ 568,500      $ 388,571      $ 7,298,328   
    2011      $ 353,847      $ 1,530,770      $ 6,746,597      $ 6,953,314      $ 0      $ 25,823      $ 15,610,351   

Devinder Kumar(8)

    2013      $ 508,875      $ 0      $ 2,180,593      $ 1,265,966      $ 235,000      $ 23,609      $ 4,214,043   

Senior Vice President and

Chief Financial Officer

    2012      $ 423,689      $ 125,000      $ 288,059      $ 122,801      $ 153,495      $ 19,060      $ 1,132,104   
    2011      $ —       $ —       $ —       $ —       $ —       $ —       $ —    

John Byrne(9)

    2013      $ 455,000      $ 233,600      $ 1,905,106      $ 438,205      $ 213,850      $ 26,226      $ 3,271,987   

Senior Vice President and

Chief Sales Officer

    2012      $ 392,175      $ 233,600      $ 1,215,575      $ 624,505      $ 212,418      $ 21,811      $ 2,700,084   
    2011      $ —       $ —       $ —       $ —       $ —       $ —       $ —     

Mark D. Papermaster(10)

    2013      $ 549,994      $ 0      $ 1,905,106      $ 438,205      $ 258,500      $ 19,746      $ 3,171,551   

Chief Technology Officer and Senior Vice President—Technology and Engineering

    2012      $ 549,994      $ 0      $ 1,152,260      $ 491,202      $ 208,450      $ 54,712      $ 2,456,618   
    2011      $ 105,768      $ 450,000      $ 1,610,847      $ 1,105,324      $ 0      $ 342      $ 3,272,281   

Lisa T. Su(11)

    2013      $ 574,995      $ 0      $ 2,239,146      $ 486,896      $ 270,250      $ 20,121      $ 3,591,408   

Senior Vice President and General Manager, Global Business Units

    2012      $ 572,784      $ 225,000      $ 2,844,877      $ 2,004,874      $ 286,875      $ 77,036      $ 6,011,446   
    2011      $ —       $ —       $ —       $ —       $ —       $ —       $ —     

(1) For 2013, salary amounts also reflect $9,615 for Mr. Kumar, representing a cash out of a portion of his accrued vacation.
(2) For 2013, bonus amount reflects a retention bonus payment of $233,600 for Mr. Byrne, which represents the second half of the retention bonus originally granted to him in 2011.
(3) Amounts shown represent the aggregate grant date fair value of the RSUs granted in the year indicated computed in accordance with ASC Topic 718, except no assumptions for forfeiture were included. For a discussion of the assumptions made in the valuations reflected in this column, see Note 14 of the Notes to Consolidated Financial Statements in our Annual Report. The actual value that may be realized from an award is contingent upon the satisfaction of the conditions to vesting in that award. Thus, there is no assurance that the value, if any, eventually realized will correspond to the amount shown. In addition, for 2013, the amounts shown include the grant date fair value of the target number of pRSUs awarded in 2013 to each Named Executive Officer, as set forth in the table below. The grant date fair value of the pRSUs is determined using a Monte-Carlo simulation model and based upon a discounted cash flow analysis of the probability-weighted payoffs of a share-based payment assuming a variety of possible stock price paths and represents the estimate of aggregate compensation cost to be recognized over the requisite service period determined as of the grant date under ASC Topic 718, except no assumptions for forfeitures were included.

 

Named Executive Officer


   Grant Date

     Shares
Underlying
pRSUs at Target (#)


     Grant Date
Fair Value
at Target ($)


     Shares
Underlying
pRSUs at Maximum (#)


     Grant Date
Fair Value
at Maximum ($)

 

Rory P. Read

     7/22/2013         812,500       $ 3,306,875         1,625,000       $ 6,613,750   

Devinder Kumar

     7/22/2013         212,500       $ 864,875         425,000       $ 1,729,750   

John Byrne

     7/22/2013         225,000       $ 915,750         450,000       $ 1,831,500   

Mark D. Papermaster

     7/22/2013         225,000       $ 915,750         450,000       $ 1,831,500   

Lisa T. Su

     7/22/2013         250,000       $ 1,017,500         500,000       $ 2,035,000   

(4) Amounts shown represent the aggregate grant date fair value of option awards granted in the year indicated computed in accordance with ASC Topic 718, except no assumptions for forfeiture were included. For a discussion of the assumptions made in the valuations reflected in this column, see Note 14 of the Notes to Consolidated Financial Statements in our Annual Report. The actual value, if any, that may be realized from an option award is contingent upon the satisfaction of the conditions to vesting of that award, and upon the excess of our stock price over the exercise price, if any, on the date the option award is exercised. There is no assurance that the value, if any, eventually realized will correspond to the amount shown.

