DEF 14A 1 d78662ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934 (Amendment No.      )

Filed by the Registrant  

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))

 

  

 

Definitive Proxy Statement

 

  

 

Definitive Additional Materials

 

  

 

Soliciting Material under §240.14a-12

 

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SYNAPTICS INCORPORATED

(Name of Registrant as Specified in Its Charter)

N/A

(Name of Person(s) Filing Proxy Statement, If Other Than the Registrant)

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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.

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Table of Contents

LOGO

 

 

NOTICE OF ANNUAL MEETING

OF STOCKHOLDERS

 

Date and Time:

  

Tuesday, October 27, 2020 at 9:00 a.m. local (Pacific) time

Place:

  

Live interactive webcast on the Internet at www.virtualshareholdermeeting.com/syna2020. You will not be able to attend the 2021 annual meeting of stockholders (the “Annual Meeting”) in person.

Items of

Business:

   1.   

Elect as directors the two nominees named in the attached Proxy Statement, each to serve for a three-year term expiring in 2023.

  

2.

  

Approve, on an advisory basis, the compensation of our named executive officers.

  

3.

  

Ratify the appointment of KPMG LLP as our independent auditor for the year ending June 26, 2021.

  

4

  

Approve our amended and restated 2019 Equity and Incentive Compensation Plan.

Record Date:

  

The Board of Directors has fixed the close of business on September 2, 2020 as the record date for determining the stockholders entitled to receive notice of and to vote at the Annual Meeting, or any adjournment(s) or postponement(s) thereof.

Proxy Voting:

  

Your vote is very important to us. Whether or not you plan to participate in the Annual Meeting, we urge you to submit your proxy or voting instructions as soon as possible to ensure your shares are represented at the Annual Meeting. If you participate in and vote at the Annual Meeting, your proxy or voting instructions will not be used.

 

   By Order of the Board of Directors,

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF

  

PROXY MATERIALS

  

LOGO

 

Michael Hurlston

 

The Notice of Annual Meeting, Proxy Statement and our 2020 Annual Report on Form 10-K are available at www.proxyvote.com. You are encouraged to access and review all of the important information contained in our proxy materials before voting.

   President and Chief Executive Officer
   September 8, 2020: San Jose, California

 

SYNAPTICS INCORPORATED   PROXY STATEMENT   1


Table of Contents

CONTENTS

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

     1  

PROXY SUMMARY

     4  

Business and Financial Highlights

     4  

Stockholder Engagement and Responsiveness

     5  

Compensation Highlights

     6  

Board of Directors Snapshot

     7  

Corporate Governance Highlights

     8  

VOTING INFORMATION

     9  

Voting Matters and Board Recommendations

     9  

How To Cast Your Vote

     9  

PROPOSAL 1 – ELECTION OF DIRECTORS

     10  

General

     10  

Board Composition

     10  

Class III Director Nominees

     12  

Continuing Directors

     14  

Vote Required

     19  

Recommendation

     19  

PROPOSAL 2 – ADVISORY APPROVAL OF OUR NAMED EXECUTIVE OFFICER COMPENSATION

     20  

Our Compensation Objectives

     20  

Fiscal 2020 Compensation Highlights

     20  

Vote Required

     21  

Recommendation

     21  

PROPOSAL 3 – RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR

     22  

Vote Required

     22  

Recommendation

     22  

PROPOSAL 4 – APPROVAL OF AMENDED AND RESTATED 2019 EQUITY AND INCENTIVE COMPENSATION PLAN

     23  

Vote Required

     32  

Recommendation

     32  

CORPORATE GOVERNANCE

     33  

Board Composition and Governance

     33  

Board Committees

     36  

Director Selection, Evaluation and Communications

     39  

DIRECTOR COMPENSATION

     41  

Cash Compensation

     41  

Equity Compensation

     41  

Director Compensation Limits

     41  

Stock Ownership Guidelines

     41  

Director Compensation Table — Fiscal 2020

     42  

AUDIT AND NON-AUDIT FEES

     43  

Audit Committee Pre-Approval Policies

     43  

Principal Accountant Fees and Services

     43  

AUDIT COMMITTEE REPORT

     44  

COMPENSATION DISCUSSION AND ANALYSIS

     45  

Executive Summary

     45  

How We Make Compensation Decisions

     49  

Governance and Pay Policies and Practices

     50  

Compensation Philosophy and Objectives

     50  

Fiscal 2020 Named Executive Officer Compensation

     51  

New Executive Officer Compensation

     57  

Severance and Change of Control Arrangements

     59  

Executive Retention Program

     60  

Other Compensation Policies

     60  

Tax Considerations

     61  

COMPENSATION COMMITTEE MATTERS

     62  

Compensation Committee Report

     62  

Compensation Committee Interlocks and Insider Participation

     62  

 

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SYNAPTICS INCORPORATED


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NAMED EXECUTIVE OFFICER COMPENSATION TABLES

     63  

Summary Compensation Table — Fiscal Years 2018, 2019 and 2020

     63  

Grants Of Plan-Based Awards — Fiscal 2020

     67  

Description of Plan-Based Awards

     68  

Outstanding Equity Awards At Fiscal 2020 Year End

     69  

Option Exercises and Stock Vested — Fiscal 2020

     72  

Potential Payments Upon Termination or Change of Control

     72  

Estimated Severance and Change of Control Benefits

     74  

CEO PAY-RATIO DISCLOSURE

     76  

EQUITY COMPENSATION PLAN INFORMATION

     77  

BENEFICIAL OWNERSHIP OF CERTAIN STOCKHOLDERS

     79  

OTHER MATTERS

     81  

Certain Relationships and Related Transactions

     81  

Proposals and Nominations for 2021 Annual Meeting of Stockholders

     81  

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING  PROCEDURES

     82  

GENERAL INFORMATION

     86  

Proxy Solicitation Expenses

     86  

Available Information

     86  

Other Matters

     86  

APPENDIX A –  DEFINITIONS AND RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

     A-1  

APPENDIX B –  AMENDED AND RESTATED 2019 EQUITY AND INCENTIVE COMPENSATION PLAN

     B-1  

Forward-Looking Statements

This Proxy Statement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on our current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements are generally identified through the inclusion of words such as “expect,” “anticipate,” “intend,” “believe,” “estimate,” “plan,” “target,” “strategy,” “continue,” “may,” “will,” “should,” variations of such words, or other words and terms of similar meaning. All forward-looking statements reflect our best judgment and are based on several factors relating to our operations and business environment, including our expectations regarding the potential impacts on our business of the COVID-19 pandemic, all of which are difficult to predict and many of which are beyond our control. Such factors include, but are not limited to, the risks as identified in the “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” sections of our Annual Report on Form 10-K for the fiscal year ended June 26, 2020, and other risks as identified from time to time in our Securities and Exchange Commission reports. Forward-looking statements are based on information available to us and speak only as of the dates on which they are made. We do not have, and expressly disclaim, any obligation to publicly release any updates or any changes in our expectations, or any change in events, conditions, or circumstances on which any forward-looking statement is based, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws. Our actual results and the timing of certain events could differ materially from the forward-looking statements. These forward-looking statements do not reflect the potential impact of any mergers, acquisitions, or other business combinations that had not been completed as of the date of this Proxy Statement.

Fiscal Year Information

Our fiscal year is the 52- or 53-week period ending on the last Saturday in June. The fiscal periods presented in this proxy statement were the 52-week periods for the fiscal years ended June 27, 2020, or fiscal 2020, and June 29, 2019, or fiscal 2019, and the 53-week period for the fiscal year ended June 30, 2018, or fiscal 2018. Our principal executive offices are located at 1251 McKay Drive, San Jose, California 95131-1709.

 

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PROXY SUMMARY

This section highlights information about Synaptics Incorporated (“we,” “our,” “us” or the “Company”) and our Board of Directors (the “Board”) that is contained elsewhere in this Proxy Statement. This section does not contain all of the information that you should consider and you should read the entire Proxy Statement before voting.

BUSINESS AND FINANCIAL HIGHLIGHTS

Fiscal 2020 was a transformative year for the Company as we took critical steps in pivoting the Company’s strategy and operations toward higher levels of financial performance. During the year, we experienced a substantial transition on our senior executive leadership team with the hiring of three key executives – our Chief Executive Officer, Chief Financial Officer, and Senior Vice President of Worldwide Sales. Energized and driven by our new senior leadership team, fiscal 2020 became one of the strongest 12-month periods of financial performance in the Company’s history with a significant expansion in profitability which led to more than doubling of the stock price in the year since appointing our new Chief Executive Officer in August 2019.

During fiscal 2020, our new leadership team led the Company to the following notable achievements:

 

   

record high GAAP earnings per share of $3.41 and record high non-GAAP earnings per share of $5.95;

 

   

annual and year over year fourth quarter growth of our non-GAAP gross margins* by 490 and 780 basis points, respectively (or, 690 and 1330 basis points on a GAAP basis, respectively), its highest level in over five years;

 

   

an increase of 44% in cash flow from operations as compared to our prior fiscal year;

 

   

a fiscal 2020 year-end stock price of $56.26, which was 93% higher than as compared to our prior fiscal year-end; and

 

   

revenue of $1,334 million for our fiscal year ended June 27, 2020.

 

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STOCKHOLDER ENGAGEMENT AND RESPONSIVENESS

We believe regular and transparent communications with our stockholders is essential to our long-term success. Our management team, including our Chief Executive Officer and Chief Financial Officer, regularly participates at various investor conferences around the world and have received valuable feedback from our stockholders who have provided important external perspectives on the strategy of the Company. Feedback from our stockholders is shared with our Board regularly.

 

 

2019 Stockholder Outreach

 

In 2019, we contacted our top 15 institutional stockholders representing an aggregate ownership of approximately 60% of our then outstanding shares to discuss corporate governance and executive compensation.

 

Management ultimately had discussions with stockholders representing 26% of our then outstanding shares.

 

Stockholders representing 34% of our then outstanding shares did not require a meeting, had no concerns or did not respond.

 

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What We Heard

 

·   Stockholders wanted to see the Company set objective financial targets that are quantifiable and for incentive compensation to be tied to such financial targets.

·   Stockholders wanted more transparency around our compensation decisions.

·   Stockholders wanted more outreach from, and engagement with, the Company on a regular basis.

·   Stockholders expressed concern around our burn rate and wanted to see an improvement in our share dilution.

·   Stockholders wanted more gender diversity on our Board.

 

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What We Have Done in Response

 

·   Effective fiscal 2020, our annual performance-based cash bonus plan was modified from prior practice and redesigned to base award payments as measured against three objective financial performance metrics – revenue, non-GAAP gross margin, and non-GAAP operating profit.

·   We provide in this Proxy Statement greater transparency about our compensation plans.

·   We have implemented an outreach program to regularly interact with our stockholders on matters regarding corporate governance and executive compensation.

·   We decreased our burn rate from 4.19% for fiscal 2019 to 2.38% for fiscal 2020.

·   We recently increased the gender diversity on our Board with the appointment of Susan Hardman.

 

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Continuing Engagement Process

 

·   We are committed to increasing stockholder engagement through increased participation at stockholder conferences and targeted stockholder marketing events. In fiscal 2020, we presented at 16 such conferences and three such marketing events, which was more than double the number of such events we had attended in fiscal 2019.

·   In fiscal 2020, we held our first “Investor Day” in two years, where our senior management team outlined the Company’s new strategic direction and financial performance targets.

·   We reach out to our top 15 institutional stockholders on a monthly basis.

·   We discuss the feedback we receive from stockholder calls and the activities outlined above at each of our Board meetings.

 

 

SYNAPTICS INCORPORATED   PROXY STATEMENT   5


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COMPENSATION HIGHLIGHTS

The Compensation Committee approved the fiscal 2020 compensation arrangements for our Named Executive Officers (“NEOs”). Below are highlights from the Compensation Discussion and Analysis (the “CD&A”) section of this Proxy Statement:

Compensation Framework

 

Annual Cash Bonuses Based    

on Performance

  

Determined based on a rigorous performance measurement framework that measures the Company’s actual performance against multiple pre-established financial goals – which include revenue, non-GAAP gross margin, and non-GAAP operating profit goals – and each NEO’s contribution to that performance.

 

Majority of Total

Compensation is “At Risk”

  

Approximately 97% of our Chief Executive Officer’s target total direct compensation and approximately 83% of our other continuing NEOs’ target total direct compensation was tied directly to the performance of the Company and/or the Company’s stock price (as reflected in the pay mix charts below).

 

Majority of Total

Compensation is in the Form

of Long-Term Incentives

  

The most significant component of each NEO’s target total direct compensation opportunity is in the form of equity awards that each vest or are earned over a multi-year (three- or four-year) period. In fiscal 2020, approximately 93% of our Chief Executive Officer’s, and approximately 72% of our other continuing NEOs’, target total direct compensation was annual long-term incentive compensation in the form of equity awards.

 

Majority of Long-Term

Incentives are Performance

-Based

 

  

Approximately 60% of our Chief Executive Officer’s, and approximately 68% of our other continuing NEOs’, annual long-term incentive compensation for fiscal 2020 is subject to performance-based vesting requirements.

 

Pay Mix for Fiscal 2020

 

CEO - Michael Hurlston

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All other Continuing NEOs

 

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BOARD OF DIRECTORS SNAPSHOT

 

Name

       Age       

    Director    

Since

       Independent        Primary Occupation   

Committee

Membership**

 

Nelson Chan

 

   59    2007    Yes   

Chair of the Board of Synaptics

 

  

EC (Chair), AC, NCGC  

 

Kiva Allgood

   48    2019    Yes    Global Business Unit Head of IOT and Automotive of Telefonaktiebolaget LM Ericsson    NCGC, CC

Jeffrey Buchanan

   64    2005    Yes   

Consultant

 

   AC (Chair), NCGC, EC

Keith Geeslin

   67    1986    Yes    General Partner of Francisco Partners    CC (Chair), EC

Susan Hardman

   59    2020    Yes   

Consultant

 

   CC

Michael Hurlston

   53    2019    No    President and Chief Executive Officer of Synaptics   

Richard Sanquini*

   85    1994    Yes    Consultant   

CC

 

James Whims

   65    2007    Yes    Partner at Alsop Louie Partners    NCGC (Chair), AC, EC

* Mr. Sanquini has decided to retire as a director and will serve out his remaining term as a Class III director, which expires immediately prior to our Annual Meeting. Accordingly, Mr. Sanquini will not stand for re-election to the Board at the Annual Meeting.

** AC = Audit Committee; NCGC = Nominations and Corporate Governance Committee; CC = Compensation Committee; EC = Executive Committee

 

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CORPORATE GOVERNANCE HIGHLIGHTS

The Company is committed to good corporate governance, which promotes the long-term interests of stockholders, strengthens accountability of the Board and helps build public trust in the Company. Highlights include the following:

 

 

Independent Board Leadership and Practices

 

·   Independent Chair of the Board with a well-defined role and robust responsibilities

 

·   All directors are independent except our Chief Executive Officer (7 out of 8 current directors)

 

·   All Board committees are composed solely of independent directors

 

·   Commitment to include women and individuals from minority groups in the qualified pool from which new director candidates are selected

 

·   Comprehensive risk oversight practices, including quarterly updates from management on risks we face

 

·   Regular strategic updates from our Chief Executive Officer

 

·   Regular executive sessions of independent directors led by our independent Chair of the Board

 

·   Annual Board and committee self-evaluations

 

·   Nominations and Corporate Governance Committee makes regular reports on succession planning efforts

 

·   Directors may only serve on the board of directors of three other public companies, absent approval from the Chair of the Board or the Nominations and Corporate Governance Committee

 

 

Stockholder Rights

 

·   Majority voting for directors

 

·   Annual Say-on-Pay voting

 

·   No stockholder rights plan

 

 

 

Best Compensation and Governance

Practices
 

·   Independent compensation consultant

 

·   Robust stock ownership guidelines for executives and non-employee directors

 

·   Stock holding requirement for our CEO

 

·   Anti-hedging policy

 

·   Anti-pledging policy

 

·   Clawback policy

 

·   No “single trigger” change of control provisions

 

·   No excise tax gross-ups

 

·   No repricing of underwater stock options without stockholder approval

 

 

 

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VOTING INFORMATION

VOTING MATTERS AND BOARD RECOMMENDATIONS

Our Board is soliciting your proxy to vote on the following matters at our Annual Meeting to be held at 9:00 a.m. local (Pacific) time on Tuesday, October 27, 2020 via live interactive webcast on the Internet at www.virtualshareholdermeeting.com/syna2020:

 

      Vote Required    Vote Required   

Board

Recommendation    

 

  

Page    

  Proposal No. 1

   Election of Two Director Nominees    Majority of Votes Cast        For    10

  Proposal No. 2

  

Advisory Approval of Compensation

of Named Executive Officers

   Majority of Votes Cast    For    20

  Proposal No. 3

   Ratification of Appointment of KPMG LLP as Independent Auditor for 2021    Majority of Votes Cast    For    22

  Proposal No. 4

   Approval of Amended and Restated 2019 Equity and Incentive Compensation Plan    Majority of Votes Cast    For    23

HOW TO CAST YOUR VOTE

 

INTERNET

   PHONE    MAIL    AT THE ANNUAL MEETING
Follow the instructions provided in the notice or separate proxy card or voting instruction form you received.    Follow the instructions provided in the separate proxy card or voting instruction form you received.    Send your completed and signed proxy card or voting instruction form to the address on your proxy card or voting instruction form.   

Vote during the meeting via the Internet at

www.virtualshareholdermeeting.com/

syna2020

LOGO    LOGO    LOGO   

 

 

On September 8, 2020, the proxy materials for our Annual Meeting, including this Proxy Statement and our 2020 Annual Report on Form 10-K (the “2020 Annual Report”), were first sent or made available to our stockholders entitled to vote at the Annual Meeting.

 

 

SYNAPTICS INCORPORATED   PROXY STATEMENT   9


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PROPOSAL 1 –

ELECTION OF DIRECTORS

GENERAL

Our Board currently consists of eight directors and is divided into three classes, with one class standing for election each year for a three-year term, as follows:

 

Class I directors with terms

expiring at the 2021 annual

meeting of stockholders

  

Class II directors with terms

expiring at the 2022 annual

meeting of stockholders

  

Class III directors with terms

expiring at the Annual Meeting

Jeffrey Buchanan

   Kiva Allgood    Nelson Chan

Keith Geeslin

   Michael Hurlston    Susan Hardman

James Whims

      Richard Sanquini

On the recommendation of the Nominations and Corporate Governance Committee (the “Nominations Committee”), the Board has nominated Nelson Chan and Susan Hardman for re-election as Class III directors. Richard Sanquini, a current Class III director, has decided to retire as a director and will not stand for re-election at the Annual Meeting. Mr. Sanquini will serve out his remaining term as a director, which expires immediately prior to the Annual Meeting. If elected, the Class III directors will serve for three-year terms expiring at the 2023 annual meeting of stockholders or until their respective successors are duly elected and qualified.

Unless otherwise instructed, the proxy holders will vote the proxies received by them “FOR” the election of each of Nelson Chan and Susan Hardman. Mr. Chan and Ms. Hardman are currently directors of the Company. Mr. Chan was previously elected to serve on the Board by our stockholders. Ms. Hardman, who was appointed to the Board in May 2020, is standing for election for the first time and was initially identified as a potential director candidate by Egon Zehnder International Inc., a third-party search firm. Mr. Chan and Ms. Hardman have each consented to being named in this Proxy Statement and to serve as a director if elected. We have no reason to believe that either of Mr. Chan or Ms. Hardman will be unable or unwilling for good cause to serve if elected. In the event Mr. Chan or Ms. Hardman is unable for any reason or unwilling for good cause to serve at the time of the Annual Meeting, the persons who are designated as proxy holders may exercise discretionary authority to vote for a substitute nominee selected by our Board or our Board may reduce the number of directors on the Board.

BOARD COMPOSITION

Board Snapshot

The following provides a snapshot of our two director nominees and five continuing directors:

 

 

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Director Skills, Experience and Background

We believe each of our two director nominees and five continuing directors possess the professional and personal qualifications necessary for effective service as a director. In addition to each director’s specific experience, qualifications and skills, we believe that each director has individual character and integrity; business experience and leadership ability; strategic planning skills, ability, and experience; requisite knowledge of our industry and finance, accounting, and legal matters; communications and interpersonal skills; and the ability and willingness to devote time to our company. We believe all directors have a commitment to the Company and to building long-term stockholder value. The following chart shows a summary of the skills and core competencies of our two director nominees and five continuing directors:

 

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SYNAPTICS INCORPORATED   PROXY STATEMENT   11


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CLASS III DIRECTOR NOMINEES

 

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Nelson C. Chan

 

Chair of the

Board and Independent Director

 

Age: 59

 

Director Since 2007

 

Committees: Executive (Chair), Audit and Nominations

  

Nelson C. Chan has been the Chair of our Board of Directors since March 2019 and a director of the Company since February 2007. Mr. Chan served as Chair of our Board from October 2018 to March 2019.

 

From December 2006 until August 2008, Mr. Chan served as the Chief Executive Officer of Magellan Corporation, a leader in the consumer, survey, GIS, and OEM GPS navigation and positioning markets. From 1992 through 2006, Mr. Chan served in various senior management positions with SanDisk Corporation, a global leader in flash memory cards, including as Executive Vice President and General Manager, Consumer Business. From 1983 to 1992, Mr. Chan held marketing and engineering positions at Chips and Technologies, Signetics, and Delco Electronics.

 

Mr. Chan is a member of the Board of Directors and the Audit Committee of Deckers Outdoor Corporation, an NYSE-listed company, which is a footwear, apparel and accessories designer and distributor, and a member of the Board of Directors of Twist Bioscience, a Nasdaq Global Select Market-listed company, which manufactures synthetic DNA. Mr. Chan also currently serves on the Boards of Directors of several private companies.

 

Previously, Mr. Chan was Chair of the Board of Directors, Chair of the Compensation Committee, member of the Audit Committee and member of the Nominating and Corporate Governance Committee of Adesto Technologies, a Nasdaq Global Select Market-listed company, from 2010 to June 2020, prior to its acquisition by Dialog Semiconductor plc, a member of the Board of Directors, Chair of the Compensation Committee and member of the Nominating and Corporate Governance committee of Socket Mobile, a Nasdaq Global Select Market-listed company, from 2016 to 2019, a member of the Board of Directors of Silicon Laboratories, Inc., a Nasdaq Global Select Market-listed company, from 2007 to 2010, a member of the Board of Directors, Chair of the Audit Committee and member of the Compensation Committee of Affymetrix, from 2010 to 2016, prior to its acquisition by Thermo Fisher, and a member of the Board of Directors and Chair of the Board of Directors from June 2013 to September 2016 of Outerwall, a Nasdaq Global Select Market-listed company, prior to its acquisition by Apollo Global Management, a private equity firm. Mr. Chan holds a Bachelor of Science degree in Electrical and Computer Engineering from the University of California at Santa Barbara and a Master’s degree in Business Administration from Santa Clara University.

 

Specific Qualifications, Attributes, Skills and Experience:

 

We believe that Mr. Chan’s experience as the Chief Executive Officer of Magellan, his senior management positions with other leading companies, and his service as a director of multiple companies provide the requisite qualifications, skills, perspectives, and experiences that make him well qualified to serve on our Board.

 

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Susan J. Hardman

 

Independent Director

 

Age: 59

 

Director Since 2020

 

Committees: Compensation

  

Susan J. Hardman has been a director of the Company since 2020.

 

Beginning in April 2015, Ms. Hardman retired from her full-time senior executive role and has acted as an independent consultant in the technology industry. From 2010 to 2015, she was an advisory board member for Santa Clara University’s School of Electrical Engineering. From August 2013 to January 2015, Ms. Hardman served as senior vice president of the Specialty products group for Intersil Corporation (subsequently acquired by Renesas), a company that was a leading global provider of analog semiconductor solutions for the computing, consumer, industrial and communications markets. From September 2008 to July 2013, she served as senior vice president of Intersil’s Analog and Mixed Signal product group. Additionally, while employed by Intersil, Ms. Hardman held roles of vice president and general manager of the Automotive and Specialty products group and vice president of Corporate Marketing. She joined Intersil from Exar Corporation (subsequently acquired by MaxLinear Inc.), where she was vice president and general manager of Exar’s Interface products division. Prior to that, she served as vice president of Corporate Marketing and director of Product Marketing for Exar. From 1983 to 1999, Ms. Hardman held roles in marketing, product design, applications, and product testing with VLSI Technology and Motorola. Ms. Hardman holds a Bachelor of Science degree in Chemical Engineering from Purdue University and a Masters of Business Administration degree from the University of Phoenix.

 

Specific Qualifications, Attributes, Skills and Experience:

 

We believe that Ms. Hardman’s senior management positions with other semiconductor companies, her extensive knowledge of the semiconductor industry, her engineering background, and her knowledge and experience in the consumer and automotive technology sectors, provide the requisite qualifications, skills, perspectives, and experiences that make her well qualified to serve on our Board.