 

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(5) Amounts shown represent the annual cash performance bonuses earned under the EIP. Pursuant to the EIP, the bonus awards were based on our performance during the 2013 fiscal year (i.e., December 30, 2012 to December 28, 2013) as evaluated against the following pre-established Company-wide financial measures: adjusted non-GAAP net income, adjusted non-GAAP free cash flow and revenue. The funding and payment of any annual cash performance bonuses under the EIP for 2013 was contingent upon our maintaining a cash balance (i.e., cash, cash equivalents and marketable securities, including long-term marketable securities) of at least $700 million on the last day of each quarter of fiscal 2013. We exceeded this cash balance on the last day of each quarter of fiscal 2013. See “Compensation Discussion and Analysis,” above, for further information.
(6) All Other Compensation for 2013 consists of the following amounts:

 

Name


   Matching
Contributions
to 401(k)


     Life
Insurance
Premiums
Paid by
Company


     Spousal
Travel at
Company
Request(12)


     Gift of
Personal
Property(13)


     Company
Contribution
Under
Deferred
Income
Account
Plan


     Total

 

Rory P. Read

   $ 11,475       $ 2,484       $ 17,862       $ 1,006       $ 0       $ 32,827   

Devinder Kumar

   $ 11,475       $ 1,242       $ 0       $ 503       $ 10,389       $ 23,609   

John Byrne

   $ 11,475       $ 1,270       $ 12,978       $ 503       $ 0       $ 26,226   

Mark D. Papermaster

   $ 11,475       $ 1,366       $ 756       $ 938       $ 5,211       $ 19,746   

Lisa T. Su

   $ 11,475       $ 1,428       $ 6,280       $ 938       $ 0       $ 20,121   

(7) Mr. Read joined us in August 2011.
(8) Mr. Kumar was designated an executive officer by our Board in connection with his appointment as Senior Vice President, Interim Chief Financial Officer and Corporate Controller effective September 17, 2012 and was promoted to Senior Vice President and Chief Financial Officer effective January 2, 2013. Accordingly, we have only included compensation information for Mr. Kumar for 2013 and 2012.
(9) Mr. Byrne was designated an executive officer by our Board in connection with his appointment as Senior Vice President and Chief Sales Officer effective August 2012. Accordingly, we have only included compensation information for Mr. Byrne for 2013 and 2012.
(10) Mr. Papermaster joined us in October 2011.
(11) Dr. Su joined us in January 2012.
(12) This amount represents the direct costs of commercial airline flights and/or other travel expenses paid for by us for a spouse of a Named Executive Officer who accompanied such Named Executive Officer certain business-related travel where the spouse’s participation was requested by us. In addition, during 2013, Mr. Read’s spouse accompanied Mr. Read on certain business-related travel, including on Company-chartered aircraft. There was no incremental cost to us for flights by Mr. Read’s spouse on Company-chartered aircraft, except for the cost of meals. Therefore, no amounts related to these flights have been included in this column for Mr. Read, other than $247, the
  cost of meals for Mr. Read’s spouse on these flights, which is included in this column for Mr. Read. See “Compensation Discussion and Analysis,” above, for further information.
(13)

This amount represents the direct costs for Sony PlayStation®4 and/or Microsoft® Xbox OneTM game console systems paid for by us and gifted to a Named Executive Officer.

 

2013 NON-QUALIFIED DEFERRED COMPENSATION

 

Messrs. Kumar and Papermaster are the only Named Executive Officers who participate in the DIA, a non-qualified deferred compensation plan. Except for amounts deferred and vested prior to January 1, 2005, the DIA is subject to Section 409A of the Code. The following table shows certain information for these executives under the DIA for 2013.

 

Name


   Executive
Contributions
in Last FY(1)
($)


     Registrant
Contributions
in Last FY
($)(2)


     Aggregate
Earnings
in Last
FY ($)(3)


     Aggregate
Withdrawals/
Distributions
($)


     Aggregate
Balance at
Last FYE
($)(4)


 
(a)    (b)      (c)      (d)      (e)      (f)  

Devinder Kumar

   $ 124,815       $ 10,389       $ 155,082       $ 0       $ 1,291,773   

Mark D. Papermaster

   $ 10,423       $ 5,211       $ 2,013       $ 0       $ 12,436   

(1) For Mr. Kumar, this amount is included in the “Salary” column of the 2013 Summary Compensation Table. For Mr. Papermaster, this amount represents non-equity incentive compensation under the EIP earned in 2012 that would have been paid in 2013 if it had not been deferred under the DIA.
(2) These amounts are included in the “All Other Compensation” column of the 2013 Summary Compensation Table and reflect contributions by us that posted in 2014 but are applicable to 2013.

 

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(3) Represents the net amounts credited to the DIA accounts of Messrs. Kumar and Papermaster as a result of the performance of the investment vehicles in which their accounts were deemed invested, as more fully described in the narrative disclosure below. These amounts do not represent above-market or preferential earnings (within the meaning of 17 CFR Section 229.402(c)(2)(viii)), and thus are not reported in the 2013 Summary Compensation Table.
(4) This amount includes $101,249 for Mr. Kumar that was previously included in the “Salary” column of the 2012 Summary Compensation Table of our 2013 proxy statement. Does not include amounts in column (c) because our contributions to Messrs. Kumar’s and Papermasters’s DIA posted in 2014, although they were applicable to 2013.

 