 

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CONTINUING DIRECTORS

 

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Kiva A. Allgood

 

Independent Director

 

Age: 48

 

Director Since 2019

 

Committees: Nominations, Compensation

  

Kiva A. Allgood has been a director of the Company since May 2019.

 

Ms. Allgood has been the Global Business Unit Head of IOT and Automotive for Telefonaktiebolaget LM Ericsson, a Nasdaq-listed company that is a global provider of communications technology, since April 2019. Ms. Allgood served as the Chief Commercial Development Officer for GE Ventures, a Corporate Venture Company, from August 2017 to April 2019 and as Managing Director for Innovation Group of GE Corporate from November 2016 to August 2017. From June 2012 to November 2016, Ms. Allgood served as President, Qualcomm Intelligent Solutions, IoT and Smart Cities, at Qualcomm Incorporated, a NASDAQ Global Select Market-listed company that is a global provider of foundational technologies and products used in mobile devices and other wireless products. Earlier in her career, Ms. Allgood served in senior-level operational roles including sales, marketing, and business development in the technology industry. Ms. Allgood holds a Bachelor of Science degree and Master of Business Administration degree, both from Northwestern University.

 

Specific Qualifications, Attributes, Skills and Experience:

 

We believe that Ms. Allgood’s senior management positions with other leading companies, her career at a leading venture capital firm with a focus on investments in high-technology companies, her engineering background, and her knowledge and experience in the Internet of Things and automotive technology sectors, provide the requisite qualifications, skills, perspectives, and experiences that make her well qualified to serve on our Board.

 

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LOGO

 

Jeffrey D. Buchanan

 

Independent Director

 

Age: 64

 

Director Since 2005

 

Committees: Audit (Chair), Nominations and Executive

  

Jeffrey D. Buchanan has been a director of the Company since September 2005.

 

Beginning in August 2020, Mr. Buchanan retired from his full-time senior executive role and is presently an independent consultant in the technology industry. Mr. Buchanan was the Executive Vice President, Chief Financial Officer, and Treasurer of Smith & Wesson Brands, Inc. (formerly American Outdoor Brands Corporation), a Nasdaq Global Select Market-listed company that is a U.S.-based leader in firearm manufacturing and design, from January 2011 to August 2020. Mr. Buchanan also served as the Chief Administrative Officer of Smith & Wesson Brand, Inc. from May 2015 until August 2020, as Secretary of Smith & Wesson Brands, Inc. from January 2011 until April 2012, and as a member of the Board of Directors and as the Chair of the Audit Committee of Smith & Wesson Brands, Inc. from November 2004 until December 2010. He was Of Counsel to the law firm of Ballard Spahr LLP from May 2010 until December 2010. Mr. Buchanan served as a Senior Managing Director of CKS Securities, LLC, a registered broker-dealer, from August 2009 until May 2010 and as a Senior Managing Director of Alare Capital Securities, L.L.C., a registered broker-dealer, from November 2006 until July 2009. From 2005 to 2006, Mr. Buchanan was principal of Echo Advisors, Inc., a corporate consulting and advisory firm focusing on mergers, acquisitions, and strategic planning. Mr. Buchanan served in various positions for Three-Five Systems, Inc., a publicly traded electronic manufacturing services company, including as Executive Vice President, Chief Financial Officer, and Treasurer, from May 1996 until February 2005. Mr. Buchanan was a business attorney for the law firm of O’Connor, Cavanagh, Anderson, Killingsworth & Beshears from 1986 until 1996 and for the law firm of Davis Wright Tremaine LLP from 1984 until 1986. He was a senior staff person at Deloitte & Touche LLP from 1982 to 1984. Mr. Buchanan holds a Bachelor of Science degree in Accounting from Arizona State University, a Juris Doctor degree from the University of Arizona, and a Master of Laws degree in Tax from the University of Florida.

 

Specific Qualifications, Attributes, Skills and Experience:

 

We believe Mr. Buchanan’s legal, accounting, and investment banking background, his roles as the chief financial officer and treasurer of public companies, and his public company board service provide the requisite qualifications, skills, perspectives, and experiences that make him well qualified to serve on our Board.

 

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LOGO

 

Keith B. Geeslin

 

Independent Director

 

Age: 67

 

Director Since 1986

 

Committees: Compensation (Chair) and Executive

  

Keith B. Geeslin has been a director of the Company since 1986.

 

Mr. Geeslin has been a General Partner of Francisco Partners, a firm specializing in structured investments in technology companies undergoing strategic, technological, and operational inflection points, since January 2004. From 2001 until October 2003, Mr. Geeslin served as Managing General Partner of the Sprout Group, a venture capital firm, with which he became associated in 1984. In addition, Mr. Geeslin served as a general or limited partner in a series of investment funds associated with the Sprout Group, a division of DLJ Capital Corporation, which is a subsidiary of Credit Suisse (USA), Inc.

 

Mr. Geeslin is currently a member of the Board of Directors and Chair of the Compensation Committee of CommVault Systems, Inc., a public company that provides data management software. Mr. Geeslin holds a Bachelor of Science degree in Electrical Engineering, a Master’s of Science degree in Engineering and Economic Systems from Stanford University, and a Master of Arts degree in Philosophy, Politics, and Economics from Oxford University.

 

Specific Qualifications, Attributes, Skills and Experience:

 

We believe Mr. Geeslin’s long career at leading private equity and venture capital firms with a focus on investments in high-technology companies, his service on multiple boards of directors, and his engineering background provide the requisite qualifications, skills, perspectives, and experiences that make him well qualified to serve on our Board.

 

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LOGO

 

Michael E. Hurlston

 

President, Chief Executive Officer and Director

 

Age: 53

 

Director Since 2019

 

Committees: None

  

Michael E. Hurlston has been the President and Chief Executive Officer of the Company since August 2019.

 

Prior to joining the Company, Mr. Hurlston served as the Chief Executive Officer and a member of the Board of Directors of Finisar Corporation from January 2018 to August 2019. Prior to joining Finisar, he served as Senior Vice President and General Manager of the Mobile Connectivity Products/Wireless Communications and Connectivity Division and held senior leadership positions in sales, marketing and general management at Broadcom Limited and its predecessor corporation from November 2001 through October 2017. Prior to joining Broadcom in 2001, Mr. Hurlston held senior marketing and engineering positions at Oren Semiconductor, Inc., Avasem, Integrated Circuit Systems, Micro Power Systems, Exar and IC Works from 1991 until 2001.

 

Mr. Hurlston is currently a member of the Board of Directors of Vilynx Inc., a private company, and a member of the Board of Directors and Compensation Committee of Ubiquiti Networks, Inc., a NYSE-listed company. Mr. Hurlston holds a Bachelor of Science and a Master of Science degree in Electrical Engineering and a Master’s degree in Business Administration from the University of California, Davis.

 

Specific Qualifications, Attributes, Skills and Experience:

 

We believe Mr. Hurlston’s position as Chief Executive Officer of the Company, and his successful career at major companies before joining our company provide the requisite qualifications, skills, perspectives, and experiences that make him well qualified to serve on our Board.

 

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LOGO

 

James L. Whims

 

Independent Director

 

Age: 65

 

Director Since 2007

 

Committees: Nominations (Chair), Audit and Executive

  

James L. Whims has been a director of the Company since October 2007.

 

Mr. Whims has been a partner at Alsop-Louie Partners, a venture capital firm focused on identifying promising entrepreneurs, since February 2010. From 1996 to 2007, Mr. Whims was a Managing Director of Techfund Capital l, LP and Techfund Capital II, LP and since 2001, a Managing Director and Venture Partner at Techfund Capital Europe, which are venture capital firms concentrating on high-technology enterprises. Mr. Whims was Executive Vice President of Sony Computer Entertainment of America from 1994 to 1996, where he was responsible for the North American launch of the Playstation and was the winner of the Brandweek/Ad Week marketing executive of the year. From 1990 to 1994, Mr. Whims was Executive Vice President of Software Toolworks. Mr. Whims co-founded Worlds of Wonder, an American toy company that launched Teddy Ruxpin, Lazer Tag and the United States launch of Nintendo, where he was an executive from 1985 to 1988.

 

Mr. Whims is currently a member of the Board of Directors and a member of the Audit Committee and Compensation Committee of the private company DigiLens Inc., a diffractive waveguide optical company, and a member of the Board of Directors and Compensation Committee at each of private companies Kuprion, Inc. a nano-copper materials company, Keyssa, a wireless connectivity company, and Phizzle, an engagement automation software company.

 

Previously, Mr. Whims was a member of the Board of Directors of THQ, Inc., Portal Player, and 3DFX, all of which were Nasdaq Global Select Market-listed companies, and of Twitch TV, which was a private company. Mr. Whims holds a Bachelor of Science degree from Northwestern University and a Master’s degree in Business Administration from the University of Arizona.

 

Specific Qualifications, Attributes, Skills and Experience:

 

We believe Mr. Whims’ senior executive positions with major companies, his experience as an investor in high-technology companies, his service as a director of multiple companies, and his expertise in e-communications and marketing provide the requisite qualifications, skills, perspectives, and experiences that make him well qualified to serve on our Board.

 

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VOTE REQUIRED

Each director nominee will be elected at the Annual Meeting if such nominee receives a majority of the votes cast with respect to such nominee’s election (that is, the number of votes cast “FOR” the nominee must exceed the number of votes cast “AGAINST” the nominee). Proxies cannot be voted for a greater number of persons than the two director nominees named in Proposal 1.

An incumbent candidate for director who does not receive the required votes for re-election is expected to tender their resignation to our Board of Directors. Our Board of Directors, or another duly authorized committee of our Board of Directors, will make a determination as to whether to accept or reject the tendered resignation generally within 90 days after certification of the election results of the stockholder vote. If applicable, we will publicly disclose the decision regarding any tendered resignation and the rationale behind the decision in a filing of a Current Report on Form 8-K  with the Securities and Exchange Commission (the “SEC”).

RECOMMENDATION

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” EACH OF THE DIRECTOR NOMINEES.

 

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PROPOSAL 2 –

ADVISORY APPROVAL OF OUR NAMED EXECUTIVE OFFICER COMPENSATION

Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires that we provide our stockholders an opportunity to vote to approve, on an advisory or non-binding basis, the compensation of our NEOs as disclosed in this proxy statement in accordance with the SEC’s rules. This proposal, commonly known as a “say on pay” proposal, gives our stockholders the opportunity to express their views on our named executive officers’ compensation as a whole. This vote is not intended to address any specific item of compensation or any specific named executive officer, but rather the overall compensation of all of our NEOs and the philosophy, policies and practices described in this proxy statement.

We are asking our stockholders to approve the compensation of our NEOs (as identified in the CD&A) as disclosed pursuant to the SEC’s executive compensation disclosure rules and set forth in this Proxy Statement (including in the CD&A, the compensation tables, and the narratives accompanying those tables).

OUR COMPENSATION OBJECTIVES

 

   

To align executive compensation with the Company’s corporate strategies, business objectives and the creation of long-term value for our stockholders without encouraging unnecessary or excessive risk-taking;

 

   

To provide an incentive to achieve key strategic and financial performance measures by linking short-term incentive award opportunities and a substantial portion of long-term incentive award opportunities to the achievement of corporate and operational performance objectives in these areas;

 

   

To offer total compensation opportunities to our executive officers that are competitive and fair;

 

   

To align the interests of our executive officers with those of our stockholders by linking our executive officers’ long-term incentive compensation opportunities to stockholder value and their cash incentives to our annual performance; and

 

   

To provide compensation and benefit levels that will attract, motivate, reward, and retain a highly-talented team of executive officers within the context of responsible cost management.

The Compensation Committee values input from our stockholders regarding the Company’s executive compensation program and, as discussed in more detail on page 48, made changes to our executive compensation program based on the feedback we received from stockholders in fiscal 2020. These changes included revising our fiscal 2020 annual performance-based cash bonus plan to base award payments on our actual results as measured against three objective financial performance metrics – revenue, non-GAAP gross margin, and non-GAAP operating profit.

FISCAL 2020 COMPENSATION HIGHLIGHTS

 

Annual Cash Bonuses Based on Performance

  

Determined based on a rigorous performance measurement framework that measures the Company’s actual performance against multiple pre-established financial goals – which include revenue, non-GAAP gross margin, and non-GAAP operating profit goals – and each NEO’s contribution to that performance.

See “Fiscal 2020 Named Executive Officer Compensation — Annual Performance-Based Cash Bonuses” on pages 51 - 57 for more information about how the goals are set and the Company’s performance.

 

Majority of Target Total Direct Compensation is “At Risk”

  

Approximately 97% of our Chief Executive Officer’s target total direct compensation (“TDC”)1 and approximately 83% of our other continuing NEOs’ target TDC was tied directly to the performance of the Company and/or the Company’s stock price, as shown in the pay mix charts on page 51.

 

 

 

1 As used in this Proxy Statement, “target TDC” and “target total direct compensation” mean the named executive officer’s base salary, target annual cash bonus opportunity and grant date fair value (based on the value approved by the Compensation Committee and used to determine the number of shares subject to the award) of annual long-term incentive awards granted to the named executive officer in fiscal 2020.

 

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Majority of Target Total Direct

Compensation is in the Form of

Long-Term Incentives

  

The most significant component of each NEO’s total compensation opportunity is in the form of performance stock unit (“PSU”) awards, market stock unit (“MSU”) awards, and restricted stock unit (“RSU”) awards that each vest or are earned over a multi-year (three- or four-year) period.

In fiscal 2020, approximately 93% of our Chief Executive Officer’s, and approximately 72% of our other continuing NEOs’, target TDC was annual long-term incentive compensation in the form of equity awards. We believe equity compensation directly align the interests of our NEOs and our stockholders.

 

Majority of Target TDC Long-Term

Incentives are

Performance-Based

  

Approximately 60% of our Chief Executive Officer’s, and approximately 68% of our other continuing NEOs’, annual long-term incentive compensation for fiscal 2020 is subject to performance-based vesting requirements.

Vesting for the fiscal 2020 annual equity awards with performance-based vesting requirements was contingent on our TSR performance over a multi-year period in the case of the MSU awards and on our non-GAAP earnings per share performance over a one-year performance period and a multi-year time-based vesting requirement in the case of the PSU awards.

 

In accordance with the requirements of Section 14A of the Exchange Act, and the related rules of the SEC, our Board requests your advisory Say-on-Pay vote to approve the following resolution at our Annual Meeting:

RESOLVED, that the compensation paid to the Company’s NEOs, as disclosed in this Proxy Statement pursuant to the Securities and Exchange Commission’s executive compensation disclosure rules (which disclosure includes the “Compensation Discussion and Analysis” section, the compensation tables and the narrative discussion that accompanies the compensation tables), is hereby approved.

This vote is an advisory vote only and will not be binding on the Company, the Board or the Compensation Committee, and will not be construed as overruling a decision by, or creating or implying any additional fiduciary duty for, the Company, the Board or the Compensation Committee. However, our Board and the Compensation Committee will consider the outcome of this vote when making future compensation decisions for our NEOs.

The Company’s current policy is to provide our stockholders with an advisory Say-on-Pay vote to approve the compensation of our NEOs each year at the annual meeting of stockholders. It is expected that the next advisory Say-on-Pay vote will be held at the 2021 annual meeting of stockholders.

VOTE REQUIRED

The compensation of our NEOs will be approved, on an advisory basis, if a majority of the votes cast on Proposal 2 at the Annual Meeting are cast in favor of the proposal. Abstentions and broker non-votes are not counted as votes cast and, accordingly, will have no effect on the outcome of this proposal.

RECOMMENDATION

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS.

 

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PROPOSAL 3

RATIFICATION OF APPOINTMENT

OF INDEPENDENT AUDITOR

We are seeking stockholder ratification of our appointment of KPMG LLP (“KPMG”) as our independent auditor for the fiscal year ending June 26, 2021. KPMG has served as our independent auditor since 2003. In August 2020, the Audit Committee re-appointed KPMG as our independent auditor for the year ending June 26, 2021. The Audit Committee has considered whether the provision of non-audit services by KPMG is compatible with maintaining KPMG’s independence.

Additional information about KPMG, including the fees we paid to KPMG in fiscal years 2020 and 2019, can be found in this Proxy Statement under the caption “Audit and Non-Audit Fees.” The report of the Audit Committee included in this Proxy Statement under the caption “Audit Committee Report” also contains information about the role of KPMG with respect to the audit of the Company’s annual financial statements.

A representative of KPMG is expected to be present at our Annual Meeting, be available to respond to appropriate questions and will have the opportunity to make a statement, if desired.

Stockholder ratification of the appointment of KPMG as our independent auditor is not required by our Amended and Restated Bylaws (the “Bylaws”) or otherwise. However, the Board is submitting the appointment of KPMG to the stockholders for ratification as a matter of good corporate governance. If the stockholders fail to ratify the appointment, the Audit Committee may reconsider whether or not to retain KPMG. Even if the appointment is ratified, the Audit Committee, in its discretion, may appoint a different independent auditor at any time during the year if the Audit Committee determines that such a change would be in the best interests of the Company and our stockholders.

VOTE REQUIRED

Ratification of the appointment of KPMG as our independent auditor will be approved if a majority of the votes cast on Proposal 3 at the Annual Meeting are cast in favor of the proposal. Abstentions are not counted as votes cast.

RECOMMENDATION

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF KPMG AS OUR INDEPENDENT AUDITOR FOR THE FISCAL YEAR ENDING JUNE 26, 2021.

 

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PROPOSAL 4

APPROVAL OF AMENDED AND RESTATED 2019 EQUITY AND INCENTIVE COMPENSATION PLAN

General

At the Annual Meeting, our stockholders will be asked to approve an amended and restated version of our 2019 Equity and Incentive Compensation Plan (the “2019 Incentive Plan”). The amendments to the 2019 Incentive Plan were adopted by our Board of Directors on September 2, 2020 and include an increase in the share limit of the plan, subject to stockholder approval, by an additional 1,360,000 shares, so that the new aggregate share limit for the 2019 Incentive Plan would be 2,590,000 shares, as well as more restrictive minimum vesting requirements, and a holding period requirement for awards granted to our Chief Executive Officer. The 2019 Incentive Plan limit on the number of shares of common stock that may be delivered pursuant to “incentive stock options” under the plan will also be increased to 2,590,000 shares (with, for purposes of clarity, any such shares to also count against the aggregate share limit for the plan). If stockholders do not approve this 2019 Incentive Plan proposal, the current share limits and terms of the 2019 Incentive Plan will continue in effect.

As of August 17, 2020, 670,754 shares of the Company’s common stock remained available for new award grants under the 2019 Incentive Plan, and a total of 3,304,845 shares were subject to outstanding awards granted under the 2019 Incentive Plan, our 2019 Inducement Equity Plan (the “2019 Inducement Plan”), our Amended and Restated 2010 Incentive Compensation Plan, as amended (the “2010 Plan”), and our Amended and Restated 2001 Incentive Compensation Plan (the “2001 Plan” and together with the 2010 Plan, the “Predecessor Plans”). No new awards may be granted under the 2001 Plan or the 2010 Plan and, if stockholders approve the 2019 Incentive Plan proposal, no new awards will be granted under the 2019 Inducement Plan.

Why We Believe You Should Vote for Proposal 4

In evaluating our request to approve the 2019 Incentive Plan proposal, we ask that you consider the following:

 

   

Incentive to Attract and Retain Talent. We believe that our future success depends in part on our ability to attract, hire, motivate and retain high quality employees, directors and consultants and that the ability to provide equity awards under the 2019 Incentive Plan is critical to achieving this success. We would be at a severe disadvantage if we could not use equity-based awards covering a meaningful number of shares to recruit and secure or retain key talent in the current competitive market for highly skilled and qualified employees.

 

   

Alignment of Interests. We believe that our future success depends on our ability to align the interests of our employees, directors and consultants with those of our stockholders, and that equity compensation is a key way to foster this alignment.

 

   

Significant Focus on Performance-Based Vesting Equity Awards. Approximately 60% of our CEO’s (and approximately 68% of our other continuing NEOs’) annual equity awards granted in fiscal 2020 are subject to performance-based vesting requirements, with the vesting of the awards based on our TSR compared to the S&P Semiconductor Select Industry Index (“SPSISC Index TSR”) and the Company’s non-GAAP earnings per share. The foregoing percentages are based on the grant date fair value of the awards granted in fiscal 2020.

 

   

Limiting Cash Compensation Expense. Equity compensation limits the cash cost of our compensation programs and can preserve cash for other uses in growing our business or returning value to our stockholders. If the 2019 Incentive Plan proposal is not approved, we may need to replace the lost compensation value with larger cash awards, which would increase our cash compensation expense. That cash might be better utilized if reinvested in our business or returned to our stockholders.

 

   

Responsible Share Request Size. We believe that we are asking for enough shares to be able to continue to grant equity awards under the 2019 Incentive Plan for approximately one to two years (as discussed in more detail below). We want our stockholders to have the ability to regularly validate their support of our approach to equity awards.

To help our stockholders better understand our historical equity compensation practices, currently anticipated needs, and an estimate of the potential cost of dilution from our request for additional shares, we note that, as of August 17, 2020:

 

   

We have 34,229,602 shares of our common stock issued and outstanding;

 

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We have 3,079,252 shares (9% of our issued and outstanding common stock) subject to outstanding unvested full value awards (i.e. awards other than options and stock appreciation rights (“SARs”)) (1,389,941 of which were outstanding under the 2019 Incentive Plan, 454,129 of which were outstanding under the 2019 Inducement Plan and 1,235,182 of which were outstanding under the 2010 Plan);

 

   

We have 225,593 shares (0.7% of our issued and outstanding common stock) subject to outstanding stock options (all of which were granted under the 2010 Plan), with a weighted average exercise price of $71.13 and a weighted average remaining term of 2 years;

 

   

We have 670,754 shares available for future grants under the 2019 Incentive Plan and 195,871 shares available for future grants under the 2019 Inducement Plan. No new awards may be granted under the 2001 Plan or the 2010 Plan and, if stockholders approve the 2019 Incentive Plan proposal, no new awards will be granted under the 2019 Inducement Plan;

 

   

The total number of shares of common stock subject to outstanding awards under the 2019 Incentive Plan, the Predecessor Plans and the 2019 Inducement Plan (3,304,845 shares in total), plus the total number of shares available for future awards under the 2019 Incentive Plan and the 2019 Inducement Plan (866,625 shares in total), represents a current overhang percentage of 12.2% (in other words, the potential dilution of our stockholders represented by these plans when viewed against our shares of common stock currently issued and outstanding). As noted above, however, no new awards will be granted under the 2019 Inducement Plan if stockholders approve the 2019 Incentive Plan proposal;

 

   

We are asking for an additional 1,360,000 shares of common stock available for awards under the 2019 Incentive Plan proposal – this represents 4.0% of our issued and outstanding common stock as of August 17, 2020, which percentage reflects the simple dilution of our stockholders that would occur if the 2019 Incentive Plan proposal is approved and all such shares were delivered in respect of awards granted under the plan; and

 

   

Based on the closing price of our common stock on the NASDAQ Global Select Market on August 17, 2020 of $84.95 per share, the aggregate market value as of that date of the additional 1,360,000 shares of common stock requested for issuance under the 2019 Incentive Plan proposal was $115,532,000.

We recognize that our stockholders want to know about our recent grant practices, including our recent “burn rate,” when considering how to vote on our 2019 Incentive Plan proposal. Burn rate or run rate (measuring a company’s annual usage of shares) is generally calculated as the number of shares granted divided by the weighted average number of shares outstanding and is used to demonstrate how quickly a company uses available shares. The table below provides our average burn rate under the 2019 Incentive Plan (with performance-based awards being included for the year in which they are earned based on the number of shares earned).

 

Fiscal Year    Options    
Granted    
  

Restricted Stock    

Awards/Units Granted    
(excluding Performance-    

Based)    

  

Performance-Based    

Restricted Stock    

Awards/Units Earned    

  

Total Shares        

Granted        

  

Weighted Average            

Shares at End of            

Fiscal Year            

   Burn Rate  

2018

   61,825    1,331,073    --    1,392,898    34,200,000    4.07%        

2019

   --    1,263,966    184,672    1,448,638    34,600,000    4.19%        

2020

   --    742,586    84,686    827,272    34,800,000    2.38%        

Average Three-Year Burn Rate (2018-2020)

   3.55%        

We currently anticipate that the shares requested, when combined with reserves currently available under the 2019 Incentive Plan, will provide flexibility for us to make grants in the ordinary course of business for approximately one to two years. However, this is only an estimate, in our judgment, based on current circumstances. The total number of shares that are subject to our award grants in any one year or from year-to-year may change based on a number of variables, including, without limitation, the value of our common stock (since higher share prices generally require that fewer shares be issued to produce awards of the same grant date fair value), changes in competitors’ compensation practices or changes in compensation practices in the market generally, changes in the number of employees, changes in the number of directors and officers, whether and the extent to which vesting conditions applicable to equity-based awards are satisfied, acquisition activity and the need to grant awards to new employees in connection with acquisitions, the need to attract, retain and incentivize key talent, the type of awards we grant, and how we choose to balance total compensation between cash and equity-based awards.