We maintain the DIA, which allows eligible employees, including the Named Executive Officers, to voluntarily defer receipt of a portion of their salary, bonus and any commission payments until the date or dates selected by the participant. Participants may defer up to 50% of annual base salary and/or 100% of commissions and bonuses. Earnings on the deferred accounts are based on the performance of the investment funds selected by the participants. Participants make a deferral election prior to the year in which the compensation is earned that may not be terminated or changed during the year for which it was made. Generally, we make a discretionary contribution to the participant’s account if his or her annual base salary, minus her or her Section 401(k) contribution before the deferral, is greater than the annual compensation limit for Section 401(k) plans. The contribution, if any, is equal to the lesser of (i) 50% of the deferred compensation credited to the participant’s account for the year or (ii) a discretionary percentage of the participant’s base salary in excess of the eligible Section 401(k) compensation limit for the year minus the participant’s Section 401(k) contributions. For 2013, our discretionary contribution percentage under option (ii) above was 4.5%. Participants are 100% vested in the value of their accounts. Participants may select their desired benchmark investment fund(s) in which their accounts are deemed to be invested and may change their investment elections at any time, with such change effective from the next business day. The amount of investment gain or loss that is credited to the participant’s account depends on the participant’s investment election. For 2013, we utilized investment funds in an array of asset classes, substantially aligned to those offered under our Section 401(k) plan. We have placed assets in mutual funds held in a Rabbi trust established for the DIA. For Mr. Kumar, the investment return was calculated by taking the aggregate gain in 2013 and dividing it by the aggregate balance as of the beginning of 2013. Because Mr. Papermaster began participating in the DIA in 2013 and did not have a balance in his account at the beginning of 2013, we calculated his investment return by using the dollar weighted rate of return, also known as the internal rate of return. For 2013, the investment return credited to the DIA accounts of Messrs. Kumar and Papermaster were 15.3% and 19.3% respectively, based on their respective investment elections for their DIA accounts.

 

The DIA accounts are distributed following a participant’s termination of employment with us unless the participant has elected an in-service withdrawal (scheduled or hardship withdrawal). At the time a participant makes his or her deferral election, he or she may elect a different form of distribution for such year’s deferred compensation. The participant may elect a single lump sum distribution or annual installment distributions over three to ten years. The default form of distribution is a single lump sum. A participant may change the form of distribution election, subject to the terms of the DIA.

 

A participant may elect to withdraw all or part of his or her account while employed by us, subject to the terms of the DIA. The in-service withdrawal date must be at least two years after the plan year in which the election was made. An in-service withdrawal date may be changed, subject to the terms under the DIA. An unscheduled payment may also be made, subject to the terms of the DIA.

 

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OUTSTANDING EQUITY AWARDS AT 2013 FISCAL YEAR-END

 

The following table shows all outstanding equity awards held by the Named Executive Officers as of December 28, 2013.

 

Name


  Option Awards

    Stock Awards

 
  Number of
Securities
Underlying
Unexercised
Options
(#)  Exercisable


    Number of
Securities
Underlying
Unexercised
Options
(#) Unexercisable


    Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)


    Option
Exercise
Price
($)


    Option
Expiration
Date


    Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)


    Market
Value of
Shares or
Units
of Stock
That Have
Not
Vested
($)(1)


    Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or Other
Rights
That
Have Not
Vested
(#)


    Equity
Incentive
Plan
Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested ($)(1)


 
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)  

Rory P. Read

                                            239,000 (2)    $ 903,420                   
                                              181,305 (3)    $ 685,333                   
                                              406,250 (4)    $ 1,535,625                   
                                                              287,000 (5)    $ 1,084,860   
                                                              543,914 (6)    $ 2,055,995   
                                                              812,500 (7)    $ 3,071,250   
      1,231,333        615,667 (8)            $ 6.37        8/25/2018                                   
      348,484        348,485 (9)            $ 5.87        6/15/2019                                   
      0                739,000 (10)    $ 6.37        8/25/2018                                   
      0        976,797 (11)            $ 3.90        7/22/2020                                   

Devinder Kumar

                                            12,270 (12)    $ 46,381                   
                                              13,946 (3)    $ 52,716                   
                                              336,322 (21)    $ 1,271,297                   
                                              106,250 (4)    $ 401,625                   
                                                              41,839 (6)    $ 158,151   
                                                              212,500 (7)    $ 803,250   
      730        0              $ 5.64        8/15/2015                                   
      730        0              $ 2.43        11/15/2015                                   
      77,800        0              $ 2.21        12/15/2015                                   
      730        0              $ 2.42        2/15/2016                                   
      26,875        0              $ 4.01        5/15/2016                                   
      26,875        0              $ 3.69        8/15/2016                                   
      6,111        0              $ 3.80        2/15/2015                                   
      15,555        0              $ 3.80        2/15/2015                                   
      1,944        0              $ 3.80        5/15/2015                                   
      902        0              $ 3.80        2/15/2015                                   
      270        0              $ 3.80        5/15/2014                                   
      270        0              $ 3.80        8/15/2014                                   
      270        0              $ 3.80        11/15/2014                                   
      50,000        0              $ 6.19        10/15/2016                                   
      26,875        0              $ 6.53        11/15/2016                                   
      26,875        0              $ 7.87        2/15/2017                                   
      21,875        0              $ 8.80        5/15/2017                                   
      21,875        0              $ 6.49        8/15/2017                                   
      21,875        0              $ 7.57        11/15/2017                                   
      21,875        0              $ 8.60        2/15/2018                                   
      61,349        12,271 (13)            $ 7.50        6/15/2018                                   
      26,806        26,807 (9)            $ 5.87        6/15/2019                                   
      0        726,556 (16)            $ 2.68        1/15/2020                                   
      0        255,470 (11)            $ 3.90        7/22/2020                                   

 

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Name


  Option Awards

    Stock Awards

 
  Number of
Securities
Underlying
Unexercised
Options
(#)  Exercisable


    Number of
Securities
Underlying
Unexercised
Options
(#) Unexercisable


    Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)


  Option
Exercise
Price
($)


    Option
Expiration
Date


    Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)


    Market
Value of
Shares or
Units
of Stock
That Have
Not
Vested
($)(1)


    Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or Other
Rights
That
Have Not
Vested
(#)


    Equity
Incentive
Plan
Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested ($)(1)


 
(a)   (b)     (c)     (d)   (e)     (f)     (g)     (h)     (i)     (j)  

John Byrne

                                        9,203 (12)    $ 34,787                   
                                          36,772 (14)    $ 138,998                   
                                          27,893 (3)    $ 105,436                   
                                          59,032 (3)    $ 223,141                   
                                          205,450 (20)    $ 776,601                   
                                          112,500 (4)    $ 425,250                   
                                                          83,679 (6)    $ 316,307   
                                                          225,000 (7)    $ 850,500   
      5,001        0          $ 6.45        2/15/2015                                   
      1,667        0          $ 7.41        5/15/2015                                   
      1,667        0          $ 5.64        8/15/2015                                   
      5,208        0          $ 4.01        5/15/2016                                   
      5,208        0          $ 3.69        8/15/2016                                   
      1,200        0          $ 3.80        5/15/2014                                   
      15,625        0          $ 6.53        11/15/2016                                   
      15,625        0          $ 7.87        2/15/2017                                   
      12,500        0          $ 8.80        5/15/2017                                   
      12,500        0          $ 6.49        8/15/2017                                   
      12,500        0          $ 7.57        11/15/2017                                   
      12,500        0          $ 8.60        2/15/2018                                   
      46,011        9,203 (13)        $ 7.50        6/15/2018                                   
      53,613        53,613 (9)        $ 5.87        6/15/2019                                   
      94,553        132,376 (18)        $ 4.19        8/15/2019                                   
      0        270,497 (11)        $ 3.90        7/22/2020                                   

Mark D. Papermaster

                                        93,239 (19)    $ 352,443                   
                                          55,786 (3)    $ 210,871                   
                                          205,450 (20)    $ 776,601                   
                                          112,500 (4)    $ 425,250                   
                                                          167,358 (6)    $ 632,613   
                                                          225,000 (7)    $ 850,500   
      297,987        149,006 (15)        $ 5.76        11/15/2018                                   
      107,226        107,226 (9)        $ 5.87        6/15/2019                                   
      0        270,497 (11)        $ 3.90        7/22/2020                                   

Lisa T. Su

                                        199,366 (17)    $ 753,603                   
                                          55,786 (3)    $ 210,871                   
                                          273,935 (20)    $ 1,035,474                   
                                          125,000 (4)    $ 472,500                   
                                                          167,358 (6)    $ 632,613   
                                                          250,000 (7)    $ 945,000   
      418,218        298,754 (22)        $ 5.66        1/15/2019                                   
      107,226        107,226 (9)        $ 5.87        6/15/2019                                   
      0        300,553 (11)        $ 3.90        7/22/2020                                   

(1) The dollar value of these awards is calculated by multiplying the number of units by $3.78 per share, the last reported sales price of our common stock on December 27, 2013, the last trading day of our 2013 fiscal year.
(2) This award vested 33.33% on each of August 25, 2012 and 2013 and then vests 33.33% on August 25, 2014.
(3) This award vested 33.33% on August 9, 2013 and then vests 33.33% on each of August 9, 2014 and 2015.
(4) This award vests 33.33% on each of August 9, 2014, 2015 and 2016.
(5) This performance-based RSU vests in three equal annual installments from the grant date if the market-based component is satisfied, meaning that the weighted average closing price of our common stock over any 30-day period during the three-year vesting period is equal to or greater than $11.00 per share, and Mr. Read continues his employment with us through the applicable vesting date.
(6) This performance-based RSU vests in three equal annual installments from the grant date if the market-based component is satisfied, meaning that the weighted average closing price of our common stock over any 30-day period during the three-year vesting period is equal to or greater than $10.00 per share and the respective Named Executive Officer continues his or her employment with us through the applicable vesting date.
(7)

The target number of shares that may be earned upon vesting of the pRSUs is based in part on our non-GAAP operating income plus interest expense and in part based upon our TSR relative to the TSRs of the S&P 500 IT Sector over an 18-month performance period commencing on

 

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July 1, 2013 and ending on December 31, 2014. The earned shares vest 50% on June 30, 2015, six month after the end of the performance period, and the remaining 50% vest on June 30, 2016, subject to the Named Executive Officer’s continued employment with us through each vesting date. For further information on these awards, see “Compensation Discussion and Analysis—2013 Executive Compensation Decisions,” above.

(8) This option vested 33.33% on each of August 25, 2012 and 2013 and then vests 33% on August 25, 2014.
(9) This option vested 33.33% on June 15, 2013 and then vests 8.33% quarterly for next two years.
(10) This performance-based option vests in three equal installments from the grant date if the market-based component is satisfied, meaning that the weighted average closing price of our common stock over any 30-day period during the three-year vesting period is equal to or greater than $11.00 per share, and Mr. Read continues his employment with us through the applicable vesting date.
(11) This option vests 33.33% on June 17, 2014 and then vests 8.33% quarterly for the next two years.
(12) This award vested 33.33% on each of May 9, 2012 and 2013 and then vests 33.33% on May 9, 2014.
(13) This option vested 33.33% on May 15, 2012 and then vests 8.33% quarterly for the next two years.
(14) This award vested 100% on February 15, 2014.
(15) This option vested 33.33% on November 15, 2012 and then vests 8.33% quarterly for the next two years.
(16) This option vested 33.33% on January 15, 2014 and then vests 8.33% quarterly for the next two years.
(17) This award vested 33.33% on each of February 9, 2013 and 2014 and then vests 33.33% on February 9, 2015.
(18) This option vested 33.33% on August 15, 2013 and then vests 8.33% quarterly for the next two years.
(19) This award vested 33.33% on each of November 9, 2012 and 2013 and then vests 33% on November 9, 2014.
(20) This award vested 50% on January 15, 2014 and then vests 50% on January 15, 2015.
(21) This award vested 33.33% on February 9, 2014 and then vests 33.33 on each of February 9, 2015 and 2016.
(22) This option vested 33.33% on January 15, 2013 and then vests 8.33% quarterly for the next two years.