Responsible Plan Features

Our Board of Directors believes the use of stock-based incentive awards promotes best practices in corporate governance by incentivizing the creation of stockholder value. By providing participants in the 2019 Incentive Plan with a stake in our success, the interests of participants are further aligned with those of our stockholders. Specific features of the 2019 Incentive Plan that we believe are consistent with good corporate governance practices include:

 

   

General administrative authority for the 2019 Incentive Plan has been delegated to the Compensation Committee of the Board, consisting entirely of directors the Board has determined are independent;

 

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Except for substitute awards granted in connection with a corporate transaction such as an acquisition, stock options and SARs under the 2019 Incentive Plan may not be granted with exercise or base prices lower than the fair market value of the underlying shares on the grant date;

 

   

Except for customary adjustments in connection with a corporate transaction (such as a stock split) or change of control, the 2019 Incentive Plan prohibits the repricing of stock options and SARs without stockholder approval, including the cancellation and replacement of any outstanding option or SAR with a new option, SAR, other award or cash and any amendment or modification that reduces the exercise price of an option or base price of a SAR;

 

   

The 2019 Incentive Plan prohibits the grant of dividend equivalents with respect to stock options and SARs and subjects all dividends and dividend equivalents paid with respect to other awards to the same vesting conditions as the underlying shares subject to the awards;

 

   

The 2019 Incentive Plan prohibits “liberal share recycling,” meaning that shares used to pay the exercise price or withholding taxes relating to an award under the 2019 Incentive Plan will not be recycled back into the 2019 Incentive Plan for future grants;

 

   

As noted above and as described in more detail below, the amendment and restatement of the 2019 Incentive Plan includes more restrictive minimum vesting requirements, and a holding period requirement for awards granted to our Chief Executive Officer;

 

   

The 2019 Incentive Plan does not contain an “evergreen” feature;

 

   

The 2019 Incentive Plan does not contain a liberal change of control definition, meaning that an acquisition of the Company would need to be consummated to constitute a change of control; and

 

   

Non-employee directors may not be awarded compensation for services as a director in any calendar year that exceeds $750,000.

Plan Summary

The principal terms of the 2019 Incentive Plan are summarized below. The following summary is qualified in its entirety by the full text of the 2019 Incentive Plan, which appears as Appendix B to this Proxy Statement.

Purpose

The purpose of the 2019 Incentive Plan is to provide a means through which the Company may attract and retain key non-employee directors, officers, employees and certain consultants of the Company and its subsidiaries, and to provide to such persons incentives and rewards for service and/or performance.

Eligibility

Non-employee directors, officers, employees, and consultants of the Company and its subsidiaries are eligible for awards, as selected by the Compensation Committee or such other committee designated by the Board of Directors to administer the plan (the “Committee”); provided, that, incentive stock options may be granted only to employees. As of August 17, 2020, 1687 employees, 7 non-employee directors, and 1 consultant were considered eligible to participate in the 2019 Incentive Plan.

Share Limits

An aggregate of 2,083,727 shares of common stock (1,230,000 shares approved by stockholders on October 29, 2019 and 853,727 shares transferred from the Predecessor Plans after October 29, 2019 through August 17, 2020) may be issued pursuant to awards of options, SARs, restricted stock, RSUs, performance shares or performance units, dividend equivalents, or other awards granted under the 2019 Incentive Plan. If stockholders approve this 2019 Incentive Plan proposal, this share limit will be increased to 3,443,727 shares (an increase in the share limit, before taking into account share transfers from the Predecessor Plans, from 1,230,000 shares to 2,590,000 shares, and including the 853,727 shares that have transferred from the Predecessor Plans as of August 17, 2020). In addition, if stockholders approve this 2019 Incentive Plan proposal the plan’s limit on the number of shares of common stock that may be delivered pursuant to “incentive stock options” under the plan will be increased from 1,230,000 shares to 2,590,000 shares (with, for purposes of clarity, any such shares to also count against the aggregate share limit for the plan).

If any award granted under the 2019 Incentive Plan expires unexercised, is canceled, forfeited, settled in cash or unearned (in whole or in part), shares of our common stock subject to such award will again be made available for future grants under the 2019 Incentive Plan. Further, if any award granted under the Predecessor Plans expires unexercised, is canceled, forfeited, settled in cash or unearned (in whole or in part), shares of our common stock subject to such award will again be made available for future grants under the 2019 Incentive Plan. As of August 17, 2020, a total of 853,727 shares had become available for award grants under the 2019 Incentive Plan as a result of the expiration, cancellation, forfeiture or settlement of awards under the Predecessor Plans, and a total of 1,460,775 shares were then subject to outstanding awards under the Predecessor Plans. Shares of our common stock that are used to pay the required exercise price of options granted under the 2019 Incentive Plan or to satisfy tax withholding with respect to awards granted under the 2019 Incentive Plan, as well as any shares reacquired by the Company on the open market (whether by using cash proceeds from the

 

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exercise of an option or otherwise), will not be available again for other awards under the 2019 Incentive Plan. If a participant elects to give up the right to receive compensation in exchange for shares of common stock based on fair market value, such shares of common stock will not count against the aggregate share limit authorized under the 2019 Incentive Plan.

Minimum Vesting Requirements; Minimum Holding Requirement for CEO Awards

No award granted under the 2019 Incentive Plan may vest earlier than after a one-year vesting period or a one-year performance period, as applicable, unless in connection with the award recipient’s death or disability or in connection with a change of control of the Company. However, up to 5% of the sum of (i) the aggregate number of shares available for issuance under the 2019 Incentive Plan as described above, and (ii) the number of shares returned to the 2019 Incentive Plan as a result of awards originally granted under the Predecessor Plans that are cancelled or forfeited, settled in cash, or unearned, may be granted in the form of awards that do not meet such minimum vesting requirements.

Any award granted under the 2019 Incentive Plan to an individual who, at the time of grant of the award, is the Company’s chief executive officer must include a provision for any net shares acquired with respect to the award (the total number of shares acquired pursuant to the award less any shares used to pay the exercise or purchase price of the award and any shares used to satisfy any tax and tax withholding obligations with respect to the award) to be held for at least a one year period, or until the award recipient is no longer employed by the Company or one of its subsidiaries, before such shares may be sold or transferred (except for certain transfers to a family member for estate or tax planning purposes and where the holding period requirement continues in effect as to the shares, or in connection with or following a Change in Control).

Individual Director Limit

Non-employee directors may not be granted compensation (including cash compensation) having an aggregate maximum value at the date of grant that exceeds $750,000 per calendar year.

Administration

The Committee administers the 2019 Incentive Plan. Among other responsibilities, the Committee selects participants and determines the type of awards granted to participants, the number of shares of common stock covered by awards and the terms and conditions of awards, interprets the 2019 Incentive Plan and awards granted thereunder, and makes any other determinations and takes any other actions that it may deem necessary or desirable to administer the 2019 Incentive Plan. The Committee may delegate to a subcommittee of its members, officers of the Company, agents or advisors, such administrative duties or powers as the Committee deems advisable, and the Committee, the subcommittee or any other person to whom duties or powers have been delegated, may employ persons to render advice with respect to a responsibility of the Committee. The Committee may also, by resolution, authorize officers of the Company to designate employees to be recipients of awards and to determine the size of such awards; provided, however, that (A) the Committee may not delegate such responsibilities to any such officer for awards granted to an employee who is an officer, director, or more than 10% “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, as determined by the Committee in accordance with Section 16 of the Exchange Act; (B) the resolution providing for such authorization must set forth the total number of common shares the officer may grant; and (C) the officer(s) must periodically report to the Committee regarding the nature and scope of such awards granted. The Board may also assume administration of the 2019 Incentive Plan or certain aspects of the plan.

Amendment or Termination

Unless earlier terminated, the expiration date of the 2019 Incentive Plan will be July 29, 2029; provided, however, that such expiration will not affect awards then outstanding, and the terms and conditions of the 2019 Incentive Plan will continue to apply to such awards. The Board of Directors may amend or terminate the 2019 Incentive Plan at any time. Stockholder approval for an amendment will be required only to the extent then required by applicable law or deemed necessary or advisable by the Board of Directors. Further, any such amendment that would impair the rights of any participant, holder or beneficiary of any award granted under the 2019 Incentive Plan will not be effective without the consent of the affected participant, holder or beneficiary.

No Repricing

Except for customary adjustments in connection with a corporate transaction (such as a stock split) or change of control, none of the following actions may be taken under the 2019 Incentive Plan without approval of our stockholders: (i) an amendment or modification to reduce the exercise price of any option or the base price of any SAR; (ii) the cancellation of any outstanding option or SAR and replacement of such option or SAR with a new option, SAR, other award or cash for the purpose of repricing the award; or (iii) any other action that is considered a “repricing” for purposes of the NASDAQ Global Select Market stockholder approval rules.

Options

The Committee may, in its discretion, grant incentive stock options and nonqualified stock options to participants. Non-employee directors, officers, employees, and consultants of the Company and its subsidiaries may be granted nonqualified stock options, but only employees of the Company and its subsidiaries may be granted incentive stock options. The Committee determines the exercise price of options granted under the 2019 Incentive Plan. Subject to certain exceptions in connection with a corporate transaction such as an acquisition,

 

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the exercise price of an incentive or nonqualified stock option must be at least 100% of the fair market value of the common stock subject to the option on the date the option is granted. The Committee determines, in its sole discretion, the terms of each option. Options may not be exercisable for more than ten years from the date they are granted and may not provide for any dividends or dividend equivalents thereon. Acceptable consideration for the purchase of the common stock issued upon the exercise of an option is specified in the award agreement and may include cash, check, cash equivalents, shares of common stock, a reduction in the number of shares deliverable upon exercise, or such other forms of consideration that the Committee may accept.

SARs

The Committee may, in its discretion, grant SARs to participants in the 2019 Incentive Plan. Generally, SARs permit a participant to exercise the right and receive a payment equal to the value of the common stock’s appreciation over a period of time in excess of the fair market value (the “base price”) of a share of the common stock on the date of grant. Subject to certain exceptions in connection with a corporate transaction such as an acquisition, the base price of a SAR must be at least 100% of the fair market value of the common stock subject to the award on the date the SAR is granted. The Company may settle such amount in cash, in shares of our common stock valued at fair market value, or in any combination thereof, as determined by the Committee and specified in the award agreement. SARs granted under the 2019 Incentive Plan become exercisable and expire in such manner and on such date(s) as determined by the Committee, with the term of the SAR not to exceed ten years from the grant date. The Committee determines, in its sole discretion, the terms of each SAR. SARs granted under the 2019 Incentive Plan may not provide for any dividends or dividend equivalents thereon.

Restricted Stock

The Committee may, in its discretion, grant restricted stock to participants in the 2019 Incentive Plan. The Committee determines, in its sole discretion, the terms of each grant of restricted stock. Subject to the terms of the award, a recipient of restricted stock generally has the rights and privileges of a stockholder with respect to the restricted stock, including the right to vote the stock, on the grant date. Dividends, if any, paid by the Company with respect to awards of restricted stock prior to the time all restrictions and vesting conditions on the restricted stock have lapsed are withheld by the Committee and distributed to the participant in cash or shares of common stock upon, and subject to, the release of the restrictions applicable to the underlying shares of restricted stock.

RSUs

The Committee may, in its discretion, grant RSUs to participants. An RSU is the right to receive shares of our common stock (or to the extent provided in the award agreement, cash or a combination of cash and common stock) following achievement of all vesting conditions and the lapse of all restrictions. The Committee determines, in its sole discretion, the terms of each award of RSUs. Recipients of RSUs do not have the rights and privileges of a stockholder with respect to the common stock underlying such RSUs, including the right to vote the stock or receive dividends on the stock, until common stock in respect of the RSUs is actually issued to the recipient following satisfaction of all vesting conditions. If dividends are paid by the Company with respect to common stock underlying an award of RSUs prior to the time all vesting conditions on the RSU have been satisfied, an RSU award may provide that the recipient will be credited with dividend equivalents with respect to the RSUs. Any such dividend equivalents will be subject to the same vesting and payment terms that apply to the RSUs as to which the dividend equivalents were credited. RSUs may be settled in shares of our common stock, cash or a combination thereof in the discretion of the Committee.

Other Stock-Based Awards

The Committee, in its discretion, may award unrestricted shares of our common stock, or other awards denominated in shares of our common stock, to participants either alone or in tandem with other awards granted under the 2019 Incentive Plan. The Committee determines, in its sole discretion, the terms of each other stock-based award.

Cash Incentive Awards, Performance Shares, and Performance Units

The Committee may, in its discretion, also grant performance shares, performance units or cash incentive awards to participants under the 2019 Incentive Plan. Each grant specifies the number or amount of performance shares or performance units, or the amount payable with respect to cash incentive awards, which number or amount may be subject to adjustment to reflect changes in compensation or other factors. These awards, when granted under the 2019 Incentive Plan, become payable to participants upon the achievement of specified management objectives and upon such terms and conditions as the Committee determines at the time of grant. Each grant may specify, with respect to the management objectives, a minimum acceptable level of achievement and may set forth a formula for determining the number of performance shares or performance units, or the amount payable with respect to cash incentive awards, that will be earned if performance is at or above the minimum or threshold level, or is at or above the target level but falls short of maximum achievement. If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, the manner in which it conducts its business, or other events or circumstances render the management objectives unsuitable or an adjustment thereto is appropriate, the Committee may in its discretion modify such management objectives or the acceptable levels of achievement, in whole or in part, as the Committee deems appropriate. Each grant specifies the time and manner of payment of cash incentive awards, performance shares or performance units that have been earned, and any grant may further specify that any such amount may be paid or settled in cash, shares of common stock, restricted stock, restricted stock units or any combination thereof. Any grant of performance shares may provide for the payment of dividend equivalents in cash or in additional shares of common stock, subject to deferral and payment on a contingent basis based on the participant’s earning of the performance shares with respect to which such dividend equivalents are paid. Each grant of performance shares, performance units or cash incentive awards is evidenced by an award agreement

 

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which specifies the applicable terms and conditions of such award, including any vesting and forfeiture provisions. The performance period with respect to a cash incentive award, performance share, or performance unit is a period of time determined by the Committee on the grant date. The performance period may be subject to earlier lapse or modification, including in the event of retirement, death or disability of the participant.

Adjustments in Capitalization

In general, in the event of (1) any extraordinary cash dividend, stock dividend, stock split, combination of common stock, recapitalization or other change in the capital structure of the Company, (2) any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities or (3) any other corporate transaction or event having an effect similar to any of the foregoing, equitable adjustments (as determined by the Committee) will be made to the number of shares of common stock or other securities of the Company (or number and kind of other securities, consideration or other property) that may be delivered in respect of awards or with respect to which awards may be granted under the 2019 Incentive Plan, as well as adjustments to the exercise price of options and base price of SARs granted under the 2019 Incentive Plan. In addition, in the event of a Change in Control (as defined within the 2019 Incentive Plan), the Committee may provide in substitution for any or all awards outstanding under the 2019 Incentive Plan such alternative consideration (including cash), if any, it in good faith may determine to be equitable in the circumstances and shall require in connection therewith the surrender of all awards so replaced. In connection with any of the foregoing events, the Committee may in its sole discretion elect to cancel outstanding options or SARs with an exercise price or base price that is equal to or less than the then current fair market value of our common stock without any consideration to the participant therefor.

Change in Control

A Change in Control is defined in the 2019 Incentive Plan as the occurrence of any of the following events:

 

  ·  

A change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act;

 

  ·  

The following individuals no longer constitute a majority of the members of the Board of Directors: (1) the individuals who, as of October 29, 2019, constituted the Board of Directors (the “Current Directors”); (2) the individuals who thereafter were elected to the Board of Directors and whose election, or nomination for election, to the Board of Directors was approved by a vote of a majority of all of the Current Directors then still in office (such directors becoming “Additional Directors” immediately following their election); and (3) the individuals who were elected to the Board of Directors and whose election, or nomination for election, to the Board of Directors was approved by a vote of a majority of all of the Current Directors and Additional Directors then still in office;

 

  ·  

A tender offer or exchange offer is made whereby the effect of such offer is to take over and control the Company, and such offer is consummated for the equity securities of the Company representing more than 50% of the combined voting power of the Company’ then outstanding voting securities;

 

  ·  

Following approval by the stockholders of the Company, the Company closes a reorganization, merger, consolidation or recapitalization of the Company, a reverse stock split of outstanding voting securities, or consummation of any such transaction if stockholder approval is not obtained, other than any such transaction that would result in more than 50% of the total voting power represented by the voting securities of the surviving entity outstanding immediately after such transaction being beneficially owned by the holders of outstanding voting securities of the Company immediately prior to the transaction, with the voting power of each such continuing holder relative to other such continuing holders not substantially altered in the transaction;

 

   

The consummation of a transaction approved by our stockholders of a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or a substantial portion of the Company’s assets to another person, which is not a wholly owned subsidiary of the Company; or

 

   

Any “person” (as that term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly of more than 50% of the total voting power represented by the Company’s then outstanding voting securities.

In the event of a Change in Control and except as the Committee may otherwise provide as to a particular award: (i) unvested options and SARs will immediately vest, except to the extent that replacement awards (as such term is defined within the 2019 Incentive Plan) are provided; (ii) any restrictions, deferral of settlement and forfeiture conditions applicable to restricted stock, RSUs, or other awards that vest solely based on continued service (and not based on the achievement of management objectives) will lapse and be deemed fully vested, except to the extent that replacement awards are provided; (iii) with respect to cash incentive awards, performance shares, performance units, and other awards that are subject to the achievement of management objectives (other than with respect to awards described as “Market Stock Units”), the management objectives will be deemed satisfied at target, the applicable performance periods will be deemed completed, and if no replacement awards are provided, remaining restrictions, deferral of settlement and forfeiture conditions will lapse and the awards will be deemed fully vested; and (iv) with respect to RSUs with management objectives described as “Market Stock Units,” a prorated portion of such units will vest based on the actual performance of the management objectives through the date of the Change in Control, while the remainder of the Market Stock Units will vest in accordance with their regular vesting schedules if replacement awards are provided, or if not, the remaining restrictions, deferral of settlement and forfeiture conditions will lapse and the Market Stock Units will be deemed fully vested.

 

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Clawback/Repayment

All awards granted under the 2019 Incentive Plan and held by the Company’s executive officers are subject to clawback, recoupment or forfeiture (i) to the extent that an executive officer engages in fraud or intentional illegal conduct that resulted in the Company materially not complying with applicable financial reporting requirements and resulted in a financial restatement; or (ii) to the extent required by applicable laws, rules, regulations or listing requirements. Additionally, all awards granted under the 2019 Incentive Plan are subject to recoupment to the extent necessary to comply with any clawback policy that the Company is required to adopt pursuant to applicable law or the listing standards of the applicable national securities exchange.

Transferability

Awards under the 2019 Incentive Plan are generally not transferable except by will or the laws of descent and distribution or as otherwise determined by the Committee.

No Right to Continued Employment

The 2019 Incentive Plan does not give participants any right to be retained in the employ or service of the Company or any of its subsidiaries.

No Limit on Other Authority

The 2019 Incentive Plan does not limit the authority of the Board of Directors or any committee to grant awards or authorize any other compensation, with or without reference to the Common Stock, under any other plan or authority.

U.S. Federal Income Tax Consequences

The following is a brief summary of certain United States federal income tax consequences generally arising with respect to awards under the 2019 Incentive Plan. This discussion does not address all aspects of the United States federal income tax consequences of participating in the 2019 Incentive Plan that may be relevant to participants in light of their personal investment or tax circumstances and does not discuss any state, local or non-United States tax consequences of participating in the 2019 Incentive Plan.

Incentive Stock Options

A participant who is granted an incentive stock option will not have federal income tax liability upon the grant of an incentive stock option and will not recognize regular taxable income when the incentive stock option is exercised. However, the participant will recognize alternative minimum taxable income equal to the excess of the fair market value of the purchased shares at the time of exercise over the exercise price paid for those shares, if the participant is subject to the alternative minimum tax in the taxable year of the exercise. A participant generally will recognize income in the year in which the participant disposes of the shares purchased under such incentive stock option. If the participant makes a “qualifying disposition,” the participant will recognize a long-term capital gain equal to the excess of (i) the amount realized upon the sale or disposition over (ii) the exercise price paid for the shares and the Company cannot take an income tax deduction with respect to those shares. A qualifying disposition occurs when the participant’s sale or other disposition of the shares takes place (a) more than two (2) years after the grant date of the incentive stock option and (b) more than one (1) year after the date the option was exercised for the particular shares involved in the disposition. In contrast, a “disqualifying disposition” is any sale or other disposition of the shares made before both of these minimum holding periods are satisfied. Normally, when shares purchased under an incentive stock option are subject to a disqualifying disposition, the participant will recognize ordinary income at the time of the disposition in an amount equal to the excess of (x) the lesser of (1) the amount realized upon that disposition and (2) the excess of the fair market value of the shares on the exercise date over (y) the exercise price paid for those shares. the Company will be entitled to an income tax deduction equal to the amount of ordinary income that the participant recognizes in connection with the disposition, subject to any applicable limitations under Section 162(m) of the Internal Revenue Code (“Code”).

Nonqualified Stock Options

A participant who is granted a nonqualified stock option will not have federal income tax liability upon the grant of the nonqualified stock option, but will recognize ordinary income in the year in which the participant exercises the option in an amount equal to the excess of (i) the fair market value of the purchased shares on the exercise date over (ii) the exercise price paid for those shares. The Company will be entitled to an income tax deduction equal to the amount of ordinary income that the participant recognizes, subject to any applicable limitations under Section 162(m) of the Code. A participant will later also recognize a capital gain to the extent that the amount realized from the subsequent sale of the shares exceeds the participant’s basis in the shares.

Appreciation Rights (SARs)

A participant who is granted a SAR will not have federal income tax liability upon the grant of the SAR, but will recognize ordinary income in the year in which the participant exercises the SAR in an amount equal to the amount of the cash or the value of the stock that is transferred to the participant upon exercise of the SAR. The Company will be entitled to an income tax deduction equal to the amount of ordinary income that the participant recognizes, subject to any applicable limitations under Section 162(m) of the Code.

 

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Restricted Stock

A participant who is granted an award of restricted stock will recognize taxable income when the substantial risk of forfeiture of the shares lapses, i.e., at the time of “vesting,” unless the participant makes an election to be taxed at the time of grant. Assuming such an election is not made, the taxable income will be equal to the fair market value of the shares of restricted stock when they vest over the amount, if any, paid for those shares and the Company will be entitled to an income tax deduction equal to the amount of ordinary income that the participant recognizes, subject to any applicable limitations under Section 162(m) of the Code. The participant may elect under Section 83(b) of the Code to include as ordinary income in the year of the award an amount equal to the fair market value of the shares on the transfer date, less the amount, if any, paid for those shares. If the participant makes a Section 83(b) election, the participant will not recognize any additional income when the shares vest. If a Section 83(b) election is made, any appreciation in the value of the shares of restricted stock after the award is granted is not taxed as compensation but instead is taxed as a capital gain when the restricted shares are later sold or transferred. If the participant makes a Section 83(b) election and the restricted stock is later forfeited, the participant is not entitled to a tax deduction or a refund of the tax already paid. The Section 83(b) election must be filed with the Internal Revenue Service within thirty (30) days after the shares are awarded to the participant.

Restricted Stock Units (RSUs)

A participant who is granted a RSU generally will not recognize income when the RSU is granted or vested, but only when the RSU is settled. The participant will recognize ordinary income equal to the amount of the cash or the fair market value of the stock that the participant receives on settlement. The Company will be entitled to an income tax deduction equal to the amount of ordinary income that the participant recognizes, subject to any applicable limitations under Section 162(m) of the Code.

Cash Incentive Awards, Performance Shares and Performance Units

Generally, no income is recognized upon the grant of cash incentive awards, performance shares or performance units. Upon payment or settlement of cash incentive awards, performance shares or performance units, the recipient is generally required to include as taxable ordinary income in the year of receipt an amount equal to the amount of cash received and the fair market value of any non-restricted shares of common stock received. The Company will be entitled to an income tax deduction equal to the amount of ordinary income that the participant recognizes, subject to any applicable limitations under Section 162(m) of the Code.

Section 162(m)

Section 162(m) of the Code generally limits a public company’s ability to deduct aggregate compensation paid in excess of $1 million during any taxable year to current or former Named Executive Officers (including amounts attributable to equity-based and other incentive awards).

Withholding Taxes

To the extent the Company is required to withhold federal, state, local or foreign taxes in connection with any payment made or benefit realized by a participant or other person under the 2019 Incentive Plan, it is a condition to the receipt of such payment or the realization of such benefit that the participant or such other person make arrangements satisfactory to the Company for payment of the balance of such taxes required to be withheld, which arrangements, in the discretion of the Committee, may include relinquishment of a portion of such benefit. If a participant’s benefit are to be received in the form of shares of common stock, then, unless otherwise determined by the Committee, the Company will withhold, from the shares required to be delivered to the participant, shares of our common stock having a value equal to the amount required to be withheld under applicable law. In no event will the market value of the shares of our common stock withheld or delivered to the Company in order to satisfy applicable withholding taxes exceed the minimum amount of taxes required to be withheld unless: (i) an additional amount can be withheld and not result in adverse accounting consequences; (ii) such additional withholding amount is authorized by the Committee; and (iii) the total amount withheld does not exceed the participant’s estimated tax obligations attributable to the applicable transaction. The shares used for tax withholding will be valued at an amount equal to the market value of our common stock on the date the benefit is to be included in the participant’s income.