 

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GRANTS OF PLAN-BASED AWARDS IN 2013

 

The following table sets forth all plan-based awards granted to the Named Executive Officers in 2013.

 

Name


  Plan Name

  Grant
Date


    Compensation
Committee
Action Date(1)


    Estimated Possible Payouts
Under
Non-Equity Incentive  Plan
Awards


    Estimated Possible Payouts
Under
Equity Incentive Plan
Awards(3)


    All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units

(#)(4)

    All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(5)


    Exercise
or Base
Price  of
Option
Awards

($/
Share)


    Grant
Date Fair
Value of
Stock
and
Option
Awards
($)(6)


 
           Target    
($)


       Maximum
    ($)


    Threshold
($)


    Target
($)


    Maximum
($)


         
(a)   (b)   (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)     (k)     (l)     (m)  
Rory P. Read   EIP(2)     2/6/2013        N/A      $ 1,500,000      $ 3,000,000                                                           
    2004 Plan     7/22/2013        7/16/2013                      $ 243,750      $ 812,500      $ 1,625,000                              $ 3,306,875   
    2004 Plan     7/22/2013        7/16/2013                                                406,250 (7)                    $ 1,584,375   
    2004 Plan     7/22/2013        7/16/2013                                                        976,797 (8)    $ 3.90      $ 1,582,411   
Devinder Kumar   EIP(2)     2/6/2013        N/A      $ 500,000      $ 1,000,000                                                           
    2004 Plan     1/15/2013        1/2/2013                                                        726,556 (11)    $ 2.68      $ 852,105   
    2004 Plan     1/15/2013        1/2/2013                                                336,322 (10)                    $ 901,343   
    2004 Plan     7/22/2013        7/16/2013                      $ 63,750      $ 212,500      $ 425,000                              $ 864,875   
    2004 Plan     7/22/2013        7/16/2013                                                106,250 (7)                    $ 414,375   
    2004 Plan     7/22/2013        7/16/2013                                                        255,470 (8)    $ 3.90      $ 413,861   
John Byrne   EIP(2)     2/6/2013        N/A      $ 455,000      $ 910,000                                                           
    2004 Plan     1/15/2013        12/22/2012                                                205,450 (9)                    $ 550,606   
    2004 Plan     7/22/2013        7/16/2013                      $ 67,500      $ 225,000      $ 450,000                              $ 915,750   
    2004 Plan     7/22/2013        7/16/2013                                                112,500 (7)                    $ 438,750   
    2004 Plan     7/22/2013        7/16/2013                                                        270,497 (8)    $ 3.90      $ 438,205   
Mark D. Papermaster   EIP(2)     2/6/2013        N/A      $ 550,000      $ 1,100,000                                                           
    2004 Plan     1/15/2013        12/22/2012                                                205,450 (9)                    $ 550,606   
    2004 Plan     7/22/2013        7/16/2013                      $ 67,500      $ 225,000      $ 450,000                              $ 915,750   
    2004 Plan     7/22/2013        7/16/2013                                                        270,497 (8)    $ 3.90      $ 438,205   
    2004 Plan     7/22/2013        7/16/2013                                                112,500 (7)                    $ 438,750   
Lisa T. Su   EIP(2)     2/6/2013        N/A      $ 575,000      $ 1,150,000                                                           
    2004 Plan     1/15/2013        12/22/2012                                                273,935 (9)                    $ 734,146   
    2004 Plan     7/22/2013        7/16/2013                      $ 75,000      $ 250,000      $ 500,000                              $ 1,017,500   
    2004 Plan     7/22/2013        7/16/2013                                                125,000 (7)                    $ 487,500   
    2004 Plan     7/22/2013        7/16/2013                                                        300,553 (8)    $ 3.90      $ 486,896   

 


(1) For Messrs. Byrne and Papermaster and Dr. Su, the actions necessary to approve their January 15, 2013 RSU awards were taken by the Compensation Committee on December 22, 2012. Mr. Kumar’s January 15, 2013 RSU and stock option awards were approved by the Compensation Committee at a special meeting on December 22, 2012, as part of the overall approval of Mr. Kumar’s compensation package prior to his appointment as our Senior Vice President and Chief Financial Officer. All actions necessary to approve all other RSU and stock option awards shown in this table for 2013 were taken by the Compensation Committee at its meeting on July 16, 2013. For further information on our equity grant procedures, see “Compensation Discussion and Analysis—2013 Executive Compensation Decisions—Elements of Compensation,” above.
(2) For 2013, the Compensation Committee approved a short-term incentive award under the EIP for the Named Executive Officers. Accrual of cash performance bonuses under the EIP for the annual performance period was contingent upon our maintaining a cash balance (i.e., cash, cash equivalents and marketable securities, including long-term marketable securities) of at least $700 million on the last day of each quarter of fiscal 2013. We exceeded this cash balance on the last day of each quarter of fiscal 2013. The actual amount of the Named Executive Officers’ annual cash performance bonus was based on the following predetermined financial measures for the annual performance period in 2013: adjusted non-GAAP net income, adjusted non-GAAP free cash flow and revenue, with each of these performance measures weighted 50%, 25% and 25%, respectively. The fiscal 2013 performance period began on December 30, 2012 and ended on December 28, 2013. The actual amounts paid to the Named Executive Officers under the EIP are set forth in the “Non-Equity Incentive Plan Compensation” column of the “2013 Summary Compensation Table,” above. For further information on these awards, see “Compensation Discussion and Analysis—2013 Executive Compensation Decisions,” above.
(3)