New Plan Benefits

The Company has not approved any awards that are conditioned upon stockholder approval of the 2019 Incentive Plan proposal. The Company is not currently considering any other specific award grants under the 2019 Incentive Plan, except for the annual grants of RSUs to non-employee directors described below. If the proposed plan amendments subject to the 2019 Incentive Plan proposal had been in effect in fiscal 2020, the Company expects that its award grants for fiscal 2020 would not have been substantially different from those actually made in that year under the current version of the 2019 Incentive Plan. For information regarding stock-based awards granted to the Named Executive Officers during fiscal 2020, see the material under the heading “Compensation Discussion and Analysis” below.

As described under the heading “Director Compensation” below, our current practice is to make grants of RSUs with a value of approximately $175,000 to non-employee directors each year after our Annual Meeting of Stockholders. The number of RSUs subject to each grant is based on the average closing price of our common stock on the NASDAQ Global Select Market during the month of October in the applicable year. Assuming, for illustrative purposes only, that the price of our common stock used for the conversion of the $175,000 grant value into RSUs is $84.95 (which was the closing price of our common stock on the NASDAQ Global Select Market on August 17, 2020), the total number of RSUs that would be granted to our six continuing non-employee directors who are nominees for re-election at, or will continue in office after, the Annual Meeting, as a group, for fiscal years 2021 through 2028 (the eight remaining years in the term of the 2019 Incentive Plan) would be approximately 98,882 RSUs. This calculation assumes, among other future variables, that there are no new eligible directors, the directors eligible to receive these grants continue to serve on the Board of Directors through the scheduled grant date and there are no changes to the awards granted under the director equity grant program.

 

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Aggregate Past Grants Under the 2019 Incentive Plan

As of August 17, 2020, awards covering 1,403,090 shares of our common stock had been granted under the 2019 Incentive Plan. This number of shares includes shares subject to awards granted under our equity incentive plans that expired or terminated without having been exercised and paid and became available for new award grants under the 2019 Incentive Plan. In the following table, performance-based vesting awards that were outstanding at the time the performance period was complete have been adjusted to reflect the actual performance level (which was greater than the targeted level as to those performance periods). The following table shows information regarding the distribution of all awards among the persons and groups identified below, option exercises, and stock units vesting prior to that date, and option and unvested stock unit holdings as of that date.

 

          Stock Options          Stock Units
Name and Position   Number of    Number of    Number of Shares Underlying    Number of    Number of    Number of
    Shares    Shares    Options as of August 17, 2020    Shares/Units    Shares/Units    Shares/Units
    Subject to    Acquired on              Subject to    Vested as of    Outstanding
    Past Option    Exercise              Past Awards    August 17,    and Unvested
    Grants                        2020    as of August 17,
                              2020
                 Exercisable    Unexercisable                  
Michael Huriston   -    -    -    -    239,180    -    239,180
President and Chief Executive Officer                                  
Dean Butler   -    -    -    -    23,292    -    23,292

Senior Vice President

Chief Financial Officer

                                 
Saleel Awsare   -    -    -    -    69,608    -    69,608

Senior Vice President and

General Manager, loT Division

                                 
Phillip Kumin   -    -    -    -    14,709    -    14,709

Senior Vice President,

Worldwide Sales

                                 
Richard Lu   -    -    -    -    36,807    -    -
Former Senior Vice President and General Manager, Mobile Division                                  
John McFarland   -    -    -    -    65,006    -    65,006

Senior Vice President,

General Counsel and Secretary

                                 
Kermit Nolan   -    -    -    -    29,642    -    29,642
Corporate Vice President and Chief Accounting Officer; Former Principal Financial Officer                                  
Alex wong   -    -    -    -    23,310    -    -

Former Principal Executive

Officer; Former Senior Vice

President of Worldwide

Operations

                                 
Total for All Current   -    -    -    -    441,437    -    441,437

Executive Officers as a

Group (6 persons):

                                 
Nelson Chan   -    -    -    -    4,294    3,221    1,073
Kiva Allgood   -    -    -    -    4,294    3,221    1,073
Jeffrey Buchanan   -    -    -    -    4,294    3,221    1,073
Keith Geeslin   -    -    -    -    4,294    3,221    1,073
Susan Hardman   -    -    -    -    1,864    790    1,074
Richard Sanquini   -    -    -    -    5,218    4,145    1,073
James Whims   -    -    -    -    4,294    3,221    1,073
Total for All Current   -    -    -    -    28,552    21,040    7,512

Non-Executive Directors

as a Group (7 persons):

                                 

Each other person who has

received 5% or more of the options, warrants or rights:

  -    -    -    -    -    -    -
All employees, including all   -    -    -    -    974,876    1,992    940,992

current officers who are

not executive officers or

directors, as a group:

                                 
Total                       1,504,982    23,032    1,389,941

 

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Mr. Chan and Ms. Hardman are each nominees for re-election as a director at the Annual Meeting.

Equity Compensation Plan Information

For additional information on our equity compensation plans, including information about shares of our common stock that may be issued on exercise of options and warrants under all of our equity compensation plans as of June 27, 2020, please refer to the “Equity Compensation Plan Information” section of this Proxy Statement.

VOTE REQUIRED

The amendment and restatement of the 2019 Incentive Plan will be approved if a majority of the votes cast at the Annual Meeting are cast in favor of the proposal. Abstentions and broker non-votes are not counted as votes cast and, accordingly, will have no effect on the outcome of this proposal.

RECOMMENDATION

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE AMENDED AND RESTATED 2019 EQUITY AND INCENTIVE COMPENSATION PLAN.

The Board believes that the adoption of the 2019 Incentive Plan proposal will promote the interests of the Company and its stockholders and will help the Company and its subsidiaries continue to be able to attract, retain and reward persons important to its success.

All members of the Board and all of our executive officers are eligible for awards under the 2019 Incentive Plan and thus have a personal interest in the approval of the 2019 Incentive Plan proposal.

 

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CORPORATE GOVERNANCE

BOARD COMPOSITION AND GOVERNANCE

Director Attendance

During fiscal 2020, the Board held 15 meetings. All directors who served on the Board during fiscal 2020 attended at least 75% of the total number of meetings of the Board and meetings of the Board committees on which each director served that were held during the period of the director’s service during the year. We encourage our directors to attend each annual meeting of stockholders. To that end, and to the extent reasonably practicable, we generally schedule a meeting of our Board of Directors on the same day as our annual meeting of stockholders. All of our directors attended our 2019 annual meeting of stockholders.

Independent Directors

Under the corporate governance rules of The Nasdaq Stock Market LLC (“Nasdaq”), a majority of the members of the Board must satisfy Nasdaq’s criteria for “independence.” No director qualifies as independent unless the Board affirmatively determines that the director has no relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board has determined that each of Mses. Allgood and Hardman and Messrs. Buchanan, Chan, Geeslin, Sanquini, and Whims is independent under the current listing standards of Nasdaq. Mr. Hurlston is not considered an independent director due to his current position as our Chief Executive Officer. There are no family relationships among any of our directors and director nominees or executive officers. In this Proxy Statement, we refer to each of Mses. Allgood and Hardman and Messrs. Buchanan, Chan, Geeslin, Sanquini, and Whims as our “Independent Directors.”

In addition, our Board previously determined that Russell Knittel and Francis Lee were independent under the listing standards of Nasdaq during their service on our Board through their respective retirements.

Executive Sessions and Independent Director Meetings

We regularly schedule executive sessions of our Board of Directors at which non-management directors meet without the presence or participation of management. The Chair of our Board presides at such executive sessions. The Independent Directors also meet in regularly scheduled executive sessions, generally in connection with regularly scheduled Board meetings.

Corporate Governance Guidelines

Our Board has adopted Corporate Governance Guidelines, which provide the framework for the governance of our Company and represent the Board’s current views with respect to selected corporate governance issues considered to be of significance to our stockholders. The Corporate Governance Guidelines direct our Board’s actions with respect to, among other things, director qualifications, establishment of the Board’s standing committees, succession planning and the Board’s annual performance evaluation. A current copy of the Corporate Governance Guidelines is available in the Investor Relations — Corporate Governance — Overview section of our website at http://www.synaptics.com.

Board Leadership Structure

The Board has no policy with respect to the separation of the offices of Chair and the Chief Executive Officer. The Board believes that this issue is part of the succession planning process and that it is in the best interests of the Company for the Board to make a determination when it elects a Chief Executive Officer. We currently maintain separate roles between the Chief Executive Officer and the Chair of the Board in recognition of the differences between the two responsibilities. Our Chief Executive Officer is responsible for setting our strategic direction and for day-to-day leadership and performance of our company. Our Chair of the Board provides input to the Chief Executive Officer, sets the agenda for Board of Directors meetings, and presides over meetings of the full Board as well as executive sessions of the Board.

 

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Board Oversight of Risk

Our Board believes that effective risk management involves our entire corporate governance framework. As is the case in virtually all businesses, we face a number of risks, including operational, economic, financial, legal, regulatory, and competitive risks. Our management is responsible for the day-to-day management of the risks we face, while our Board, as a whole and through its committees, has responsibility for the oversight of risk management.

 

 

 

Board Responsibilities

 

·  Overall oversight of the risk management process

 

·  Receives at least quarterly updates from senior management and periodically from outside advisors regarding risks facing the Company

 

·  Regularly reviews the risks facing the Company and identified in the Company’s filings with the SEC

 

·  Regularly reviews risks relating to various developments, including acquisitions, stock repurchases, debt and equity placements and product introductions

 

 

Audit Committee

 

·  Oversees financial reporting process

 

·  Responsible for the quality and integrity of financial statements

 

·  Oversees internal controls over financial reporting and disclosure controls and procedures

 

·  Oversees our compliance with legal and regulatory matters

 

·  Responsible for the performance and independence of the independent auditor

 

  

 

Compensation Committee

 

·  Oversees the assessment and management of risks related to compensation plans and policies

 

·  Oversees compensation policies and programs, including appropriate incentives and controls

 

  

 

Nominations Committee

 

·  Oversees Board processes and corporate governance-related risks

 

·  Responsible for risks related to director independence and conflicts of interest

 

·  Oversees risks relating to management succession planning

 

·  Oversees corporate social responsibility and sustainability risk

 

Management Responsibilities

 

·  Ensures that information with respect to material risks is transmitted to our Board

 

·  Identifies material risks and implements appropriate risk management strategies

 

·  Integrates risk management into our decision making process

 

·  Attends committee meetings and reports on matters that may not be otherwise addressed at these meetings

 

Our Board believes that the process it has established to administer the Board’s risk oversight function would be effective under a variety of leadership frameworks and, therefore, does not have a material effect on our choice of the Board’s leadership structure described above under “Board Leadership Structure.”

Code of Ethics

We have adopted a Code of Ethics that applies to our Chief Executive Officer and all senior financial officers, including the Chief Financial Officer and Principal Accounting Officer. The “Code of Ethics for the CEO and Senior Financial Officers” is available in the Investor Relations — Corporate Governance — Overview section of our website at http://www.synaptics.com.

We intend to satisfy the disclosure requirement under Item 5.05(c) of Form 8-K regarding any amendment to, or waiver from, a provision of this code of ethics by posting such information on our website, at the address and location specified above to the extent required by applicable SEC rules and Nasdaq listing standards.

Succession Planning

Pursuant to our Corporate Governance Guidelines, the Nominations Committee makes an annual report to the Board on succession planning. As appropriate, the entire Board works with the Nominations Committee to nominate and evaluate potential successors to the Chief Executive Officer. In addition, the Chief Executive Officer at all times makes available his recommendations and evaluations of potential successors for both himself and other key executives, along with a review of any development plans recommended for such individuals. In the event of an emergency, the independent Chair of the Board or, if the Chair is unavailable, the Chief Financial Officer, will serve as interim Chief Executive Officer.

 

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Prohibition on Derivatives Trading, Hedging and Pledging

Our Insider Trading Policy prohibits the members of our Board of Directors, executive officers, employees, and any family member residing in the same household of such persons from engaging in derivatives trading and hedging involving our securities, and from pledging our securities as collateral for a loan.

Corporate Social Responsibility and Sustainability

We believe that sustainable corporate practices and consistent attention to social and governance priorities will help enhance long-term value for stockholders. In addition, our Board recognizes the importance of our sustainability initiatives and the need to provide effective oversight of those initiatives. The Corporate Social Responsibility section of our company website provides a central portal for information on our Corporate Social Responsibility and environmental, social and governance initiatives. This site is the foundation for stockholders to obtain information on the various programs we are implementing and on the progress we are making. We have adopted a set of policies that address concerns such as human rights and climate change – a summary of these policies is provided below. Copies of the policies are available in the Investor Relations — Corporate Governance — Overview section of our website at http://www.synaptics.com.

 

Environmental Policy

 

·  Manage and minimize the consumption of energy, water, paper and other resources

 

·  Reuse and recycle materials

 

·  Dispose of end-of-life products in an environmentally safe manner

 

·  Develop, manufacture, and market products that are efficient in their use of energy, and that can be reused, recycled or disposed of safely

 

 

Anti-Corruption and Anti-Bribery Policy

 

·  Strict prohibition against all forms of bribery and kickbacks

 

·  Strict prohibition against the participation in, or facilitation of, corrupt activities of any kind

 

·  Such prohibitions apply to all third parties such as our suppliers, agents, contractors, consultants, and distributors

 

  

 

Labor and Human Rights Policy

 

·  Prohibition against the use of forced labor of any kind

 

·  Prohibition against the use of child labor and young workers

 

·  Commitment to diversity, equality of opportunity and non-discrimination

 

·  Prohibition against harsh or inhumane treatment of workers, including sexual harassment

 

·  Commitment to providing a fair and living wage, and legally mandated benefits

 

·  Recognition of the right of freedom of association and collective bargaining

 

  

 

Supplier and Vendor Code of Conduct

 

·  Contractual obligation on our supply chain to comply with the Responsible Business Alliance Code of Conduct

 

·  Requires our suppliers to uphold the highest standards of human rights, as detailed in our Labor and Human Rights Policy

 

·  Requires our suppliers to adhere to the highest standards of ethics

 

·  Requires our suppliers to implement and maintain management systems to conform to this Code

Conflict Minerals and Cobalt Sourcing Policy

 

·  No direct sourcing of conflict minerals or cobalt

 

·  Requires our suppliers to have in place conflict minerals and cobalt sourcing policies

 

·  Requires our suppliers to comply with the Responsible Business Alliance Code of Conduct and the Responsible Minerals Initiative

 

 

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BOARD COMMITTEES

Our Board has four standing committees: (i) the Audit Committee, (ii) the Compensation Committee, (iii) the Nominations and Corporate Governance Committee and (iv) the Executive Committee. All members of the Audit Committee, Compensation Committee, Nominations Committee and Executive Committee are Independent Directors. Our Committees each operate under a written charter adopted by our Board, which is available in the Investor Relations — Corporate Governance — Overview section of our website at http://www.synaptics.com.

 

   Director Name        Independent            Audit   Compensation    Nominations    Executive

Nelson Chan «

   Yes             

Kiva Allgood

   Yes               

Jeffrey Buchanan

   Yes    F           

Keith Geeslin

   Yes               

Susan Hardman

   Yes                 

Michael Hurlston

   No                      

Richard Sanquini*

   Yes                 

James Whims

   Yes             

« Chair of the Board                 Committee Member                 Committee Chair                F Financial Expert                

* Mr. Sanquini has decided to retire as a director and will serve out his remaining term as a Class III director, which expires immediately prior to our Annual Meeting. Accordingly, Mr. Sanquini will not stand for re-election to the Board at the Annual Meeting.

Audit Committee

Meetings Held in Fiscal 2020: 5

Primary Responsibilities: The primary responsibilities of the Audit Committee include:

 

  ·  

Overseeing our accounting and financial reporting processes and the audits of our financial statements.

 

  ·  

Assisting the Board in fulfilling its oversight responsibilities regarding:

 

  o

the integrity of our financial statements;

 

  o

our compliance with legal and regulatory matters;

 

  o

the independent auditor’s qualifications and independence; and

 

  o

the performance of our independent auditor;

 

  ·  

Preparing the Audit Committee report that SEC rules require to be included in our annual proxy statement;

 

  ·  

Selecting the independent auditor to conduct the annual audit of our financial statements and reviewing the proposed scope of such audit;

 

  ·  

Reviewing our accounting and financial controls with the independent auditor and our financial accounting staff; and

 

  ·  

Reviewing and approving any related party transactions between us and our directors, executive officers, and their affiliates.

Independence: Our Board has determined that each member of the Audit Committee satisfies the enhanced independence standards applicable to audit committees pursuant to Rule 10A-3(b)(1)(i) under the Exchange Act and Nasdaq listing standards. In addition, each member of the Audit Committee is financially literate, and Mr. Buchanan has been designated as an “audit committee financial expert” as that term is defined by the SEC.

 

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Compensation Committee

Meetings Held in Fiscal 2020: 4

Primary Responsibilities: The primary responsibilities of the Compensation Committee include:

 

  ·  

Determining, or recommending to our Board for determination, the compensation of our Chief Executive Officer and our other executive officers;

 

  ·  

Discharging the responsibilities of our Board relating to our compensation programs;

 

  ·  

Preparing the Compensation Committee report that SEC rules require to be included in our annual proxy statement and our Annual Report on Form 10-K;

 

  ·  

Establishing and reviewing our overall compensation philosophy;

 

  ·  

Reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and our other executive officers, evaluating the performance of our Chief Executive Officer and our other executive officers in light of those goals and objectives, and determining and approving our Chief Executive Officer and our other executive officers compensation level based on such evaluation;

 

  ·  

Reviewing and recommending to the Board the compensation of our directors; and

 

  ·  

Reviewing and making recommendations to the full Board with respect to, or approving, our incentive compensation plans and equity-based plans, including reviewing and overseeing the activities of the individuals responsible for administering those plans.

In fulfilling its responsibilities, the Compensation Committee may delegate any or all of its responsibilities to a subcommittee of the Compensation Committee.

In accordance with the Compensation Committee’s charter, the Compensation Committee may retain independent compensation advisors and other management consultants. In fiscal 2020, the Compensation Committee retained Compensia, Inc. (“Compensia”) to assist in reviewing our executive compensation program and analyzing the competitive market for executive talent. As discussed under “Compensation Discussion and Analysis — How We Make Compensation Decisions” below, the Compensation Committee has assessed the independence of Compensia and has concluded that its engagement of Compensia does not raise any conflict of interest. The services provided by Compensia in fiscal 2020 are also discussed in that section.

At the request of the Compensation Committee, our Chief Executive Officer aids the Compensation Committee in reviewing and analyzing the performance of, and our goals and objectives for, our other executive officers, including our other named executive officers. These services are discussed under “Compensation Discussion and Analysis — How We Make Compensation Decisions — Role of the CEO” below.

Independence: Our Board has determined that each member of the Compensation Committee satisfies the additional independence requirements specific to compensation committee membership under Nasdaq listing standards. In making this determination, the Board considered whether the director has a relationship with the Company that is material to the director’s ability to be independent from management in connection with the duties of a member of the Compensation Committee.

 

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Nominations and Corporate Governance Committee

Meetings Held in Fiscal 2020: 3

Primary Responsibilities: The primary responsibilities of the Nominations Committee include:

 

  ·  

Selecting, or recommending to our Board for selection, individuals to stand for election as directors at the annual meeting of stockholders or, if applicable, a special meeting of stockholders;

 

  ·  

Identifying individuals believed to be qualified candidates to serve on the Board;

 

  ·  

Overseeing the selection and composition of the committees of our Board and, as applicable, overseeing the management succession planning process;

 

  ·  

Overseeing and approving the management continuity planning processes and reviewing and evaluating the succession plans relating to the Chief Executive Officer and other executive officer positions;

 

  ·  

Overseeing the evaluation, at least annually, of the Board and its committees; and

 

  ·  

Overseeing our corporate social responsibility and sustainability initiatives, including policies and operational controls for environmental, health and safety, and social risks.

Independence: Our Board has determined that each member of the Nominations Committee is independent under Nasdaq listing standards.

Executive Committee

Meetings Held in Fiscal 2020: None

Primary Responsibilities: The primary responsibility of the Executive Committee is exercising from time to time, and to the fullest extent permitted by law, all powers of the Board in the management of our business and affairs.

Independence: Our Board has determined that each member of the Executive Committee is independent under Nasdaq listing standards.

 

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DIRECTOR SELECTION, EVALUATION AND COMMUNICATIONS

Qualifications of Director Nominees

The Nominations Committee is responsible for reviewing with the Board, on an annual basis, the requisite skills and characteristics required for new Board members as well as the composition of the Board as a whole. This assessment may include, among other things, the following:

 

   

Diversity, age, background, skills, and experience;

 

   

Personal qualities and characteristics, accomplishments, and reputation in the business community;

 

   

Knowledge and contacts in the communities in which the Company conducts business and in the Company’s business industry or other industries relevant to the Company’s business;

 

   

Ability and willingness to devote sufficient time to serve on the Board and committees of the Board;

 

   

Knowledge and expertise in various activities deemed appropriate by the Board, such as marketing, production, distribution, technology, accounting, finance, and law; and

 

   

Fit of the individual’s skills, experience, and personality with those of other directors in maintaining an effective, collegial, and responsive Board.

In making its selection of director candidates, the Nominations Committee bears in mind that the foremost responsibility of a director is to represent the interests of our stockholders as a whole. Directors are expected to exemplify the highest standards of personal and professional integrity, and to constructively challenge management through their active participation and questioning.

In addition, we seek diversity in experience, viewpoint, education, skill, and other individual qualities and attributes to be represented on our Board of Directors. We believe the skill sets, backgrounds, and qualifications of our directors, taken as a whole, should provide a significant mix of diversity in personal and professional experience, background, viewpoints, perspectives, knowledge, and abilities. Nominees are not to be discriminated against on the basis of race, religion, national origin, sex, sexual orientation, disability, or any other basis proscribed by law. The assessment of directors is made in the context of the perceived needs of our Board of Directors from time to time.

Process for Identifying Nominees for Director; Stockholder-Recommended Director Candidates

At any appropriate time prior to each annual meeting of stockholders at which directors are to be elected, and whenever there is otherwise a vacancy on the Board, the Nominations Committee will assess the qualifications and effectiveness of the current Board members and, to the extent there is a need, will seek other individuals qualified and available to serve as potential Board members. The Nominations Committee will review each potential candidate’s qualifications in light of the criteria described above under “Qualifications of Director Nominees” and any additional criteria (such as experience, qualifications, attributes and skills) desired for directors and director candidates as may be determined from time to time by the Board. In reviewing each potential candidate, the Nominations Committee also considers the results of the annual Board evaluations for purposes of assessing the suitability of each Board member for continued service on the Board. See “Annual Board Evaluations” below for additional information regarding the annual Board evaluation process. The Nominations Committee will select the candidate or candidates it believes are the most qualified to recommend to the Board for selection as a director nominee.

The Nominations Committee will also consider persons recommended by stockholders for inclusion as nominees for election to our Board of Directors if the information as required by our Bylaws is submitted in writing in a timely manner and addressed and delivered to our Corporate Secretary at our principal executive offices set forth in this Proxy Statement. In addition to persons recommended by stockholders for inclusion as nominees for election to our Board of Directors, the Nominations Committee may also identify director candidates that come to its attention through incumbent directors, management or third parties, and may, if it deems appropriate under the circumstances, engage a third-party search firm to assist in identifying qualified candidates. The Nominations Committee evaluates nominees for director in the same manner, regardless of whether the nominee is recommended by a stockholder or other person or entity. The Nominations Committee may from time to time engage third-party search firms to assist in identifying potential nominees to our Board. In the Company’s fiscal year 2020, we retained Egon Zehnder International Inc. to assist with a director search.

 

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Annual Board Evaluations

The Board of Directors conducts an annual self-evaluation to determine whether it and its committees are functioning effectively. The Nominations Committee receives comments from all directors and report annually to the Board with an assessment of the Board’s performance. This assessment is discussed with the full Board following the end of each fiscal year. The assessments focus on the effectiveness and composition of the Board and each Board Committee, the Board’s interaction with Company management, the Board’s standards of conduct, and the performance of each individual director. In fiscal year 2020, the self-evaluations revealed that Board members desired improvements in communication with Company management and felt that the Board composition lacked diversity of skills and background. The Board has taken steps to address both areas of feedback, including increasing outreach to management, standardizing data provided to the Board, and appointing a new director to diversify the Board’s composition.