Each pRSU represents a contingent right to receive between 0% and 200% of one share of common stock. The initial number of shares earned upon vesting of the pRSU is based on our non-GAAP operating income plus interest expense over an 18-month performance period commencing on July 1, 2013 and ending on December 31, 2014, and may vary between 0% of the target shares, if performance is below the minimum level, and 160% of target shares, if performance is at or above the maximum level. For performance between the minimum level and maximum level, a proportionate percentage between 40% and 160% is applied to the Target Shares based on relative performance between the minimum and maximum levels. Once the initial number of shares is determined, it will then be adjusted based upon our TSR relative to the TSRs of the S&P 500 IT Sector over the same 18-month performance period. If our TSR for the performance period is at or below the 25th percentile, then the Named Executive Officer will earn 75% of the initial number of shares. If our TSR for the performance period is at or above the 75th percentile, then the Named Executive Officer will earn 125% of the initial number of shares. If our TSR for the performance period is above the 25th percentile and below the 75th percentile, a proportionate adjustment between 75% and 125% is applied to the initial number of shares based on relative performance between the 25th and 75th percentile. The earned shares vest 50% on June 30, 2015, six month after the end of the performance period,

 

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and the remaining 50% vest on June 30, 2016, subject to the Named Executive Officer’s continued employment with us through each vesting date. For further information on these awards, see “Compensation Discussion and Analysis—2013 Executive Compensation Decisions,” above.

(4) Amounts shown reflect time-based RSUs granted under the 2004 Plan.
(5) Amounts shown reflect stock options granted under the 2004 Plan.
(6) Amounts shown represent the grant date fair value of the respective award computed in accordance with ASC Topic 718, except no assumptions for forfeiture were included. The option exercise price has not been deducted from the amounts shown in this column. Regardless of the value on the grant date, the actual value that may be realized from an award is contingent upon the satisfaction of the applicable conditions to vesting of that award, and for stock options, also upon the excess of our stock price over the exercise price. With respect to the pRSUs described in Note 3 above, in accordance with SEC rules, amounts reported in this column with respect to these awards disclose the fair value at the date of grant determined using a Monte-Carlo simulation model and based upon a discounted cash flow analysis of the probability-weighted payoffs of a share-based payment assuming a variety of possible stock price paths and represents the estimate of aggregate compensation cost to be recognized over the requisite service period determined as of the grant date under ASC Topic 718, except no assumptions for forfeitures were included. For a discussion of the assumptions made in the valuation reflected in these amounts, see Note 14 of the Notes to Consolidated Financial Statements in our Annual Report.
(7) This award vests 33.33% on each of August 9, 2014, 2015 and 2016.
(8) This option vests 33.33% on June 17, 2014 and then vests 8.33% quarterly for the next two years.
(9) This award vested 50% on January 15, 2014 and vests 50% on January 15, 2015.
(10) This award vests 33.33% on each of February 9, 2014, 2015 and 2016.
(11) This option vested 33.33% on January 15, 2014 and then vests 8.33% quarterly for the next two years.

 

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OPTION EXERCISES AND STOCK VESTED IN 2013

 

The following table shows all stock options exercised and the value realized upon exercise and all stock awards that vested and the value realized upon vesting by the Named Executive Officers during 2013.

 

Name


   Option Awards

     Stock Awards

 
   Number of
Shares
Acquired on
Exercise
(#)


     Value Realized
on Exercise
($)


     Number of
Shares
Acquired on
Vesting
(#)


     Value Realized
on Vesting
($)(1)


 
(a)    (b)      (c)      (d)      (e)  

Rory P. Read

     —         $      —           329,652       $ 1,203,230   

Devinder Kumar

     —         $ —           33,830       $ 129,119   

John Byrne

     —         $ —           60,999       $ 226,329   

Mark D. Papermaster

     —         $ —           121,104       $ 406,609   

Lisa T. Su

     —         $ —           127,576       $ 359,988   

(1) Value is the market price of our common stock on the date of vesting multiplied by the number of vested shares.

 

SEVERANCE AND CHANGE IN CONTROL ARRANGEMENTS

 

Mr. Read’s severance and change in control arrangement is set forth in our at-will employment agreement with Mr. Read, which sets forth his duties and obligations as our President and Chief Executive Officer (the “Employment Agreement”). In addition, each of the Named Executive Officers (other than Mr. Read) participates in the SVP Severance Plan and has entered into a change in control agreement with us. These agreements and arrangements are designed to (i) implement a uniform process for handling potential future involuntary departures of the Named Executive Officers and (ii) encourage the Named Executive Officers’ continued services in the event of a potential change in control of us and to allow for a smooth transition upon such a change in control. In addition, these arrangements are intended to provide incentives to the Named Executive Officers to effectively execute the directives of our Board, even in the event that such actions may result in the elimination of a Named Executive Officer’s position. Under the terms of these arrangements, a Named Executive Officer is eligible to receive certain specified compensatory payments and benefits only if (i) a “change in control” of us occurs and (ii) the Named Executive Officer’s employment is terminated, or the Named Executive Officer is constructively discharged, within two years of that change in control.

 

Rory Read’s Employment Agreement.    On August 25, 2011, we entered into the Employment Agreement with Mr. Read. Pursuant to its terms and conditions, the Employment Agreement may be terminated by (i) us for Cause (as defined in the Employment Agreement), (ii) Mr. Read’s Involuntary Termination Without Cause (as defined in the Employment Agreement), (iii) Mr. Read’s Constructive Termination (as defined in the Employment Agreement), (iv) Mr. Read’s voluntary election to terminate his employment with us, or (v) Mr. Read’s death or disability.

 

Except as otherwise described in the next paragraph, in the event of Mr. Read’s Involuntary Termination Without Cause or Constructive Termination, subject to Mr. Read’s execution of a full release of claims following such termination:

 

   

We will pay Mr. Read his earned but unpaid base salary through the date of termination and all other amounts to which Mr. Read is entitled under any of our compensation plans or practices on the date of termination.

 

   

All unvested equity awards then held by Mr. Read that would otherwise have vested during the 24-month period after Mr. Read’s termination will be deemed fully vested and vested stock options will be automatically exercisable for a one-year period following Mr. Read’s termination (or, if earlier, the

 

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remaining term of any such stock options), excluding unvested performance-based RSUs and performance-based stock options if the applicable performance conditions for such RSUs and options was not satisfied before the date of termination.

 

   

We will make a lump-sum cash payment to Mr. Read in an amount equal to two times his then base salary plus two times his then target annual bonus.

 

   

We will pay any applicable COBRA premiums on behalf of Mr. Read and his dependents for a period of 12 months following the date of termination.

 

In the event of Mr. Read’s Involuntary Termination Without Cause or Constructive Termination between the public announcement of a transaction that results in our Change of Control (as defined in the Employment Agreement) and 24 months after such Change of Control, subject to Mr. Read’s execution of a full release of claims following such termination:

 

   

We will pay Mr. Read his earned but unpaid base salary through the date of termination and all other amounts to which Mr. Read is entitled under any of our compensation plans or practices on the date of termination.

 

   

All unvested equity awards then held by Mr. Read will accelerate and be deemed fully vested and vested stock options will be automatically exercisable for a one-year period following Mr. Read’s termination (or, if earlier, the remaining term of any such stock options), excluding unvested performance-based RSUs and performance-based stock options granted to Mr. Read upon his hire if the market-based component of such RSUs and options was not satisfied before the date of termination.

 

   

We will make a lump-sum cash payment to Mr. Read in an amount equal to two times his base salary plus two times his target annual bonus, in each case at the rate in effect immediately before the date of termination or, if higher, the rate in effect six months before the date of termination.

 

   

We will pay Mr. Read the pro-rata amount of his annual bonus accrued under the EIP assuming performance at target levels for the portion of the year prior to the date of termination.

 

   

We will provide health and welfare benefits to Mr. Read for a period of 12 months following the date of termination. We will also pay Mr. Read an amount calculated to pay any income and employment taxes imposed on him as a result of the provision of such health and welfare benefits. In addition, we will provide for financial planning and tax planning services up to $4,000 to Mr. Read for 12 months following the date of termination.

 

Under the terms of the Employment Agreement, upon a termination of employment in connection with a change in control, Mr. Read’s severance payments and benefits will be made in full or as to such lesser amount as would result in no portion of the payments being subject to an excise tax imposed by Section 4999 of the Code relating to Section 280G of the Code, whichever of the foregoing amounts is greater on an after-tax basis (i.e., a parachute payment cut-back).

 

Executive Severance Plan for Senior Vice Presidents.    With the exception of Mr. Read, all of the Named Executive Officers participate in the SVP Severance Plan. The SVP Severance Plan was adopted by the Compensation Committee in June 2013 to implement a uniform process for handling potential future involuntary departures of U.S. senior executives (except Mr. Read) and to provide a level of transition assistance in the event of an involuntary termination of employment with the goal of keeping executives focused on our business rather than their personal circumstances. Under the Severance SVP Plan, participants who incur an involuntary termination, not for cause, and who execute a full release of claims following such termination are eligible to receive severance benefits of (i) a single lump sum payment of one-times the participant’s annual base salary, (ii) Company-paid COBRA continuation coverage under our group health plan for up to twelve months, and (iii) use of our Employee Assistance Plan for up to twelve months. A Named Executive Officer will not receive severance benefits under the SVP Severance Plan if he or she receives severance benefits in connection with a change in control pursuant to his or her change in control agreement.

 

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Change in Control Agreements.    We entered into change in control agreements with Messrs. Kumar, Byrne and Papermaster and Dr. Su designed to encourage their continued services in the event of a change in control. For purposes of these change in control agreements, a change in control generally means any of the following events:

 

   

the acquisition by any person representing more than 50% of our then outstanding shares of stock or the combined voting power of our voting securities;

 

   

a change of the majority of the Board during any two consecutive years, unless certain Board approval conditions are met;

 

   

a merger or consolidation of us into any other corporation, where immediately after the merger or consolidation 50% or less of the combined voting power is held by holders of our voting securities immediately before such merger or consolidation; or

 

   

the stockholders approve a plan of complete liquidation or there is a consummated a sale of all or substantially all of our assets.