Communications with the Board

Interested parties may communicate with our Board of Directors or specific members of our Board of Directors, including our Independent Directors and the members of the various committees of our Board of Directors, by submitting a letter addressed to the Board of Directors of Synaptics Incorporated, c/o any specified individual director or directors at our executive offices: 1251 McKay Drive, San Jose, California 95131-1709. Any such letters will be forwarded to the indicated directors.

All communications will be received, processed and then forwarded to the appropriate member(s) of our Board, except that, certain items unrelated to the Board’s duties and responsibilities, such as spam, junk mail, mass mailings, solicitations, resumes and employment inquiries and similar items will not be forwarded. Board members receiving communications will respond as such directors deem appropriate, including the possibility of referring the matter to management of our Company, to the full Board or to an appropriate committee of the Board.

 

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DIRECTOR COMPENSATION

For their service on the Board, our non-employee directors receive cash compensation and an annual equity award. Our executive officers who also serve as directors are not paid any additional compensation for their service as a director.

The Board may change the terms of our non-employee director compensation program from time to time. In fiscal 2020, the Board reduced its annual equity compensation from $200,000 to $175,000.

CASH COMPENSATION

Under our non-employee director compensation program in effect for fiscal 2020, each non-employee director received an annual cash retainer of $60,000. The non-executive Chair of our Board of Directors received an additional annual cash retainer of $70,000, and a further monthly payment of $25,000 as compensation for service as Chair of the Board. We also pay our non-employee directors an additional annual retainer for committee service, in cash or shares of our common stock at the director’s election, as follows:

 

      Committee Chair       Committee Member    

 

Audit Committee

  

 

 

 

$25,000

 

   

 

 

 

 

$10,000

 

         

     

Compensation Committee

     $20,000       $7,500  

 

Nominations and Corporate Governance Committee

  

 

 

 

$10,000

 

 

 

 

 

 

$5,000

 

 

Annual retainers for service on our Board of Directors and committees are paid in quarterly installments in advance.

Non-employee directors are reimbursed for reasonable expenses incurred to attend director and committee meetings and incident to their service as a director.

EQUITY COMPENSATION

Under our non-employee director compensation program in effect for fiscal 2020, each non-employee director may receive their annual cash retainer in cash or vested shares of our common stock at the director’s election. For directors electing to receive shares of our common stock in lieu of a cash retainer, the number of shares issued is determined by taking the cash retainer amount otherwise due to such director and converting it to a number of shares using the closing price of our common stock on the NASDAQ Global Select Market on the date the shares are to be delivered to that director. In addition, non-employee directors also receive an annual grant of RSUs with a total grant value of approximately $175,000 in connection with our annual meeting of stockholders. The total grant value for the award granted in fiscal 2020 was converted to a number of RSUs using the average closing price of our common stock on the NASDAQ Global Select Market for the month ended October 29, 2019 and differs from the accounting value which is based on the grant date fair value determined in accordance with ASC Topic 718. The annual grant of RSUs vests in four quarterly installments through the first anniversary of the grant date (or, for a non-employee director not standing for re-election, immediately prior to the Company’s next annual meeting of stockholders). Subject to our Board’s discretion, a non-employee director appointed to our Board at any time other than in connection with an annual meeting may receive a pro-rated grant of RSUs valued on the same basis as the latest annual non-employee director grants that vests on the same schedule as the grants made to non-employee directors at the most recent annual meeting.

DIRECTOR COMPENSATION LIMITS

Per the terms of our 2019 Incentive Plan, our non-employee directors are not eligible to receive, individually, compensation exceeding an aggregate maximum value of $750,000 in any fiscal year, including both cash and equity awards. The value of equity awards is based on the grant date fair value of the awards, as such grant date fair value is determined for our financial reporting purposes.

STOCK OWNERSHIP GUIDELINES

We maintain stock ownership guidelines for our non-employee directors. Under these guidelines, each non-employee director is to own or to acquire, within five years of first becoming a director, shares of our common stock having a market value at least equal to five times the director’s annual retainer. As of June 27, 2020, all of our non-employee directors met the ownership requirement or were within the five-year period since first becoming a director to acquire the applicable level of ownership. We believe that these guidelines promote the alignment of the long-term interests of the members of our Board of Directors with our stockholders.

 

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DIRECTOR COMPENSATION TABLE — FISCAL 2020

The following table sets forth summary information regarding compensation for each of our non-employee directors for fiscal 2020. The compensation paid to Mr. Hurlston is presented in our executive compensation disclosure below. Mr. Hurlston is not entitled to receive additional compensation for his service as a director.

 

Name    Fees Earned   Stock    Option    Non-Equity    Change In    All Other        Total ($)    
     or Paid in   Awards(2) ($)    Awards    Incentive Plan    Pension Value    Compensation     
     cash (1) ($)        ($)    Compensation    & Nonqualified          
                   ($)    Deferred          
                        Compensation          
                        Earnings ($)          
(a)    (b)   (c)    (d)    (e)    (f)    (g)    (h)

Nelson Chan

   $387,500   $180,820    -    -    -    -    $568,320

Kiva Allgood

   $72,500   $180,820    -    -    -    -    $253,320

Jeffrey Buchanan

   $90,000   $180,820    -    -    -    -    $270,820

Keith Geeslin

   $80,000   $180,820    -    -    -    -    $260,820

Susan Hardman(3)

   -   $118,364    -    -    -    -    $118,364

Russell Knittel(4)

   $35,000   -    -    -    -    -    $35,000

Francis Lee(5)

   $53,750   $180,820    -    -    -    -    $234,570

Richard Sanquini

   $68,759(6)   $180,820    -    -    -    -    $249,579

James Whims

   $78,750   $180,820    -    -    -    -    $259,570

 

  (1)

The Board of Directors appointed members to each of our Board committees in October 2019, except for Ms. Hardman, who was appointed in May 2020. The amounts reported in column (b) of the table above reflect pro rata payments to certain directors based on the number of quarters each director served on the committee to which they were appointed.

  (2)

Each non-employee director was awarded 4,294 RSUs on October 31, 2019, except for Ms. Hardman, who was awarded 1,864 RSUs on May 22, 2020. The amounts reported in column (c) of the table above reflect the aggregate grant date fair value of the RSUs awarded to the non-employee directors during fiscal 2020 computed in accordance with FASB ASC Topic 718, Compensation — Stock Compensation. The grant date fair value is based on the closing price of our common stock on the Nasdaq Global Select Market on the grant date.

  (3)

Ms. Hardman was appointed to our Board effective May 22, 2020 and received a pro rata amount of RSUs in connection with her appointment.

  (4)

Mr. Knittel retired as a director of the Company effective October 29, 2019.

  (5)

Mr. Lee retired as a director of the Company effective February 14, 2020.

  (6)

This amount represents the value of Mr. Sanquini’s annual retainer for Board and committee services which Mr. Sanquini elected to receive in shares of our common stock. The number of shares of our common stock granted to Mr. Sanquini for each quarter was determined by taking the cash retainer amount that was otherwise due to Mr. Sanquini and converting it to a number of shares using the closing price of our common stock on the NASDAQ Global Select Market on each such quarterly date on which the shares were delivered.

The aggregate number of unvested RSUs outstanding as of June 27, 2020, held by each of our non-employee directors are as set forth below. None of our non-employee directors held any outstanding stock options as of that date.

 

Director   

Unvested

Stock Awards

 

 

Nelson Chan

  

 

2,146

 

Kiva Allgood

  

 

2,146

 

Jeffrey Buchanan

  

 

2,146

 

Keith Geeslin

  

 

2,146

 

Susan Hardman

  

 

1,864

 

Russell Knittel

  

 

0

 

Francis Lee

  

 

0

 

Richard Sanquini

  

 

2,146

 

James Whim s

  

 

2,146

 

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AUDIT AND NON-AUDIT FEES

KPMG has served as the Company’s independent auditor since 2003. In August 2020, the Audit Committee re-appointed KPMG as our independent auditor for the year ending June 26, 2021. The Audit Committee of the Board has determined that KPMG is independent with regard to the Company within the meaning of the Exchange Act and the applicable published rules and regulations thereunder and by the Public Company Accounting Oversight Board (the “PCAOB”).

AUDIT COMMITTEE PRE-APPROVAL POLICIES

The charter of our Audit Committee provides that the duties and responsibilities of our Audit Committee include the pre-approval of all audit, audit-related, tax, and other services permitted by law or applicable SEC regulations (including fee and cost ranges) to be performed by our independent auditor. Any pre-approved services that will involve fees or costs exceeding pre-approved levels will also require specific pre-approval by the Audit Committee. Unless otherwise required by law or applicable SEC regulations, any pre-approval shall be effective until the respective service is complete to the satisfaction of the Audit Committee under the terms of the engagement with the independent auditor or until such date as the Audit Committee designates. The Audit Committee will not approve any non-audit services prohibited by applicable SEC regulations or any services in connection with a transaction initially recommended by the independent auditor, the purpose of which may be tax avoidance and the tax treatment of which may not be supported by the Internal Revenue Code and related regulations.

To the extent deemed appropriate, the Audit Committee may delegate pre-approval authority to the Chair of the Audit Committee or any one or more other members of the Audit Committee, provided that any member of the Audit Committee who has exercised any such delegation must report any such pre-approval decision to the Audit Committee at its next scheduled meeting. The Audit Committee will not delegate to management the pre-approval of services to be performed by the independent auditor.

Our Audit Committee requires that our independent auditor, in conjunction with our Chief Financial Officer, be responsible for seeking pre-approval for providing services to us and that any request for pre-approval must provide information to the Audit Committee about each service to be provided, and the details of such service.

All of the services provided by KPMG in fiscal 2020 and fiscal 2019 described below under the captions “Audit Fees,” “Audit-Related Fees,” “Tax Fees,” and “All Other Fees” were approved by our Audit Committee pursuant to the foregoing pre-approval policies.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The aggregate fees billed to the Company by KPMG for professional services rendered in fiscal years 2020 and 2019 are as follows:

 

   Fees    2020                    2019             

Audit Fees

   $2,254,600    $2,590,000

Audit-Related Fees

     

Tax Fees(1)

   $941,166    $477,730

All Other Fees(2)

      $7,958

Total Fees

   $3,195,766    $3,075,688

 

  (1)

Includes fees for professional services rendered by KPMG with respect to tax preparation and compliance, and tax due diligence for acquisition and tax consultation. The fees for tax consultation services were $700,460 and $261,271 for fiscal 2020 and 2019, respectively.

 

  (2)

Includes fees for professional services rendered by KPMG LLP with respect to evaluation and compliance with the European Union General Data Protection Regulation.

 

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AUDIT COMMITTEE REPORT

Our Board of Directors has appointed an Audit Committee consisting of three directors. The current members of the Audit Committee are Nelson Chan, Jeffrey Buchanan and James Whims. Each of the Audit Committee members is “independent” of our company and management, as that term is defined under applicable Nasdaq listing standards and SEC rules.

The primary responsibility of the committee is to assist our Board of Directors in fulfilling its responsibility to oversee management’s conduct of our Company’s financial reporting process, including overseeing the financial reports and other financial information provided by our Company to governmental or regulatory bodies (such as the SEC), the public, and other users thereof; our Company’s systems of internal accounting and financial controls; and the annual independent audit of our Company’s financial statements.

Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. The independent auditor is responsible for auditing the financial statements and expressing an opinion on the conformity of those audited financial statements with GAAP.

In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the audited financial statements with management and the independent auditor. The Audit Committee discussed with the independent auditor the matters required to be discussed by the applicable requirements of the PCAOB and the SEC. In addition, the Audit Committee received from the independent auditor written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent auditor’s communications with the Audit Committee concerning independence. The Audit Committee also discussed with the independent auditor the firm’s independence from management and our Company, including the matters covered by the written disclosures and letter provided by the independent auditor, and considered the compatibility of non-audit services with KPMG’s independence.

The Audit Committee discussed with the independent auditor the overall scope and plans for its audits. The Audit Committee met with the independent auditor, with and without management present, to discuss the results of its audit, its consideration of our Company’s internal controls, and the overall quality of the financial reporting. The Audit Committee held 5 meetings with management of our Company, all of which were attended by our independent auditor, with respect to our Company’s financial statements and audit or quarterly review procedures.

Based on the reviews and discussions referred to above, the Audit Committee recommended to our Board of Directors, and our Board of Directors approved that the audited financial statements be included in our Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2020 for filing with the SEC. The Committee also has appointed KPMG as our Company’s independent auditor.

This report has been furnished by the Audit Committee of the Board of Directors.

Audit Committee

Jeffrey Buchanan, Chair

Nelson Chan

James Whims

The foregoing report of the Audit Committee is not soliciting material, is not deemed filed with the SEC and is not incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, whether made before or after the date of this Proxy Statement and irrespective of any general incorporation language in such filing.

 

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COMPENSATION DISCUSSION

AND ANALYSIS

This Compensation Discussion and Analysis provides information with respect to the following persons who, pursuant to SEC rules, constitute our NEOs for fiscal 2020:

 

   

Michael Hurlston,2 our President and Chief Executive Officer (our “CEO”);

 

   

Dean Butler,3 our Senior Vice President and Chief Financial Officer (our “CFO”);

 

   

Saleel Awsare, our Senior Vice President and General Manager, PC and Peripherals Division;

 

   

Phillip Kumin,4 our Senior Vice President of Worldwide Sales;

 

   

Richard Lu,5 our former Senior Vice President and General Manager, Mobile and Automotive Division;

 

   

John McFarland, our Senior Vice President, General Counsel and Secretary;

 

   

Kermit Nolan,6 our Corporate Vice President and Chief Accounting Officer; and

 

   

Alex Wong,7 our former Senior Vice President of Worldwide Operations.

This Compensation Discussion and Analysis provides an overview of our executive compensation philosophy, the overall objectives of our executive compensation program, and each component of compensation that we provide. In addition, we explain how and why the Compensation Committee arrived at the specific compensation policies and decisions involving our executive officers, including our NEOs, during fiscal 2020.

EXECUTIVE SUMMARY

Fiscal 2020 Business Highlights

Fiscal 2020 was a transformative year for the Company as we took critical steps in pivoting the Company’s strategy and operations toward higher levels of financial performance. During the year, we experienced a substantial transition on our senior executive leadership team with the hiring of three key executives – our Chief Executive Officer, Chief Financial Officer, and Senior Vice President of Worldwide Sales. Energized and driven by our new senior leadership team, fiscal 2020 became one of the strongest 12-month periods of financial performance in the Company’s history with a significant expansion in profitability which led to more than doubling of the stock price in the year since appointing our new Chief Executive Officer in August 2019.

During fiscal 2020, our new leadership team led the Company to the following notable achievements:

 

   

record high GAAP earnings per share of $3.41 and record high non-GAAP earnings per share of $5.95;

 

   

annual and year over year fourth quarter growth of our non-GAAP gross margins* by 490 and 780 basis points, respectively (or, 690 and 1330 basis points on a GAAP basis, respectively), its highest level in over five years;

 

   

an increase of 44% in cash flow from operations as compared to our prior fiscal year;

 

   

a fiscal 2020 year-end stock price of $56.26, which was 93% higher than as compared to our prior fiscal year-end; and

 

   

revenue of $1,334 million for our fiscal year ended June 27, 2020.

 

 

2 Mr. Hurlston was appointed our President and Chief Executive Officer effective August 19, 2019.

3 Mr. Butler was appointed our Senior Vice President and Chief Financial Officer effective October 21, 2019.

4 Mr. Kumin was appointed our Senior Vice President of Worldwide Sales on March 30, 2020.

5 Mr. Lu resigned his position as our Senior Vice President and General Manager, Mobile and Automotive Division effective December 31, 2019.

6 Mr. Nolan served as our Principal Financial Officer and Interim Chief Financial Officer until his voluntary resignation from those positions on October 21, 2019, at which time he resumed his position as our Corporate Vice President and Chief Accounting Officer.

7 Mr. Wong served as our Principal Executive Officer until his voluntary resignation on August 19, 2019, at which time he resumed his position as our Senior Vice President of Worldwide Operations. Mr. Wong resigned his position as our Senior Vice President of Worldwide Operations effective March 31, 2020.

 

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LOGO

We view our executive compensation program as an important part of our success, as our revised annual performance-based cash bonus plan, coupled with our long-term incentive plans, provide us with effective tools for incentivizing our senior executive team, and rewarding them for their accomplishments. We believe our executive compensation program is reasonable, competitive, and appropriately balances the goals of attracting, motivating, rewarding, and retaining our executive officers and that it helps provide us with a solid foundation for the future as we continue to motivate our executives to grow and expand our business on behalf of our stockholders.

Fiscal 2020 Executive Compensation Highlights

Our executive compensation program is designed to promote a long-term focus, thereby aligning the interests of our NEOs with the interests of our stockholders. For this reason, the compensation of our NEOs is largely variable in nature and at risk and is subject to Company performance measured against specific financial objectives that are key for driving our success. Accordingly, through their compensation packages, our NEOs are incentivized to drive our business forward and return long-term value to our stockholders.

At the beginning of fiscal 2020, we entered into an initial arrangement with our new CEO to induce him to join our Company. As part of this one-time offer, we agreed to replace our new CEO’s compensation at his prior employer that became at risk or that he forfeited upon joining us. At the time of his employment offer, our CEO was then serving as Chief Executive Officer of another publicly-traded technology company in the midst of a sale process that would have entitled him to significant compensation upon the closing of the transaction. In structuring our new CEO’s equity awards, the Compensation Committee sought to offer him a “new hire” equity award that was competitive with current market practices and that would make him whole for any potential compensation opportunities that he would be foregoing by leaving his former employer. See “New Executive Officer Compensation“ on page 57 for a more detailed discussion on our new CEO’s compensation arrangements.

Target Total Direct Compensation – Pay Mix

The target total direct compensation of our CEO and of our other continuing NEOs includes a significant portion of equity incentives that are based on our financial performance and/or stock price growth.

Pay Mix for Fiscal 2020

 

CEO - Michael Hurlston

 

LOGO

All other Continuing NEOs

 

LOGO

 

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Our Compensation Program Emphasizes Performance-Based and At-Risk Pay

Approximately 97% of our Chief Executive Officer’s target TDC and approximately 83% of our other continuing NEOs’ target TDC for fiscal 2020 was not guaranteed but rather was tied directly to the performance of the Company and/or the Company’s stock price.

Short-Term Incentive Compensation

Historically, we have used annual performance-based cash bonuses to incentivize and reward the achievement of our annual financial and operational objectives as set forth in our annual operating plan. For fiscal 2020, in response to stockholder feedback, the Compensation Committee revised our plan to base cash bonuses on the achievement of objective financial performance metrics as reflected in our annual operating plan.

 

Fiscal 2020 Annual Performance-Based

Cash Bonus Plan Metrics

  

Fiscal 2019 Annual Performance-Based

Cash Bonus Plan Metrics

·Revenue

·Non-GAAP gross margin

·Non-GAAP operating profit

·AOP scaling factor (modifier)

  

·Non-GAAP operating profit

·Individual performance goals

Long-Term Incentive Compensation

We view long-term incentive compensation in the form of equity awards as a critical element of our executive compensation program. We use these awards to incentivize and reward our NEOs for performance that leads to long-term success and stockholder value creation, and to promote retention of critical executives to remain with us in an environment where competition for talent is fierce. In fiscal 2020, we used three equity award vehicles – MSU awards, PSU awards, and RSU awards – to provide long-term incentive compensation opportunities to our NEOs as part of our annual equity program. These three vehicles were equally weighted under the program (based on the number of shares subject to each type of award). We also used various combinations of these award vehicles to structure the compensation packages of our new CEO, CFO, and Senior Vice President of Worldwide Sales, who were all newly appointed to their positions during fiscal 2020.

2020 Long-Term Incentive Mix and Metrics

 

LOGO

 

LOGO

For more information on the inducement equity awards granted to Mr. Hurlston in connection with his appointment as our President and CEO, see “New Executive Officer Compensation” below.

 

LOGO

 

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MSU Metrics (CEO and NEOs)

 

·   Relative TSR

 

·   Compared to S&P Semiconductor Select Industry Index

 

·   Measured over one-year, two-year, and three-year performance periods

 

·   Variable payout (0% - 200% of target shares subject to award) based on percentage achievement compared to Index

 

·   Target shares allocated equally over three performance periods

 

·   Above-target payouts for the one-year and two-year performance periods are tied to full three-year performance period and require continued employment through the end of the full three-year performance period

 

·   Payout for each performance period requires continued employment through the end of that period

 

MSU Metrics (CEO Initial and Inducement Grants)

 

·   Same as for CEO and NEO grants, except measured over one-year, two-year, three-year, and four-year performance periods (with target shares allocated equally to each period)

 

·   Above-target payouts for the one-year, two-year, and three-year performance periods are tied to full four-year performance period and require continued employment through the end of the full four-year performance period

 

·   Payout for each performance period requires continued employment through the end of that period

PSU Metrics (CEO and NEOs)

 

·   Non-GAAP EPS

 

·   One-year performance period (fiscal 2020)

 

·   Earned shares vest in three equal tranches on the first three anniversaries of award grant date, subject to continued employment through the applicable vesting date

 

·   Variable payout (0% to 200% of target shares subject to award) based upon level of achievement over performance period

RSU Metrics (CEO and NEOs)

 

·   Time-based and vest in three equal tranches on the first three anniversaries of award grant date, subject to continued employment through the applicable vesting date

 

·   For new executives, initial RSU awards vest in four equal tranches on the first four anniversaries of award grant date, subject to continued employment through the applicable vesting date

Stockholder Engagement and Fiscal 2019 Say-on-Pay Vote

At our 2019 Annual Meeting of Stockholders, approximately 76% of the votes cast on our Say-on-Pay proposal were voted in favor of the fiscal 2019 compensation of our NEOs. During the lead-up to the 2019 Annual Meeting of Stockholders, members of our senior management contacted many of our largest institutional stockholders representing approximately 60% of our outstanding shares of common stock to solicit feedback on such topics as our compensation practices, proxy disclosure, and corporate governance policies, and to listen to any stockholder concerns. This feedback was discussed with our management and shared with our full Board and the Compensation Committee.

Based on this feedback, we revised our fiscal 2020 annual performance-based cash bonus plan to base award payments on our actual results as measured against three objective financial performance measures – revenue, non-GAAP gross margin, and non-GAAP operating profit – and enhanced the disclosure in this proxy statement about our annual performance-based cash bonus plan, including more specific information about how performance measures are selected and how award payouts are determined.

While the results of our 2019 Say-on-Pay vote represented a 13% increase year-over-year in the level of support for our executive compensation program, our Board recognizes that there is still room for improvement. We are dedicated to increased transparency in our Compensation Discussion and Analysis and continued proactive stockholder engagement in the future. The Compensation Committee will continue to consider our stockholders’ views when making future decisions regarding our pay practices, proxy disclosure, and corporate governance policies.

Fiscal 2020 Key Compensation Decisions

 

·  

Annual Performance-Based Cash Bonus Plan Payments Reflected Fiscal 2020 Company Performance. Based upon our achievement of a funding score of 108% under our annual performance-based cash bonus plan for fiscal 2020, our NEOs (other than our CEO) received bonus payments in amounts ranging from $77,182 to $315,900, with a pro-rated bonus payment for our CEO in the amount of $851,220 (representing 107% of his fiscal 2020 target annual cash bonus opportunity).

 

·  

New-Hire Compensation Packages for CEO and Other NEOs. As described below under “New Executive Officer Compensation,” we entered into employment arrangements in connection with the hiring of our CEO, CFO and Senior Vice President of Worldwide Sales in fiscal 2020 consisting primarily of performance-based compensation. In the case of our new CEO, approximately 97% of his target TDC for fiscal 2020 was subject to performance-based vesting requirements and/or the value of our stock price.

 

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·  

Named Executive Officer Equity Awards. As part of our annual equity program, we granted a combination of MSU awards, PSU awards, and RSU awards to our incumbent NEOs on October 31, 2019, subject to our TSR performance over a multi-year period in the case of the MSU awards, to our non-GAAP EPS performance over a one-year performance period and a multi-year time-based vesting requirement in the case of the PSU awards, and to a time-based vesting requirement in the case of the RSU awards.

HOW WE MAKE COMPENSATION DECISIONS

 

Role of the

Compensation Committee

  

Role of the

CEO

  

Role of the

Compensation Consultant

Discharges the responsibilities of our Board relating to the compensation of our executive officers, including our NEOs.

Periodically reviews and makes recommendations to our Board regarding the compensation of the non-employee members of our Board.

Oversees our compensation and benefits policies generally.

Oversees and evaluates the compensation plans, policies, and practices applicable to our executive officers.

Reviews and approves the performance criteria and targets for our short-term and long-term incentive compensation programs.

 

Administers our equity compensation plans.

 

Evaluates the performance of our CEO for the fiscal year and determines our CEO’s compensation in light of our goals and objectives for that year.

 

Considers our CEO’s recommendations in determining the compensation of our other executive officers.

  

Attends the meetings of the Compensation Committee to review and discuss the corporate and individual goals and objectives that he regards as important to our overall success and other related matters.

Assesses the performance of, and our goals and objectives for, our other executive officers, including our other NEOs.

Makes recommendations for each element of the compensation for our NEOs based on our CEO’s evaluation of their performance.

  

Conducted an analysis of the compensation practices of the companies in the compensation peer group and determined our compensation positioning relative to the compensation peer group.

 

Developed market-based guidelines for the structure of our fiscal 2020 executive compensation program and reviewed the overall compensation packages of our executive officers.

 

Conducted a review of the overall compensation program for our Board.

 

Reviewed market practices in performance share plan design.

 

Provided the Compensation Committee with information regarding executive compensation trends generally, as well as industry specific compensation trends.

 

Answered questions the Compensation Committee posed regarding compensation issues.

 

Compensation Consultant

During fiscal 2020, the Compensation Committee engaged Compensia, a national compensation consulting firm, to serve as its compensation consultant to assist it in connection with its review of our fiscal 2020 executive compensation program and its analysis of the competitive market for executive talent. The Compensation Committee assessed the independence of Compensia pursuant to the six independence factors set forth in the SEC rules and Nasdaq listing standards and has concluded that Compensia is independent, and that its work for the Compensation Committee does not raise any conflict of interest. Compensia did not provide any additional services or products to us during fiscal 2020 beyond the services provided to the Compensation Committee.

Compensation Peer Group and Market Review

In determining the compensation of our executive officers, including our NEOs, the Compensation Committee considers data gathered from a self-constructed group of peer companies, and published survey data for technology companies. During January 2019, after consultation with Compensia, the Compensation Committee developed and approved a compensation peer group for use in its executive compensation decisions for fiscal 2020 based on the following selection criteria:

 

LOGO

 

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The companies included in the compensation peer group approved by the Compensation Committee for fiscal 2020 were as follows:

 

Fiscal 2020 Compensation Peer Group

Ambarella

   Inphi    Mellanox Technologies*

Cirrus Logic

   Knowles    ON Semiconductor

Cree

   M/A-Com Technology Solutions    Qorvo

Cypress Semiconductor*

   Marvell Technology Group    Semtech

Diodes

   Maxim Integrated Products    Silicon Laboratories
  *

Cypress Semiconductor and Mellanox Technologies were included in the compensation peer group for fiscal 2020 but have since been acquired.

The Compensation Committee used data gathered by Compensia from the public filings of the companies in our compensation peer group, as well as data from a custom peer data cut drawn from the Radford Global Technology Survey database for purposes of providing additional perspective in the case of executive positions where the compensation peer group offered a limited number of relevant data points. In reviewing survey data, the Compensation Committee does not focus on any particular company in the survey (other than the peer companies listed above). In general, the Compensation Committee uses the data provided by Compensia as background information for its compensation decisions and does not “benchmark” compensation at any particular level relative to the peer companies. Except as otherwise noted in this Compensation Discussion and Analysis, decisions by the Compensation Committee are qualitative and the result of the Compensation Committee’s business judgment, which is informed by the experience of the members of the Compensation Committee as well as input from our CEO and Compensia.

GOVERNANCE AND PAY POLICIES AND PRACTICES

We endeavor to maintain sound governance standards consistent with our executive compensation policies and practices. Below is a summary of what we believe to be best practices that we have implemented and practices that we avoid because we believe they are not in the best interests of the Company or our stockholders.

 

What We Do    What We Don’t Do

  Maintain an independent compensation committee

  

x  No executive retirement plans

  Engage an independent compensation consultant to support the Compensation Committee

  

x  No excessive perquisites

  Conduct an annual executive compensation review

  

x  No tax reimbursements on perquisites

  Use a “pay-for-performance” compensation philosophy

  

x  No hedging of our equity securities

  Use multiple financial metrics under our annual bonus plan

  

x  No guaranteed bonuses

  Use performance-based MSUs and PSUs in our long-term incentive compensation program

  

x  No special health or welfare benefit programs for our executive officers

  Maintain a stock ownership policy for our NEOs

  

x  No post-employment excise tax “gross-up” payment or other reimbursement

  Maintain a compensation recovery (“clawback”) policy for misconduct in the event of a financial restatement

  

x  No stock option repricing (without stockholder approval)

  Conduct an annual stockholder advisory vote on NEO compensation

    

  Evaluate succession planning on a regular basis

    

  Require “double-trigger” change of control provisions

    

  Impose caps on maximum incentive award payouts

    

COMPENSATION PHILOSOPHY AND OBJECTIVES

Our executive compensation program is guided by our overarching philosophy of paying for demonstrable performance. Consistent with this philosophy, we have designed our executive compensation program to achieve the following primary objectives:

 

   

Align executive compensation with the Company’s corporate strategies, business objectives and the creation of long-term value for our stockholders without encouraging unnecessary or excessive risk-taking;

 

   

Provide an incentive to achieve key strategic and financial performance measures by linking short-term incentive award opportunities and a substantial portion of long-term incentive award opportunities to the achievement of

 

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corporate and operational performance objectives in these areas;

 

   

Offer total compensation opportunities to our executive officers that are competitive and fair;

 

   

Align the interests of our executive officers with those of our stockholders by linking our executive officers’ long-term incentive compensation opportunities to stockholder value and their cash incentives to our annual performance; and

 

   

Provide compensation and benefit levels that will attract, motivate, reward, and retain a highly-talented team of executive officers within the context of responsible cost management.

FISCAL 2020 NAMED EXECUTIVE OFFICER COMPENSATION

Our executive compensation program has five principal elements

 

LOGO

Base Salary

We use base salaries to compensate our NEOs for performing their day-to-day duties and responsibilities. In determining base salary, the Compensation Committee exercises its judgment and primarily considers each individual’s performance, experience level, role and responsibilities during the year, the competitive market for the position as reflected by peer group and relevant survey data, and the recommendations of our CEO (except with respect to his own base salary). Consistent with our compensation philosophy, the Compensation Committee sets base salaries that are at or below the market median to reinforce our desire that our annual performance-based cash bonuses and long-term incentive compensation represent the majority of our executive officers’ target total direct compensation each year. For purposes of ascertaining the competitive market, the Compensation Committee reviews compensation data compiled from our compensation peer group as well as from a custom peer data cut drawn from the Radford Global Technology Survey database.

For fiscal 2020, the Compensation Committee determined not to adjust the base salary of any of our incumbent NEOs, with the exception of Mr. McFarland. Based on a review of his base salary relative to individuals in similar positions in the competitive market and an evaluation of his performance, the Compensation Committee determined that an increase in his base salary was appropriate. The annual base salaries of our NEOs for fiscal 2020 were as follows:

 

  Named Executive Officer            Fiscal 2019 Base Salary                    Fiscal 2020 Base Salary                    Percentage Change        

Mr. Hurlston

      $700,000   

Mr. Butler

      $400,000   

Mr. Awsare

   $350,000    $350,000   

Mr. Kumin

      $375,000   

Mr. Lu

   $350,000    $350,000   

Mr. McFarland

   $350,000    $390,000    11.4%

Mr. Nolan

   $340,000    $340,000   

Mr. Wong

   $350,000    $350,000   

The base salaries of Messrs. Hurlston, Butler, and Kumin were established when they joined the Company as described in “New Executive Officer Compensation” below.

Annual Performance-Based Cash Bonuses

We use annual performance-based cash bonuses to motivate our NEOs to achieve our annual financial objectives as set forth in our annual operating plan, while making progress towards and supporting our longer-term strategic and growth goals. For fiscal 2020, we changed the design of our annual performance-based cash bonus plan (the “Fiscal 2020 Bonus Plan”) to link the funding of the annual bonus pool entirely to the achievement of objective financial performance measures as selected by our Board and reflected in our annual operating plan. The annual target cash bonus pool is established by the Compensation Committee based on the aggregate target annual cash bonus opportunities for all of our employees, including our executive officers.

At the beginning of each fiscal year, our Board approves our annual operating plan, which forms the basis for the corporate performance measures for our annual performance-based cash bonuses. Further, the Compensation Committee reviews and sets the framework for the annual performance-based cash bonuses for the fiscal year, including confirming the plan participants, establishing a target annual cash bonus opportunity for each participating executive officer, and selecting the corporate performance measures and related target levels for the fiscal year.

 

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For fiscal 2020, we paid 25% of each NEO’s (other than in the case of Messrs. Butler and Kumin) full target bonus amount after the first half of the fiscal year, and then we paid the remaining amount after the end of the fiscal year. The remaining amount was determined based on the level of achievement against the applicable Company financial performance metrics and the application of the formula described below. For fiscal 2021, we will pay the entire earned cash incentive amount after the end of the fiscal year.

Target Annual Cash Bonus Opportunities

As in prior years, the Compensation Committee determined that the target annual cash bonus opportunities for each of our NEOs for fiscal 2020 should be based on a percentage of such NEO’s base salary. In setting these target annual cash bonus opportunities, the Compensation Committee exercised its judgment and primarily considered our overall financial and operational results for the prior fiscal year, each individual’s performance, experience level, role and responsibilities during the year, the competitive market for the position as reflected by peer group and relevant survey data, and the recommendations of our CEO (except with respect to his own target annual cash bonus opportunity).

For fiscal 2020, the Compensation Committee determined not to adjust the target annual cash bonus opportunities of any of our incumbent NEOs, with the exception of Mr. McFarland. Based on a review of his target total cash compensation positioning relative to individuals in similar positions in the competitive market and an evaluation of his performance, the Compensation Committee determined that an increase to the target annual cash bonus opportunity from 60% to 75% of Mr. McFarland’s base salary was appropriate.

The target annual cash bonus opportunities of Messrs. Hurlston, Butler, and Kumin were established when they joined the Company as described in “New Executive Officer Compensation” below.

The following formula was used to calculate the actual annual cash bonus payments for participants in the Fiscal 2020 Bonus Plan:

 

LOGO

Corporate Performance Metrics

As noted above, in response to stockholder feedback, the Compensation Committee revised the Fiscal 2020 Bonus Plan to use multiple objective financial performance metrics as reflected in our annual operating plan rather than a single financial metric. For fiscal 2020, the Compensation Committee selected three equally weighted corporate financial metrics as the performance measures for the Fiscal 2020 Bonus Plan – revenue, non-GAAP gross margin, and non-GAAP operating profit. The Compensation Committee believed these performance metrics were appropriate because, in its view, they represent key elements necessary to drive the successful execution of our fiscal 2020 annual operating plan. In addition, they provided a strong emphasis on growth while managing expenses, which the Compensation Committee believed would most directly influence the creation of sustainable long-term stockholder value.

Our Board set our annual operating plan at the start of fiscal 2020 consistent with a “bottoms-up” review of the then-internal financial forecast for the Company. We anticipated a year of significant headwinds in our business, and we disclosed in our public filings and other public statements that we would likely experience a revenue decline of 10% to 20% year over year. Although our new CEO and management team energized and drove the Company to exceed these expectations, our Board viewed the Fiscal 2020 Bonus Plan financial performance metrics as realistic and difficult to achieve at the time they were set.

For purposes of the Fiscal 2020 Bonus Plan:

 

   

“non-GAAP gross margin percentage” was calculated as GAAP gross margin, excluding acquisition costs, retention program costs, share-based compensation, and the impact of the loss (recovery) on supply commitment; and

 

   

“non-GAAP operating profit” was calculated as GAAP operating profit excluding share-based compensation, acquisition/divestiture-related costs, retention program costs, restructuring costs, in-process research and development charges, and the impact of the loss (recovery) on supply commitment.

The Compensation Committee established target achievement levels for each of these performance metrics for fiscal 2020 as follows:

 

            Corporate Performance Metric                Weighting                           Target Achievement Level        

Revenue

   33.3%   $1,179M

Non-GAAP gross margin percentage

   33.3%   42.2%

Non-GAAP operating profit

   33.3%   $140M

 

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The actual achievement level for each corporate performance metric is based on the percentage by which we exceed or fail to achieve the target achievement level for that metric. The actual achievement levels and weightings for each metric is used to calculate an aggregate weighted score for our corporate performance for purposes of the Fiscal 2020 Bonus Plan. The threshold level of achievement for funding the bonus pool is a weighted score of 90% (so no bonuses are paid under the plan if the weighted score is less than 90%), while maximum funding of the pool is capped at a weighted score of 140%. As described below, this weighted achievement score is then multiplied by the AOP scaling factor to generate the final funding percentage that is to be used in determining bonus payments for the year.

After the end of the fiscal year, the Compensation Committee evaluates our performance with respect to the corporate performance metrics. The fiscal 2020 annual performance-based cash bonus opportunities for our NEOs with corporate responsibilities were based entirely on the performance of the foregoing metrics at the corporate level. In the case of a NEO with business unit responsibilities, 50% of the NEO’s annual performance-based cash bonus opportunity was based on our corporate performance and the remaining 50% was based on revenue, non-GAAP gross margin percentage, and non-GAAP contribution margin calculated at the business unit level.

AOP Scaling Factor

The AOP scaling factor, which may range between 50% to 150%, reflects a fixed ratio as of the beginning of the year, the portion of the Company’s anticipated operating profits which will be allocated to employee cash-bonuses for the fiscal year. This approach balances the rewards of employee efforts during the year with anticipated profit generation for the Company. This scaling factor, which is established when the annual operating plan is being developed, is recommended by management and approved by the Compensation Committee. For fiscal 2020, it was determined that a scaling factor of 85% best balanced stockholder interests while continuing to motivate employees for their contributions to the Company.

Fiscal 2020 Bonus Decisions

In July 2020, the Compensation Committee determined that, for fiscal 2020, our revenue was $1,334 million, our non-GAAP gross margin percentage was 43.7%, and our non-GAAP operating profit was $231 million. Based on these results, the Compensation Committee determined that we had achieved 113% of the target performance level for revenue, 104% of the target performance level for non-GAAP gross margin percentage, and 165% of the target performance level for non-GAAP operating profit. Applying the weighting factor for each corporate performance measure, this resulted in an aggregate weighted score of 127%. This aggregate weighted score was then multiplied by the AOP scaling factor of 85% as selected by the Compensation Committee to produce a final funding score of 108%, as set forth in the following table:

 

Corporate Performance Measure   

    Target Performance    

Level

      Actual    
Results
      Weighting      

    Preliminary    

Raw Score

Revenue (in millions)

   $1,179   $1,334   33.33%   113%

Non-GAAP gross margin percentage

   42.2%   43.7%   33.33%   104%

Non-GAAP operating profit (in millions)

   $140   $231   33.33%   165%

Weighted Achievement Score

               127%

AOP Scaling Factor

               85%

Funding Score

               108%

Accordingly, the bonus pool for employees participating in the corporate portion of the Fiscal 2020 Bonus Plan was funded at 108%.

Based on the foregoing, the Compensation Committee approved the following annual performance-based cash bonus payments for our NEOs for fiscal 2020:

 

Named

Executive

Officer

  

Actual

Fiscal 2020

Base Salary    

  

Target

Annual Cash

Bonus

Opportunity    

  

Target Annual

Cash Bonus

Opportunity

(as a

percentage of    

base salary)

 

Actual Total

cash Bonus    

Payment

  

Actual Total

cash Bonus

Payment (as

a percentage

of base

salary

earned in

fiscal 2020)    

 

Actual Total

cash Bonus

Payment (as a

percentage of

the fiscal 2020

target annual

cash bonus

opportunity)      

Mr. Hurlston(1)

   $609,849    $792,803    130%   $851,220    140%   107%

Mr. Butler(1)

   $279,167    $209,375    75%   $224,852    81%   107%

Mr. Awsare(2)

   $350,000    $262,500    75%   $223,650    64%   85%

Mr. Kumin(1)

   $96,354    $72,266    75%   $77,182    80%   107%

Mr. McFarland

   $376,667    $282,500    75%   $315,900    84%   112%

Mr. Nolan

   $340,000    $170,000    50%   $180,000    53%   106%

 

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  (1)

The cash bonus payments for Messrs. Hurlston, Butler, and Kumin were pro-rated for their partial year of service with us.

  (2)

As our Senior Vice President and General Manager, PC and Peripherals Division, Mr. Awsare’s annual performance-based cash bonus payment was based 50% on the funding score for the three performance metrics at the corporate level (108%) and 50% on the funding score for those same three performance metrics as determined for his business unit (63%) resulting in a blended score of (86%). We are not presenting the target achievement levels for Mr. Awsare’s performance metrics at the business unit level because we do not publicly disclose financial performance for that business unit and believe that such disclosure would result in competitive harm to the Company.

Long-Term Incentive Compensation

We use long-term incentive compensation in the form of equity awards to incentivize our NEOs for long-term corporate performance based on the potential for increases in the value of our common stock and, thereby, further align their interests with the interests of our stockholders. In October 2019, the Compensation Committee determined that the annual equity awards for our NEOs would consist of a combination of MSU awards, PSU awards, and RSU awards with each such equity award equally weighted based on the number of shares subject to each award. The actual grant date fair values of the awards granted to our NEOs as reflected in the Summary Compensation Table varies from the target mix due to the accounting valuation methodology for MSU awards.

The size of these equity awards was determined by the Compensation Committee based on its assessment of our financial results for fiscal 2019, its evaluation of each NEO’s performance or expected contributions, as applicable, an assessment of the equity award practices of the companies in our compensation peer group, and an assessment of the outstanding equity awards then-held by each NEO. In making its award decisions, the Compensation Committee exercised its judgment to set the size of each award at a level it considered appropriate to create a meaningful opportunity for reward predicated on the creation of long-term stockholder value and, in the case of PSUs, the achievement of financial goals we believed would contribute to the long-term success of the Company.

The annual equity awards granted to our NEOs in fiscal 2020 were as follows:

 

Named

Executive

Officer

  

MSU Award

(target
number of    
shares)

   PSU Award
(target
number of    
shares)
   DSU Award
(number of    
shares)
  

Aggregate        
Grant Date

Fair Value

Mr. Hurlston

   36,809    36,809    36,809    $5,143,689

Mr. Awsare

   12,269    12,269    12,269    $1,714,471

Mr. Lu

   12,269    12,269    12,269    $1,714,471

Mr. McFarland

   11,042    11,042    11,042    $1,543,010

Mr. Nolan

   5,725    5,725    5,725    $800,012

Mr. Wong

   7,770    7,770    7,770    $1,085,780

MSU Awards

MSU awards are earned based on our TSR compared to that of the SPSISC Index TSR for awards granted to our executive officers beginning in fiscal 2018, and compared to that of the Philadelphia Semiconductor Index TSR for awards granted to our executive officers prior to fiscal 2018, over one-year, two-year, and three-year performance periods (as determined on September 30, 2020, September 30, 2021, and September 30, 2022, respectively).

The range of our TSR compared to that of the SPSISC Index TSR for MSR awards granted in the last three fiscal years are as follows:

 

Fiscal Year of MSU Award    Range of Our TSR Compared to SPSISC Index TSR

Fiscal 2020

   0 - 70.2 percentage points

Fiscal 2019

   -47.8 - 46.9 percentage points

Fiscal 2018

   -48.4 - 49.6 percentage points

 

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The features of the fiscal 2020 MSU awards granted in October 2019 are as follows:

 

  MSU Award Feature    Description

Payout Range

  

Three-year program with payout range of 0% to 200% of target shares

Performance Measure

  

Based on TSR performance relative to SPSISC Index TSR

Performance Scaling

  

Two-to-one ratio for both above and below target performance, with no payout if our TSR is 50 percentage points or more below the SPSISC Index TSR for any performance period, and a cumulative payout of 200% of target shares if our TSR is 50 percentage points or more above the SPSISC Index TSR for the three-year performance period

Payout Frequency

  

One-third of target shares eligible for payout after each of years one, two, and three

Payouts in Years One & Two    

  

Capped at 100% of target shares allocated to the performance period

Payout in Year Three

  

All above-target payouts are determined solely upon full three-year performance period and require executive officer to remain employed through the end of three-year performance period

 

·   Based on shares actually earned using two-to-one ratio for three-year performance period (less any shares previously delivered for one-year and two-year performance periods), subject to cap of 200% of target shares if our TSR is 50 percentage points or more above the SPSISC Index TSR

 

·   If performance for full three-year performance period results in payout that is less than the combined payout for one-year and two-year performance periods, no claw-back of shares delivered in earlier performance periods

Any shares earned under an MSU award will vest and be delivered within 30 days of the end of the one-year, two-year, and three-year performance periods.

In fiscal 2020, certain of our NEOs received the following payouts in connection with their previously-granted MSU awards:

 

  Fiscal Year of MSU Grant            Tranche Ending Fiscal 2020            Payout (% of Target)        

Fiscal 2017

     Third Performance Period    0%

Fiscal 2018

     Second Performance Period    31.6%

Fiscal 2019

     First Performance Period    31.5%

As of the record date, the following chart represents MSU awards expected to be earned by our NEOs for MSUs granted in fiscal 2018, 2019, and 2020.

 

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PSU Awards

PSU awards are earned over a one-year performance period based on the achievement of a pre-established level of non-GAAP EPS. For this purpose, “non-GAAP EPS” means GAAP EPS, excluding share-based compensation, acquisition/divestiture related costs, retention program costs, restructuring costs, in process research and development charges, gain on the sale of assets (TDDI), non-cash interests costs, equity investment loss, impact of the loss (recovery) on supply commitment and adjusted for non-GAAP tax adjustments.

The potential payout ranges from 0% to 200% of the target number of shares subject to the PSU award and is determined on a linear basis with a payout triggered if our non-GAAP EPS for the performance period is equal to or greater than 65% of the performance target established for the year with a maximum payout achieved at 135% of the performance target. Earned PSUs vest in three equal tranches over three one-year service periods with the final service period ending approximately three years from the grant date, subject to the NEO’s continued employment with us through each relevant vesting date.

For fiscal 2020, the non-GAAP EPS target was $3.79. Our actual non-GAAP EPS for fiscal 2020 was $5.95, which exceeded the maximum payout of 135% of target and resulted in our NEOs earning 200% of the target number of shares subject to the PSU awards as follows:

 

Named Executive

Officer

   PSU Award
(target number of shares)
  

PSU Award
(earned number of

shares)

  

Shares Vesting as of the

End of Each Required

Service Period

Mr. Hurlston

   36,809    73,618    24,539

Mr. Butler

   20,449    40,898    13,633

Mr. Nolan

   5,725    11,450    3,817

Mr. McFarland

   11,042    22,084    7,361

Mr. Awsare

   12,269    24,538    8,179

Accordingly, our NEOs will receive one-third of their earned shares if they are employed through October 31, 2020, the end of the initial service period for the awards. They will receive the remaining earned shares if they remain employed through the end of the required second and third service periods.

The following chart represents the PSU awards granted in fiscal 2018, fiscal 2019, and fiscal 2020 and the corresponding shares earned as a percentage of target.

 

LOGO

RSU Awards

Each RSU award generally vests over three years, with one-third of the total number of shares subject to the award vesting annually in the same fiscal quarter in which the award was granted until fully vested, subject to the NEO’s continued employment with us through each relevant vesting date. Typically, RSU awards granted to newly-hired executive officers vest over four years, with one-quarter of the total number of shares of our common stock subject to the award vesting annually on each subsequent anniversary of the executive officer’s employment start date until fully vested, subject to the executive officer’s continued employment with us through each relevant vesting date.

Health, Welfare, and Retirement Benefits

Our executive officers, including our NEOs, are eligible to participate in the same standard health and welfare benefit plans, and on the same terms and conditions, as all other regular full-time employees. These benefits include medical, dental, vision, life, and disability insurance benefits, and participation in our employee stock purchase plan.

We maintain a tax-qualified Section 401(k) retirement savings plan for all employees who satisfy certain eligibility requirements, including requirements relating to age and length of service. Under this plan, participants may elect to make pre-tax contributions of up to 50% of their current compensation, not to exceed the applicable statutory income tax limitation. In fiscal 2020, we made matching contributions of up to 25% of the contributions made by participants in the plan, including our NEOs, up to a maximum of $4,875 per participant. We intend for the plan to qualify under Section 401(a) of the Code, so that contributions by employees to the plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the plan.

 

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Perquisites and Other Personal Benefits

We do not view perquisites or other personal benefits as a significant element of our executive compensation program. Accordingly, we do not provide perquisites or other personal benefits to our NEOs except as generally made available to our employees or in situations where we believe it is appropriate to assist an individual in the performance of the NEO’s duties, to make the NEO more efficient and effective, and for recruitment, motivation, or retention purposes. During fiscal 2020, none of our NEOs (other than Alex Wong) received perquisites or other personal benefits that were, in the aggregate, $10,000 or more for each individual. Alex Wong received a total of $47,610 for rent and utilities for temporary housing.

NEW EXECUTIVE OFFICER COMPENSATION

2020 Pay Decisions Related to our Chief Executive Officer, Mr. Hurlston

In determining Mr. Hurlston’s compensation arrangements as our new President and Chief Executive Officer, the Compensation Committee primarily considered his prior experience as the Chief Executive Officer and member of the Board of Directors of Finisar Corporation, his extensive experience in various senior leadership positions in the technology industry, the competitive market for similar positions at other comparable companies based on a review of compensation peer group and related survey data, and his compensation arrangements at his prior position. Recognizing that Mr. Hurlston’s deep industry experience made him a highly desirable candidate, the Compensation Committee developed a market competitive compensation package to attract Mr. Hurlston to join us, while, at the same time, ensuring an appropriate and ongoing linkage between his incentive compensation and our performance.