 

The change in control agreements provide that, if within two years after a change in control, the Named Executive Officer’s employment is terminated by us without cause or they are constructively discharged, the Named Executive Officer will receive:

 

   

a lump sum severance benefit equal to the sum of two times the executive’s rate of annual base compensation at the rate in effect immediately before the date of termination or, if higher, the rate in effect six months before the date of the change in control, plus two times the target annual bonus in the year of termination;

 

   

all unvested equity will vest and be exercisable, and options may be exercised for the period of one year from the date of termination or the original option term, whatever is shorter;

 

   

payment of the executive’s prorated accrued bonus assuming performance at target levels for the portion of the year prior to the date of termination;

 

   

reimbursement of personal financial and tax planning up to $4,000 for 12 months following the date of termination; and

 

   

12 months’ continued health and welfare benefits comparable to those in effect at termination and a gross-up for any income taxes due as a result of the payment by us for such health and welfare benefits.

 

The payments and benefits pursuant to the change in control agreements are subject to the executive’s execution and non-revocation of a release of claims. Further, upon a termination of employment in connection with a change in control, the executive’s severance payments and benefits will be made in full or as to such lesser amount as would result in no portion of the payments being subject to an excise tax imposed by Section 4999 of the Code relating to Section 280G of the Code, whichever of the foregoing amounts is greater on an after-tax basis (i.e., a parachute payment cut-back).

 

We have adopted a policy to not enter into any change in control agreements or arrangements containing an excise tax gross-up provision. Neither Mr. Read’s change in control arrangement nor the change in control agreements provide for an excise tax gross-up.

 

In March 2010, we adopted a policy to not enter into any change in control agreement or arrangement with any executive officer that provides for a cash severance payment (upon both our change in control and a subsequent termination of employment) in excess of (i) two times the sum of the respective executive officer’s base salary and annual target bonus, plus (ii) a prorated annual target bonus for the year in which the termination of employment occurs. Mr. Read’s change in control arrangement and the change in control agreements with all of the other Named Executive Officers comply with this limitation.

 

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Vesting of Awards.    All awards granted under our equity incentive plans become fully vested (i) if our successor refuses to assume or substitute similar awards for outstanding awards, upon a change in control, or (ii) if our successor assumes or substitutes similar awards for outstanding awards and the participant’s employment is terminated by our successor for any reason (other than for misconduct) or by the participant due to a constructive termination within one year following a change in control, upon such termination of employment.

 

Table 1, below, reflects the amount of compensation and benefits payable to Mr. Read under the Employment Agreement in the event of (i) Involuntary Termination Without Cause or a Constructive Termination (without a change in control), and (ii) Involuntary Termination Without Cause or a Constructive Termination in connection with a change in control. The amounts shown assume that the termination was effective as of December 28, 2013, exclude amounts earned through that time and are estimates of the amounts that would be paid out to Mr. Read upon his termination. The actual amounts to be paid out can only be determined at the time of Mr. Read’s separation from us.

 

TABLE 1: Rory P. Read 

 

Executive Benefits and

Payments Upon

Termination


   Involuntary Termination
Without Cause or
Constructive Termination
without a
Change in Control


    Involuntary Termination
Without Cause or
Constructive Termination
in connection with a
Change in Control


 

Compensation:

                

Severance(1)

   $ 5,000,000      $ 5,000,000   

Pro-Rata Annual Bonus

     —        $ 1,500,000   

Stock Options—Unvested and Accelerated(2)

     —          —     

Restricted Stock Units—Unvested and Accelerated

   $ 2,612,498 (3)    $ 8,251,623 (4) 

Benefits and Perquisites:

                

Health and Welfare Benefits

   $ 19,528 (5)    $ 38,711 (6) 

Financial Planning

     —        $ 4,000   

(1) This amount represents two times Mr. Read’s base salary of $1,000,000, plus two times his target annual bonus.
(2) The value of unvested stock options that would have accelerated upon Mr. Read’s termination of employment under the scenarios described above is $0. The value is calculated based on the difference between the exercise price of the options and $3.78 per share, the last reported sales price of our common stock on December 27, 2013, the last trading day of our 2013 fiscal year.
(3) This amount reflects the value of unvested RSUs that would have vested during the 24-month period after his termination, but excludes the performance-based RSUs because the applicable performance-based conditions of those performance-based RSUs was not satisfied as of December 28, 2013. The value of the unvested and accelerated RSUs is $3.78 per share, the last reported sales price of our common stock on December 27, 2013, the last trading day of our 2013 fiscal year.
(4) This amount reflects the value of all unvested RSUs that will vest in the event of the scenario described above, but excludes the performance-based RSUs that we granted Mr. Read upon his hire because the market-based component of such performance-based RSUs was not satisfied as of December 28, 2013; however, this amount includes the performance-based RSUs granted to Mr. Read subsequent to the date of Mr. Read’s hire because under the terms of the respective award agreements, such performance-based RSUs accelerate upon a change of control. The value of the unvested and accelerated RSUs is $3.78 per share, the last reported sales price of our common stock on December 27, 2013, the last trading day of our 2013 fiscal year.
(5) This amount represents our cost of paying COBRA premiums on behalf of Mr. Read and his dependents for 12 months following his termination based on rates for a current employee.
(6) This amount represents our cost of paying COBRA premiums on behalf of Mr. Read and his dependents for 12 months following his termination based on rates for a current employee and life insurance premiums to Mr. Read for 12 months following his termination. The actual cost to us of