In structuring Mr. Hurlston’s equity awards, the Compensation Committee sought to address two objectives. Foremost, the Compensation Committee wanted to offer him a “new hire” equity award that was competitive with current market practices for technology companies in the San Francisco Bay Area hiring a new chief executive officer. In addition, the Compensation Committee wanted to make him whole for any potential compensation opportunities that he would be forgoing by leaving Finisar.

In the case of his “new hire” equity award, the Compensation Committee evaluated competitive market data drawn from the companies in our compensation peer group with a particular focus on equity awards granted to newly-hired chief executive officers at current and recent peer companies to determine the appropriate size of his award. In addition, in an effort to balance our desire to retain Mr. Hurlston’s services as soon as practicable with its goal of aligning his equity incentives with those of his executive staff, the Compensation Committee determined to grant the “new hire” award in discrete increments at two separate times. The first portion of the award, comprised of a MSU award with a target value corresponding to $5 million and a RSU award with a target value corresponding to $2 million (the “Initial Equity Award”) as described in the table below, was granted to him as of his employment start date in August 2019. The second portion of the award, comprised of a MSU award with a target value corresponding to $1.5 million, a PSU award with a target value corresponding to $1.5 million, and a RSU award with a target value corresponding to $1.5 million (the “Annual Equity Award”) as described in the table below, was granted to him as part of our annual equity award grant cycle for all of our executive officers at the end of October 2019, at which time the Company’s AOP plan was approved by our Board.

Further, the Compensation Committee also addressed the potential forgone compensation opportunity at Mr. Hurlston’s former employer. At the time Mr. Hurlston was identified as a candidate for our top executive position, he was serving as the Chief Executive Officer of Finisar, which was in the process of being acquired by II-VI Incorporated (the “Acquisition”). To induce Mr. Hurlston to leave his position at Finisar before the completion of the Acquisition, the Compensation Committee agreed that, as part of his initial compensation arrangements, the Company would grant Mr. Hurlston a pair of inducement equity awards (the “Inducement Equity Awards”) contingent upon the closing of the Acquisition prior to November 9, 2019. The Inducement Equity Awards comprised of a RSU award with a target value corresponding to $5 million and a MSU award with a target value corresponding to $1 million and were intended to offset the closing incentive payment otherwise due to Mr. Hurlston in connection with the closing of the Acquisition. The Acquisition closed on September 24, 2019 and, accordingly, on that date, the Compensation Committee granted to Mr. Hurlston the Inducement Equity Awards as described in the table below.

Mr. Hurlston’s compensation package is as follows:

 

Base

Salary

  

Fiscal 2020

Annual Cash

Bonus Target

(% of salary)

   Equity Awards
    $700,000    130% (1)    Initial Equity Awards (August 19, 2019)
         

 

·  MSU award earned as follows:

-  Target amount of 154,985 shares to vest over four years, with one-quarter to be earned and vest on each of August 19, 2020, August 19, 2021, August 19, 2022, and August 19, 2023 based on our TSR as compared to the SPSISC Index over four overlapping one, two, three, and four-year performance periods

-  Number of shares issuable subject to adjustment by up to 200% based on relative TSR compared to TSR of SPSISC Index

 

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·  RSU award vests as follows:

-  59,772 shares vesting as to one-quarter of shares each year over first four anniversaries of his employment start date

 

Annual Equity Awards (October 31, 2019)

 

·  MSU award earned as follows:

-  Target amount of 36,809 shares to vest over three years, with one-third to be earned and vest on each of September 30, 2020, September 30, 2021, and September 30, 2022 based on our TSR as compared to the SPSISC Index over three overlapping one, two, and three-year performance periods

-  Number of shares issuable subject to adjustment by up to 200% based on relative TSR compared to TSR of SPSISC Index

 

·  PSU award earned as follows:

-  Target amount of 36,809 shares to be earned over one-year performance period of fiscal 2020 where performance is measured based on the achievement of a pre-established level of non-GAAP earnings-per-share, with one-third to vest on each of October 31, 2020, October 31, 2021, and October 31, 2022

-  Number of shares issuable subject to adjustment by up to 200% on a linear basis with a payout triggered if our non-GAAP earnings-per-share for the performance period is equal to or greater than 65% of the target established for the year with a maximum payout achieved at 135% of target

 

·  RSU award vests as follows:

36,809 shares vesting as to one-third of shares each year over first three anniversaries of the award grant date

 

Inducement Equity Awards (September 24, 2019)

 

·  MSU award earned as follows:

-  Target amount of 30,997 shares to vest over four years, with one-quarter to be earned and vest on each of September 24, 2020, September 24, 2021, September 24, 2022, and September 24, 2023 based on our TSR as compared to the SPSISC Index over four overlapping one, two, three, and four-year performance periods

-  Number of shares issuable subject to adjustment by up to 200% based on relative TSR compared to TSR of SPSISC Index

 

·  RSU award vests as follows:

-  131,240 shares vesting as to one-quarter of shares each year over first four anniversaries of the award grant date

 

The Inducement Equity Awards are eligible to vest in full in the event that Mr. Hurlston’s employment is terminated without “good cause” or he resigns with “good reason,” as those terms are defined in our Severance Policy for Principal Executive Officers.

  (1)

Pro-rated for fiscal 2020.

Effective August 19, 2019, Mr. Hurlston became a participant in our Change of Control Severance Policy for Principal Executive Officers and a participant in our Severance Policy for Principal Executive Officers.

2020 Pay Decisions Related to our Chief Financial Officer, Mr. Butler

In determining Mr. Butler’s compensation arrangements as our new Senior Vice President and Chief Financial Officer, the Compensation Committee considered his finance background, including his previous senior positions at several large technology companies, the competitive market for similar positions at other comparable companies based on a review of compensation survey data, and the pay arrangements of our other senior executive officers.

Mr. Butler’s compensation package is as follows:

 

Base

Salary

  

Fiscal 2020

Annual Cash

Bonus Target

(% of salary)

   Equity Awards
    $400,000 (1)    75% (2)    Initial Equity Award (October 21, 2019)
         

 

·  RSU award vests as follows:

20,517 shares vesting as to one-quarter of shares each year over first four anniversaries of his employment start date

 

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New Hire Equity Awards (October 31, 2019)

 

·   MSU award earned as follows:

-  Target amount of 20,449 shares to vest over three years, with one-third to be earned and vest on each of September 30, 2020, September 30, 2021, and September 30, 2022 based on our TSR as compared to the SPSISC Index over three overlapping one, two, and three-year performance periods

-  Number of shares issuable subject to adjustment by up to 200% based on relative TSR compared to TSR of SPSISC Index

 

·  PSU award earned as follows:

-  Target amount of 20,449 shares to be earned over one-year performance period of fiscal 2020 where performance is measured based on the achievement of a pre-established level of non-GAAP earnings-per-share, with one-third to vest on each of October 31, 2020, October 31, 2021, and October 31, 2022

-  Number of shares issuable subject to adjustment by up to 200% on a linear basis with a payout triggered if our non-GAAP earnings-per-share for the performance period is equal to or greater than 65% of the target established for the year with a maximum payout achieved at 135% of target

  (1)

In addition, Mr. Butler received a cash signing bonus of $150,000 that must be repaid to us on a pro rata basis should he voluntarily terminate his employment within two years of his employment start date.

  (2)

Pro-rated for fiscal 2020.

Effective October 21, 2019, Mr. Butler became a participant in our Change of Control Severance Policy for Principal Executive Officers and a participant in our Severance Policy for Principal Executive Officers.

2020 Pay Decisions Related to our Senior Vice President of Worldwide Sales, Mr. Kumin

In determining Mr. Kumin’s compensation arrangements as our new Senior Vice President of Worldwide Sales, the Compensation Committee considered his sales strategy expertise, his extensive experience in the semiconductor industry, the competitive market for similar positions at other comparable companies based on a review of compensation survey data, and the pay arrangements of our other senior executive officers.

Mr. Kumin’s compensation package is as follows:

 

Base

Salary

  

Fiscal 2020

Annual Cash

Bonus Target
(% of salary)

   Equity Awards

 

    $375,000

  

 

75% (1)

  

 

·  MSU award earned as follows

-  Target amount of 12,524 shares to vest over three years, with one-third to be earned and vest on each of September 30, 2020, September 30, 2021, and September 30, 2022 based on our TSR as compared to the SPSISC Index over three overlapping one, two, and three-year performance periods

-  Number of shares issuable subject to adjustment by up to 200% based on relative TSR compared to TSR of SPSISC Index

 

·  DSU award vests as follows:

-  12,524 shares vesting as to one-quarter of shares each year over first four anniversaries of his employment start date

  (1)

Pro-rated for 2020.

Effective March 30, 2020, Mr. Kumin became a participant in our Change of Control Severance Policy for Principal Executive Officers and a participant in our Severance Policy for Principal Executive Officers. Subject to a supplemental offer letter entered into by Mr. Kumin and the Company, should the Company terminate Mr. Kumin without “good cause” (as such term is defined in the Severance Policy) on or prior to March 31, 2021, the Company will, subject to the approval of our Board, provide Mr. Kumin with a cash payment (such amount, the “Kumin Severance Amount”) of $2,156,250 less (i) all salary and other cash incentives paid to him on or prior to such date; and (ii) the aggregate value of all equity awards that have vested on or prior to such date; provided that, Mr. Kumin will only receive a cash payment to the extent the Kumin Severance Amount is more than the aggregate amount of (a) all amounts payable to Mr. Kumin, including the value of any equity vesting acceleration, under the Severance Policy or the Change of Control Severance Policy; and (b)  any other cash compensation or vested equity received from the Company on or prior to such date.

SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS

We believe that severance and change of control arrangements are important parts of the overall compensation program for our executive officers. Severance arrangements provide a stable work environment and are used primarily to attract, motivate, and retain individuals with the requisite experience and ability to drive our success. The provision of enhanced severance benefits for an involuntary termination of the executive’s employment in connection with a change of control helps to secure the continued employment and dedication of our executive officers, to reduce any concern that they might have regarding their own continued employment prior to or following a change of control of the Company and to promote continuity of management during a corporate transaction.

 

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Severance Policy for Principal Executive Officers

We maintain the Severance Policy for Principal Executive Officers (the “Severance Policy”), which applies to those executive officers who have been designated by our Board as a “Covered Executive” under such policy. All of our NEOs currently employed with us are covered by the Severance Policy. Under the Severance Policy, we will pay certain specified amounts to a designated executive officer following a termination of employment by us without “good cause” or by the executive officer for “good reason” (as such terms are defined in the policy), contingent upon the executive officer providing a general release of claims, for a period of twelve months in the case of our CEO and six months in the case of our other designated executive officers.

Change of Control Severance Policy for Principal Executive Officers

We also maintain the Change of Control Severance Policy for Principal Executive Officers (the “Change of Control Severance Policy”), which applies to those executive officers who have been designated by our Board as an “Executive” under such policy. All of our NEOs currently employed with us are covered by the Change of Control Severance Policy. Under the Change of Control Severance Policy, we will pay certain specified amounts and provide certain specified benefits (including accelerated vesting of all outstanding and unvested equity awards granted by the Company on or after June 28, 2019 (excluding MSU awards)) to a designated executive officer following a termination of employment by us without “good cause” or by the executive officer for “good reason” within three months prior to, or eighteen months following, a “change of control” (as such terms are defined in the policy), contingent upon the executive officer providing a general release of claims, for a period of eighteen months.

For a summary of the material terms and conditions of the arrangements under the Severance Policy and the Change of Control Severance Policy, as well as an estimate of the potential payments and benefits payable to our NEOs, see “Potential Payments upon Termination or Change of Control” below.

Outstanding Equity Awards

For a discussion of the treatment of outstanding equity awards held by our NEOs in the event of a change of control of the Company or certain involuntary terminations of the NEO’s employment with us, see “Potential Payments upon Termination or Change of Control – Equity Awards” below.

Separation Agreements with Messrs. Lu and Wong

In connection with their terminations of employment in December 2019 and March 2020, we entered into separation and release agreements with Messrs. Lu and Wong, respectively. The terms and conditions of these agreements are described in “Estimated Severance and Change of Control Benefits” below.

EXECUTIVE RETENTION PROGRAM

In May 2019, we instituted a retention program for certain of our executive officers to encourage their continued commitment to the support and management of the operations of the Company during the transition to new executive leadership (the “Retention Program”). Of our incumbent NEOs, Messrs. Awsare, Nolan and McFarland are the only remaining participants in the Retention Program. The Retention Program provides that a participating executive officer will receive a lump-sum cash award payment in November 2020 should the NEO remain as a full-time active employee of the Company in good standing through November 1, 2020. The retention award amounts for Messrs. Awsare, Nolan and McFarland are $512,164, $480,302, and $586,661 respectively.

OTHER COMPENSATION POLICIES

Equity Grant Policy

Our Compensation Committee approves annual equity awards to our executive officers at a regularly scheduled meeting in the first half of each year. However, the Compensation Committee may also approve grants at other times of the year such as in connection with the hiring of a new executive officer or in such other circumstances as the Compensation Committee may determine appropriate.

 

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Stock Ownership Guidelines

We maintain stock ownership guidelines for our directors and senior executive officers to promote the alignment of the long-term interests of the members of our Board and senior executive officers with our stockholders.

 

Requirement

 

·   Non-Employee Directors: 5.0x annual retainer

 

·   Chief Executive Officer: 6.0x base salary

 

·   Other Executive Officers: 2.0x base salary

Measurement

 

·   Measured at fiscal year-end using 90 trading-day average stock price

 

·   Ownership includes shares owned outright, vested in-the-money stock options, and unvested RSUs (unvested PSUs and MSUs do not count)

Compliance

 

·   Grace period of five years from when participant becomes subject to guidelines

 

·   If participant falls below target ownership, participant must meet target within two years

 

·   Management annually notifies participants and the Compensation Committee of compliance and progress towards ownership requirement

 

·   As of June 27, 2020, all participants either met the requirements or were within the five-year grace period

Stock Holding Requirements

As described in Proposal 4 above, our stockholders are being asked to approve certain amendments to our 2019 Incentive Plan, including a provision that any award granted under the 2019 Incentive Plan to an individual who, at the time of grant of the award, is the Company’s chief executive officer must include a provision for any net shares acquired with respect to the award (the total number of shares acquired pursuant to the award less any shares used to pay the exercise or purchase price of the award and any shares used to satisfy any tax and tax withholding obligations with respect to the award) to be held for at least a one year period, or until the award recipient is no longer employed by the Company or one of its subsidiaries, before such shares may be sold or transferred (except for certain transfers to a family member for estate or tax planning purposes and where the holding period requirement continues in effect as to the shares, or in connection with or following a change of control of the Company).

Compensation Recovery (“Clawback”) Policy

Our 2010 Plan, our 2019 Inducement Plan and our 2019 Incentive Plan each contain a compensation recovery (“clawback”) provision that applies to all awards held by our executive officers. Pursuant to these plans, all awards (cash and equity) held by an executive officer will be subject to clawback, recoupment or forfeiture to the extent that such executive officer is determined to have engaged in fraud or intentional illegal conduct that caused a material non-compliance with any applicable financial reporting requirements and resulted in a financial restatement, the result of which is that the amount received from such award would have been lower had it been calculated on the basis of such restated results, or as required by applicable laws, rules, regulations, or listing requirements.

TAX CONSIDERATIONS

Deductibility of Executive Compensation

Section 162(m) of the Code generally disallows a publicly-held corporation a deduction for federal income tax purposes of remuneration in excess of $1 million paid in any taxable year to certain “covered employees,” which include any individuals who served as the principal executive officer or principal financial officer at any time during the taxable year, each of the three other most highly-compensated executive officers whose compensation may be required to be disclosed to our stockholders under the Exchange Act in the taxable year, and each person who was a covered employee for any taxable year beginning after December 31, 2016. Further, since the enactment of the Tax Cuts and Jobs Act of 2017, “qualified performance-based compensation” is exempt from this $1 million deduction limitation only if payable pursuant to a written binding contract in effect on November 2, 2017 (and that has not subsequently been materially modified).

While the Compensation Committee considers the deductibility of compensation as one factor in determining executive compensation, the Compensation Committee believes that it is in the best interests of our stockholders to maintain flexibility in our approach to executive compensation in order to structure a program that we consider to be the most effective in attracting, motivating, and retaining our executive officers.

 

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COMPENSATION COMMITTEE

MATTERS

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed our Compensation Discussion and Analysis section with management and, based on the review and discussions, recommended to the Board that the Compensation Discussion and Analysis section be included in this Proxy Statement on Schedule 14A.

Compensation Committee

Keith Geeslin, Chair

Kiva Allgood

Susan Hardman

Richard Sanquini

The foregoing report of the Compensation Committee is not soliciting material, is not deemed filed with the SEC and is not incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, whether made before or after the date of this Proxy Statement and irrespective of any general incorporation language in such filing.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Ms. Allgood and Messrs. Geeslin and Sanquini were members of the Compensation Committee during all of fiscal 2020, and Ms. Hardman and Messrs. Whims and Francis Lee served on the Compensation Committee for a portion of fiscal 2020. Other than Mr. Lee, a director who retired from the Board in February 2020 and who was formerly an officer of the Company, no one who served on the Compensation Committee at any time during fiscal 2020 is or has been an executive officer of the Company or had any relationships requiring disclosure by the Company under the rules of the SEC requiring disclosure of certain relationships and related party transactions. None of our executive officers who served as a director of the Company or as a member of the Compensation Committee during fiscal 2020 served as a director or a member of a compensation committee (or other committee serving an equivalent function) for any other entity.

 

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NAMED EXECUTIVE OFFICER COMPENSATION TABLES

The Summary Compensation Table quantifies the value of the different forms of compensation earned by or awarded to our NEOs for fiscal 2018, 2019 and 2020. The primary elements of each NEO’s total compensation reported in the table are base salary, a short-term incentive (annual cash bonus) and long-term incentive equity awards. Our NEOs also received the other benefits listed in column (i) of the Summary Compensation Table, as further described in the footnotes to the table.

The Summary Compensation Table should be read in conjunction with the tables and narrative descriptions that follow. A description of the material terms of employment offer letters for Messrs. Hurlston, Butler, Awsare and Kumin regarding base salary and short-term incentive amounts is provided immediately following the Summary Compensation Table. The Grants of Plan-Based Awards table, and the accompanying disclosure following that table, provide information regarding the cash and equity awards granted to our NEOs in fiscal 2020. The Outstanding Equity Awards at Fiscal Year End and Option Exercises and Stock Vested tables provide further information on the NEOs’ potential realizable value and actual value realized with respect to their equity awards.

SUMMARY COMPENSATION TABLE — FISCAL YEARS 2018, 2019 AND 2020

The following table sets forth summary information regarding compensation for each of our NEOs for all services rendered to us in all capacities in fiscal 2018, 2019 and 2020.

 

Name and Principal Positions       Fiscal Year       Salary       Bonus       Stock Awards       Option       Non-Equity       Change in   All Other   Total
        ($)(1)   ($)   ($)(2)   Awards   Incentive Plan   Pension Value   Compensation   ($)
                    ($)(3)   Compensation   & Non·   ($)(5)    
                        ($)(4)   qualified        
                            Deferred        
                            Compensation        
                                   Earnings ($)          
(a)   (b)   (c)   (d)   (e)   (f)   (g)   (h)   (i)   (j)
Michael Hurlston(6)   2020   $609,849   -   $21,944,599   -   $851,220   -   $5,962   $23,411,630
President and Chief Executive Officer                                    
Dean Butler(7)   2020   $279,167   $150,000(8)   $2,838,043   -   $224,852   -   $506   $3,342,568
Senior Vice President Chief Financial Officer                                    
Saleel Awsare   2020   $350,000   $100,000(13)   $1,714,471   -   $223,650   -   $7,182   $2,295,303
Senior Vice President and General Manager, PC & Peripherals Division                                    
Phillip Kumin(14)   2020   $96,354   -   $2,004,174   -   $77,182   -   $2,324   $2,180,034
Senior Vice President, Worldwide Sales                                    
Richard Lu(11)   2020   $175,000   -   $1,714,471   -   -   -   $755,644   $2,645,115
Former Senior Vice President   2019   $204,167   $512,500(12)   $1,416,054   -   -   -   $2,498   $1,622,719
and General Manager, Mobile Division                                    
John McFarland   2020   $376,667   -   $1,543,010   -   $315,900   -   $2,184   $2,237,761
Senior Vice President,   2019   $348,333   -   $1,123,498   -   $105,000   -   $2,113   $1,578,944
General Counsel and Secretary   2018   $338,333   -   $1,152,471   $64,496   $67,320   -   $21,205   $1,643,825
Kermit Nolan(10)   2020   $340,000   -   $800,012   -   $180,000   -   $8,482   $1,328,494
Corporate Vice President   2019   $298,096   -   $851,673   -   $66,452   -   $8,335   $1,224,556
and Chief Accounting Officer   2018   $279,333   -   $417,869   -   $51,554   -   $7,212   $755,968
Alex Wong(9)   2020   $262,500   -   $1,085,780   -   -   -   $1,067,077   $2,415,357
Former Principal Executive   2019   $348,333   -   $1,123,498   -   $131,250   -   $8,314   $1,611,395
Officer; Former Senior Vice   2018   $340,000   -   $1,426,903   $92,911   $117,734   -   $24,240   $2,001,788
President of Worldwide Operations                                    

 

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  (1)

All base salaries reported represent actual base salaries paid for the twelve-month periods ended June 27, 2020, June 29, 2019 and June 30, 2018.

  (2)

The amounts reported in column (e) of the table above for each year reflect the aggregate grant date fair value of PSUs, MSUs and RSUs awarded in the applicable year as computed in accordance with FASB Accounting Standards Codification (“ASC”) Topic 718, Compensation — Stock Compensation (determined as of the date of grant of the awards, as the date of grant is determined for accounting purposes, and excluding the effect of estimated forfeitures). For information on the assumptions used in the grant date fair value computations, refer to Note 9 “— Share-Based Compensation” in the Notes to Consolidated Financial Statements in the Company’s 2020 Annual Report on Form 10-K filed with the SEC for the fiscal year ended June 27, 2020 (or, for awards granted prior to fiscal 2020, the corresponding note in the Company’s Annual Report on Form 10-K for the applicable fiscal year). The amounts included in the Summary Compensation Table above, and in the tables below in this footnote, may not be indicative of the realized value of the awards if they vest.

As discussed in the Compensation Discussion and Analysis, in fiscal 2018, 2019 and 2020, the Company granted annual long-term incentive awards of PSUs and MSUs to our NEOs, the vesting of which is subject, in part, to the Company’s performance. As required by applicable SEC rules, the grant date fair value of the PSUs and MSUs awarded in these years was determined based on the probable outcome (determined as of the date of grant of the awards, as the date of grant is determined for accounting purposes) of the performance-based conditions applicable to the awards.

For these purposes, as of the date of grant of the awards, we determined that the “target” level of performance for the PSU awards was the probable outcome of the applicable performance-based conditions. Accordingly, for these PSU awards, the grant date fair value is included for the NEOs in the “Stock Awards” column for the year in which the grant was made based on the “target” number of shares subject to the awards. For the MSU awards, the grant date fair value was included for the NEOs in the “Stock Awards” column for the year in which the grant was made based on a Monte Carlo simulation pricing model (which probability weights multiple potential outcomes) as of the date of grant of the awards. Under the terms of the PSU and MSU awards, between 0% and 200% of the target number of shares subject to the awards can be earned and vest based on performance and the other vesting conditions applicable to the awards. The following tables present the grant date fair value (determined as described above as of the date of grant of the awards) of the PSUs and MSUs awarded to the NEOs in fiscal 2018, 2019 and 2020 under two sets of assumptions: (a) assuming performance would be achieved at the level which we originally judged to be the probable outcome as described above (or in the case of MSUs, based on the Monte Carlo simulation pricing model), and (b) assuming that the highest level of performance for each such award would be achieved.

 

     Aggregate Grant Date Fair Value of Annual PSU Awards
     Fiscal Year 2018    Fiscal Year 2019    Fiscal Year 2020
  

 

    

 

Based on

        Based on         Based on     
     Probable    Based on    Probable    Based on    Probable    Based on
     Outcome as of    Maximum    Outcome as of    Maximum    Outcome as of    Maximum
Name    the Date of Grant    Performance    the Date of Grant    Performance    the Date of Grant    Performance

 

Michael Hurlston

  

 

-

  

 

-

  

 

-

  

 

-

  

 

$1,550,027

  

 

$3,100,054

 

Dean Butler

  

 

-

  

 

-

  

 

-

  

 

-

  

 

$861,107

  

 

$1,722,214

 

Saleel Awsare

  

 

$222,703

  

 

$445,406

  

 

-

  

 

-

  

 

$516,648

  

 

$1,033,296

 

Phillip Kumin

  

 

-

  

 

-

  

 

-

  

 

-

  

 

-

  

 

-

 

Richard Lu

  

 

-

  

 

-

  

 

-

  

 

-

  

 

$516,648

  

 

$1,033,296

 

John McFarland

  

 

$349,336

  

 

$698,672

  

 

$338,445

  

 

$676,890

  

 

$464,979

  

 

$929,958

 

Kermit Nolan

  

 

$83,524

  

 

$167,048

  

 

-

  

 

-

  

 

$241 ,080

  

 

$482,160

 

Alex Wong

  

 

$432,522

  

 

$865,044

  

 

$338,445

  

 

$676,890

  

 

$327,195

  

 

$654,390

 

     Aggregate Grant Date Fair Value of Annual MSU Awards
     Fiscal Year 2018    Fiscal Year 2019    Fiscal Year 2020
  

 

     Based on Monte         Based on Monte         Based on Monte     
     Carlo Simulation         carlo Simulation         carlo Simulation     
     Pricing Model as    Based on    Pricing Model as    Based on    Pricing Model as    Based on
     of the Date of    Maximum    of the Date of    Maximum    of the Date of    Maximum
Name    Grant    Performance    Grant    Performance    Grant    Performance

 

Michael Hurlston

  

 

-

  

 

-

  

 

-

  

 

-

  

 

$11,705,788

  

 

$16,242,782

 

Dean Butler

  

 

-

  

 

-

  

 

-

  

 

-

  

 

$1,135,328

  

 

$1,722,214

 

Saleel Awsare

  

 

$318,324

  

 

$445,406

  

 

$233,435

  

 

$380,300

  

 

$681,175

  

 

$1,033,296

 

Phillip Kumin

  

 

-

  

 

-

  

 

-

  

 

-

  

 

$1,257,118

  

 

$1,494,113

 

Richard Lu

  

 

-

  

 

-

  

 

$516,078

  

 

$900,017

  

 

$681,175

  

 

$1,033,296

 

John McFarland

  

 

$453,798

  

 

$698,672

  

 

$446,608

  

 

$676,890

  

 

$613,052

  

 

$929,958

 

Kermit Nolan

  

 

$119,386

  

 

$167,048

  

 

-

  

 

-

  

 

$317,852

  

 

$482,160

 

Alex Wong

  

 

$561,859

  

 

$865,044

  

 

$446,608

  

 

$676,890

  

 

$431,390

  

 

$654,390

 

  (3)

The amounts reported in column (f) of the table above reflect the grant date fair value of stock option awards made in the applicable fiscal year and were determined in accordance with ASC Topic 718 (determined as of the date of grant of the awards, as the date of grant is determined for accounting purposes, and excluding the effects of estimated forfeitures). For information on the assumptions used in determining the grant date fair value of stock option awards, refer to Note 9 “— Share-Based Compensation” in the Notes to our Consolidated Financial Statements in the Company’s 2020 Annual Report on Form 10-K filed with the SEC for the fiscal year ended June 27, 2020 (or, for awards granted prior to fiscal 2020, the corresponding note in the Company’s Annual Report on Form 10-K for the applicable fiscal year). The amounts included in the Summary Compensation Table above may not be indicative of the realized value of the awards if they vest.

 

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  (4)

The amounts reported in column (g) of the table above constitute amounts earned under our annual performance-based cash bonus plan during the applicable fiscal year, which amounts are generally paid early in the next fiscal year.

 

  (5)

The following table identifies the items reported in the “All Other Compensation” column of the table for each NEO in fiscal 2020:

 

Executive Officers   

Company
Contributions to

401(k)

  

Severance

Benefits

  

Temporary

Housing

   Total Benefits

Michael Hurlston

   $5,962    -    -    $5,962

Dean Butler

   $506    -    -    $506

Saleel Awsare

   $7,182    -    -    $7,182

Phillip Kumin

   $2,324    -    -    $2,324

Richard Lu

   $2,458    $753,186    -    $755,644

John McFarland

   $2,184    -    -    $2,184

Kermit Nolan

   $8,482    -    -    $8,482

Alex Wong

   $8,371    $1,011,096    $47,610    $1,067,077

As discussed below under “Potential Payments upon Termination or Change of Control”, pursuant to separation agreements entered into with the Company in fiscal 2020, (a) Mr. Wong received severance payments in the form of a $692,204 lump sum payment, $306,250 paid in equal installments over six months on regular payroll dates, and continued health benefits under COBRA for six months at a cost of $12,642 and (b) Mr. Lu received severance payments in the form of a $564,534 lump sum payment, $175,000 paid in equal installments over six months on regular payroll dates, and continued health benefits under COBRA for six months at a cost of $13,652.

 

(6)

Mr. Hurlston was appointed as President and Chief Executive Officer effective August 19, 2019.

(7)

Mr. Butler was appointed as Senior Vice President and Chief Financial Officer effective October 21, 2019.

(8)

In connection with his acceptance of our offer to join the Company, Mr. Butler received a signing bonus of $150,000 that must be repaid to the Company on a pro rata basis should he voluntarily terminate his employment within two years of his employment start date.

(9)

Effective August 19, 2019, Mr. Wong voluntarily resigned his position as the Company’s Principal Executive Officer and resumed his position as the Company’s Senior Vice President of Worldwide Operations. He resigned as Senior Vice President of Worldwide Operations and terminated employment with the Company effective March 31, 2020. The terms of his separation agreement with the Company are described below under “Potential Payments Upon Termination or Change of Control.”

(10)

Effective October 21, 2019, Mr. Nolan resigned as the Company’s Principal Financial Officer and Interim Chief Financial Officer and resumed his position as the Company’s Corporate Vice President and Chief Accounting Officer.

(11)

Mr. Lu’s employment with the Company ended effective December 31, 2019.

(12)

In connection with his acceptance of our offer to join the Company, Mr. Lu received a signing bonus of $250,000 and a guaranteed short-term incentive for fiscal 2019 of $262,500.

(13)

Mr. Awsare was promoted to an executive officer position effective April 30, 2019, and was not a NEO prior to fiscal 2020. In connection with an internal promotion, Mr. Awsare received a retention bonus of $200,000, which was paid in two equal installments during each of fiscal 2019 and fiscal 2020.

(14)

Mr. Kumin was appointed as Senior Vice President, Worldwide Sales effective March 30, 2020.

Employment Agreements

Mr. Hurlston

Mr. Hurlston entered into an employment offer letter with the Company effective August 19, 2019. The letter provides for “at will” employment. The letter provides that Mr. Hurlston will receive an initial annual base salary of $700,000 and that his annual cash bonus target will be set at 130% of his base salary, with the Compensation Committee to determine Mr. Hurlston’s actual bonus award amounts each year. The letter also provides for Mr. Hurlston to participate in the Company’s long-term incentive program and to receive the equity awards during fiscal 2020 described in the Compensation Discussion and Analysis above. In addition, the letter provides for Mr. Hurlston to participate in the Company’s severance plans for its executive officers as described below under “Potential Payments Upon Termination or Change of Control.”

Mr. Butler

Mr. Butler entered into an employment offer letter with the Company effective October 21, 2019. The letter provides for “at will” employment. The letter provides that Mr. Butler will receive an initial annual base salary of $400,000 and that his annual cash bonus target will be set at 75% of his base salary, with the Compensation Committee to determine Mr. Butler’s actual bonus award amounts each year. Mr. Butler also received a cash signing bonus of $150,000 that must be repaid to the Company on a pro rata basis should he voluntarily terminate his employment within two years of his employment start date. The letter also provides for Mr. Butler to participate in the Company’s long-term incentive program and to receive the equity awards during fiscal 2020 described in the Compensation Discussion and Analysis above. In addition, the letter provides for Mr. Butler to participate in the Company’s severance plans for its executive officers as described below under “Potential Payments Upon Termination or Change of Control.”

 

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Mr. Awsare

Mr. Awsare entered into an employment offer letter with the Company effective December 10, 2018. The letter provides for “at will” employment. The letter provides that Mr. Aware will receive an initial annual base salary of $350,000 and that his annual cash bonus target will be set at 60% of his base salary, with the Compensation Committee to determine Mr. Awsare’s actual bonus award amounts each year. Mr. Awsare also received a cash signing bonus of $100,000 that would have been required to be repaid to the Company in full should he have voluntarily terminated his employment or been terminated by the Company for cause within twelve months of his employment start date. The letter also provides for Mr. Awsare to participate in the Company’s long-term incentive program and to receive the equity awards during fiscal 2020 described in the Compensation Discussion and Analysis above. In addition, the letter provides for Mr. Awsare to participate in the Company’s severance plans for its executive officers as described below under “Potential Payments Upon Termination or Change of Control.”

Mr. Kumin

Mr. Kumin entered into an employment offer letter with the Company effective March 30, 2020. The letter provides for “at will” employment. The letter provides that Mr. Kumin will receive an initial annual base salary of $375,000 and that his annual cash bonus target will be set at 75% of his base salary, with the Compensation Committee to determine Mr. Kumin’s actual bonus award amounts each year. The letter also provides for Mr. Kumin to participate in the Company’s long-term incentive program and to receive the equity awards during fiscal 2020 described in the Compensation Discussion and Analysis above. In addition, the letter provides for Mr. Kumin to participate in the Company’s severance plans for its executive officers as described below under “Potential Payments Upon Termination or Change of Control.” In addition, Mr. Kumin entered into a supplemental offer letter with the Company, which provides that, should the Company terminate the employment of Mr. Kumin without “good cause” (as such term is defined in the Severance Policy) on or prior to March 31, 2021, the Company will, subject to the approval of our Board, provide Mr. Kumin with a cash payment (such amount, the “Kumin Severance Amount”) of $2,156,250 less (i) all salary and other cash incentives paid to him on or prior to such date; and (ii) the aggregate value of all equity awards that have vested on or prior to such date; provided that, Mr. Kumin will only receive a cash payment to the extent the Kumin Severance Amount is more than the aggregate amount of (a) all amounts payable to Mr. Kumin, including the value of any equity vesting acceleration, under the Severance Policy or the Change of Control Severance Policy; and (b) any other cash compensation or vested equity received from the Company on or prior to such date.

 

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GRANTS OF PLAN-BASED AWARDS — FISCAL 2020

The following table sets forth summary information regarding the plan-based awards granted to our NEOs during fiscal 2020.

 

               

Estimated Future Payouts

Under Non-Equity

Incentive PlanAwards(2)

     

Estimated Future Payouts

Under Equity

Incentive Plan Awards

                   
       

 

       
Name  

type of

Award

  Grant Date  

Approval Date

(1)

 

Threshold

($)

  Target ($)  

Maximum

($)

 

Threshold

(#)

  Target (#)   Maximum (#)    

All Other

Stock

Awards:

Number of

Shares of

Stock or Units

(#)

 

All Other

Options

Awards;

Number of

Securities

Underlying

Options (#)

 

Exercise of

Base Price

of Option
Awards

($/Sh)

 

Grant Date

Fair Value of

Stock and

Option

Awards ($)(3)

(a)   (b)   (c)   (d)   (e)   (f)   (g)   (h)   (i)   (j)   (k)   (I)   (m)   (n)
Mchael Hurlston   Bonus   -   -   -   $792,804   -   -   -   -   -   -   -   -
  MSU   08/19/19   08/14/19   -   -   -   -   154,985   309,970   -   -   -   $7,839,530
  RSU   08/19/19   08/14/19   -   -   -   -   -   -   59,772   -   -   $2,072,893
  MSU   09/24/19   08/14/19   -   -   -   -   30,997   61,994   -   -   -   $1,822,623
  RSU   09/24/19   08/14/19   -   -   -   -   -   -   131,240   -   -   $5,065,864
  MSU   10/31/19   08/14/19   -   -   -   -   36,809   73,618   -   -   -   $2,043,635
  PSU   10/31/19   08/14/19   -   -   -   -   35,809   73,618   -   -   -   $1,550,027
  RSU   10/31/19   08/14/19   -   -   -   -   -   -   36,809   -   -   $1,550,027
Dean Butler   Bonus   -   -   -   $209,375   -   -   -   -   -   -   -   -
  MSU   10/31/19   10/07/19   -   -   -   -   20,449   40,898   -   -   -   $1,135,328
  PSU   10/31/19   10/07/19   -   -   -   -   20,449   40,898   -   -   -   $861,107
  RSU   10/21/19   10/07/19   -   -   -   -   -   -   20,517   -   -   $841,607
Saleel Awsare   Bonus   -   -   -   $262,500   -   -   -   -   -   -   -   -
  MSU   10/31/19   10/28/19   -   -   -   -   12,269   24,538   -   -   -   $681,175
  PSU   10/31/19   10/28/19   -   -   -   -   12,269   24,538   -   -   -   $516,648
  RSU   10/31/19   10/28/19   -   -   -   -   -   -   12,269   -   -   $516,648
Phillip Kumin   Bonus   -   -   -   $72,266   -   -   -   -   -   -   -   -
  MSU   03/30/20   03/30/20   -   -   -   -   12,524   25,048   -   -   -   $1,257,118
  RSU   03/30/20   03/30/20   -   -   -   -   -   -   12,524   -   -   $747,057
Richard Lu   Bonus   -   -   -   $131,250   -   -   -   -   -   -   -   -
  MSU   10/31/19   10/28/19   -   -   -   -   12,269   24,538   -   -   -   $681,175
  PSU   10/31/19   10/28/19   -   -   -   -   12,269   24,538   -   -   -   $516,648
  RSU   10/31/19   10/28/19   -   -   -   -   -   -   12,269   -   -   $516,648
John McFarland   Bonus   -   -   -   $282,500   -   -   -   -   -   -   -   -
  MSU   10/31/19   10/28/19   -   -   -   -   11,042   22,084   -   -   -   $613,052
  PSU   10/31/19   10/28/19   -   -   -   -   11,042   22,084   -   -   -   $464,979
  RSU   10/31/19   10/28/19   -   -   -   -   -   -   11,042   -   -   $464,979
Kermit Nolan   Bonus   -   -   -   $170,000   -   -   -   -   -   -   -   -
  MSU   10/31/19   10/28/19   -   -   -   -   5,725   11,450   -   -   -   $317,852
  PSU   10/31/19   10/28/19   -   -   -   -   5,725   11,450   -   -   -   $241,080
  RSU   10/31/19   10/28/19   -   -   -   -   -   -   5,725   -   -   $241,080
Alex Wong   Bonus   -   -   -   $196,875   -   -   -   -   -   -   -   -
  MSU   10/31/19   10/28/19   -   -   -   -   7,770   15,540   -   -   -   $431,390
  PSU   10/31/19   10/28/19   -   -   -   -   7,770   15,540   -   -   -   $327,195
    RSU   10/31/19   10/28/19   -   -   -   -   -   -   7,770   -   -   $327,195

 

  (1)

The “Approval Date” refers to the date on which the Compensation Committee or the Board of Directors approved the award. See “Compensation Discussion and Analysis – Equity Award Grant Policy.”

  (2)

Our fiscal 2020 annual cash bonus plan had no threshold or maximums. The reported amounts reflect the applicable target annual cash bonus opportunity for our NEOs under our fiscal 2020 annual performance-based cash bonus plan. For Messrs. Hurlston, Butler and Kumin, such target amounts were pro-rated for fiscal 2020. All such awards have been paid, and the actual amounts paid are set forth under “Non-Equity Incentive Plan Compensation” in the Fiscal 2020 Summary Compensation Table. Our fiscal 2020 annual cash bonus plan is discussed under “Compensation Discussion and Analysis — Annual Performance-Based Cash Bonuses.”

  (3)

These amounts present the aggregate grant date fair value of the equity awards computed in accordance with FASB ASC Topic 718, Compensation — Stock Compensation (determined as of the date of grant of the awards, as the date of grant is determined for accounting purposes). For information on the assumptions used in the grant date fair value computations, refer to Note 9 “— Share-Based Compensation” in the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K filed with the SEC for the fiscal year ended June 27, 2020. Also see footnote (2) to the Summary Compensation Table above.

 

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DESCRIPTION OF PLAN-BASED AWARDS

The non-equity incentive plan awards reported in the Grants of Plan-Based Awards table above represent the annual cash bonus opportunities for our NEOs for fiscal 2020. The amounts actually paid to our NEOs pursuant to these awards are presented in the Summary Compensation Table under the heading “Non-Equity Incentive Plan Compensation.” See the “Fiscal 2020 Named Executive Officer Compensation – Annual Performance-Based Cash Bonuses” section of the Compensation Discussion and Analysis for a discussion of our performance measurement framework and the fiscal 2020 annual performance-based cash bonus awards for our NEOs.

Each of the equity awards reported in the above table was granted under, and is subject to, the terms of the 2019 Incentive Plan or the 2019 Inducement Plan, as applicable. The Compensation Committee has authority to interpret the provisions of each of these plans and to make all required determinations under the plans. Awards granted under the plans are generally only transferable by the NEO by will or the laws of descent and distribution.

Each NEO may be entitled to accelerated vesting of his outstanding equity awards upon certain terminations of employment with the Company in connection with a change of control of the Company. Outstanding awards under our equity plans will also generally vest on a change of control to the extent replacement awards are not provided by the acquiring or successor entity. The terms of this accelerated vesting are described in this section and below under “Potential Payments Upon Termination or Change of Control.”

Each RSU, MSU, and PSU subject to the awards described below represents a contractual right to receive one share of our common stock. Payment will generally be made as the equity award vests. Until delivery of the shares, the NEO has no rights as a stockholder with respect to any shares of our common stock underlying the award, although the award may provide for dividend equivalents to accrue while the award is outstanding and be paid upon and subject to vesting of the underlying units. Subject to the NEO’s award agreement evidencing the RSUs, MSUs or PSUs, if a NEO’s employment terminates for any reason during the vesting period, any units that have not previously vested will terminate.

Time-Based RSUs

Awards of RSUs granted to our NEOs in fiscal 2020 vest based solely on the NEO’s continued employment or service with the Company. Each of the annual RSU awards granted to the NEOs in fiscal 2020 is subject to a three-year vesting schedule, with one-third of the award vesting on each of the first, second and third anniversaries of the date of grant. The new-hire grants of RSUs to Mr. Hurlston in August 2019 and September 2019, the new-hire grant of RSUs to Mr. Butler in October 2019, and the new hire grant of RSUs to Mr. Kumin in March 2020 are each subject to a four-year vesting schedule, with one-fourth of the award vesting on each of the first, second, third and fourth anniversaries of the date of grant.

Performance-Based MSUs

As described more fully above under “Compensation Discussion and Analysis — Fiscal 2020 Named Executive Officer Compensation,” the percentage of the performance-based MSU awards granted to each of the NEOs in fiscal 2020 that become eligible to vest range from 0% to 200% (with years one and two capped at 100%) of the total number of MSUs subject to the award depending on the Company’s TSR compared to that of the SPSISC Index TSR over a one-year, a two-year, and a three-year performance period (with such performance periods ending on September 30, 2020, September 30, 2021 and September 30, 2022, respectively) (or, with respect to Mr. Hurlston’s new hire MSU awards, over a one-year, a two-year, a three-year, and a four-year performance period (with such performance periods ending on each of (i) August 18, 2020, August 18, 2021, August 18, 2022 and August 18, 2023; and (ii) September 24, 2020, September 24, 2021, September 24, 2022 and September 24, 2023)).

Performance-Based PSUs

As described more fully above under “Compensation Discussion and Analysis — Fiscal 2020 Named Executive Officer Compensation,” the percentage of the performance-based PSU awards granted to each of the NEOs in fiscal 2020 that become eligible to vest range from 0% to 200% of the PSUs subject to the award depending on the Company’s non-GAAP earnings per share during fiscal 2020. To the extent earned based on performance, PSUs vest in three equal installments on each of the first three anniversaries of the grant date.

 

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OUTSTANDING EQUITY AWARDS AT FISCAL 2020 YEAR END

The following table sets forth summary information regarding the outstanding equity awards held by each of our NEOs as of June 27, 2020, including the vesting dates for the portions of these awards that had not vested as of that date.

 

                          Option Awards               Stock Awards
   

 

 

 

Name (1)   Grant Date    

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 ($) (2)

 

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 ($) (2)

(a)   (b)     (c)   (d)   (e)   (f)   (g)   (h)   (i)   (j)   (k)
Michael Hurlston     08/19/19 (3)    -   -   -   -   -   59,772   $3,362,773   -   -
    08/19/19 (4)    -   -   -   -   -   -   -   154,985   $8,719,456
    09/24/19 (5)    -   -   -   -   -   -   -   30,997   $1,743,891
    09/24/19 (6)    -   -   -   -   -   131,240   $7,383,562   -   -
    10/31/19 (7)    -   -   -   -   -   36,809   $2,070,874   -   -
    10/31/19 (8)    -   -   -   -   -   -   -   36,809   $2,070,874
    10/31/19 (9)    -   -   -   -   -   73,618   $4,141,749   -   -
Dean Butler     10/21/19 (10)    -   -   -   -   -   20,517   $1,154,286   -   -
    10/31/19 (11)    -   -   -   -   -   -   -   20,449   $1,150,461
    10/31/19 (12)    -   -   -   -   -   40,898   $2,300,921   -   -
Saleel Awsare     08/9/2017 (13)    -   -   -   -   -   5,000   $281,300   -   -
    12/13/17 (8)    -   -   -   -   -   -   -   1,792   $100,818
    12/13/17 (14)    -   -   -   -   -   1,814   $102,028   -   -
    04/11/18 (15)    -   -   -   -   -   3,333   $187,515   -   -
    11/14/18 (16)    -   -   -   -   -   4,347   $244,562   -   -
    12/14/18 (16)    -   -   -   -   -   6,666   $375,029   -   -
    12/14/18 (8)    -   -   -   -   -   -   -   3,333   $187,515
    10/31/19 (17)    -   -   -   -   -   12,269   $690254   -   -
    10/31/19 (8)    -   -   -   -   -   -   -   12,269   $690,254
    10/31/19 (18)    -   -   -   -   -   24,538   $1,380,508   -   -
Phillip Kumin     03/20/20 (19)    -   -   -   -   -   12,524   $704,600   -   -
    03/20/20 (8)    -   -   -   -   -   -   -   12,524   $704,600
John McFarland     10/24/14     3,000   -   -   $62.11   10/24/21   -   -   -   -
    01/30/15     3,000   -   -   $76.81   01/30/22   -   -   -   -
    04/24/15     3,000   -   -   $85.69   04/24/22   -   -   -   -
    07/31/15     3,000   -   -   $79.38   07/31/22   -   -   -   -
    10/23/15     2,725   -   -   $89.29   10/23/22   -   -   -   -
    01/29/16     2,725   -   -   $73.31   01/29/23   -   -   -   -
    04/29/16     2,725   -   -   $71.55   04/29/23   -   -   -   -
    07/29/16     2,725   -   -   $51.95   07/29/23   -   -   -   -
    10/28/16     3,575   -   -   $52.57   10/28/23   -   -   -   -
    01/27/17     3,575   -   -   $54.36   01/27/24   -   -   -   -
    04/28/17     3,575   -   -   $54.77   04/28/24   -   -   -   -
    08/04/17     -   298   -   $45.32   08/04/24   -   -   -   -
    10/31/17 (20)    -   -   -   -   -   3,136   $176,431   -   -
    10/31/17 (8)    -   -   -   -   -   -   -   3,137   $176,488
    10/31/17 (21)    -   -   -   -   -   3,175   $178,605   -   -
    11/13/18 (22)    -   -   -   -   -   6,376   $358,714   -   -
    11/13/18 (8)    -   -   -   -   -   -   -   6,377   $358,770
    11/13/18 (23)    -   -   -   -   -   2,870   $161,447   -   -
    10/31/19 (24)    -   -   -   -   -   11,042   $621,223   -   -
    10/31/19 (8)    -   -   -   -   -   -   -   11,042   $621,223
      10/31/19 (25)    -   -   -   -   -   22,084   $1,242,446   -   -

 

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Kermit Nolan

    01/27/14     744   -   -   $60.22   01/27/21   -   -   -   -
    04/28/14     744   -   -   $61.40   04/28/21   -   -   -   -
    08/01/14     745   -   -   $78.11   08/01/21   -   -   -   -
    10/24/14     408   -   -   $62.11   10/24/21   -   -   -   -
    01/30/15     408   -   -   $76.81   01/30/22   -   -   -   -
    04/24/15     408   -   -   $85.69   04/24/22   -   -   -   -
    07/31/15     408   -   -   $79.38   07/31/22   -   -   -   -
    10/23/15     1049   -   -   $89.29   10/23/22   -   -   -   -
    01/29/16     1,050   -   -   $73.31   01/29/23   -   -   -   -
    04/29/16     1,049   -   -   $71.55   04/29/23   -   -   -   -
    07/29/16     1,050   -   -   $51.95   07/29/23   -   -   -   -
    11/22/17 (26)    -   -   -   -   -   1,792   $100,818   -   -
    12/13/17 (8)    -   -   -   -   -   -   -   672   $37,807
    12/13/17 (27)    -   -   -   -   -   680   $38,260   -   -
    11/14/18 (28)    -   -   -   -   -   6,348   $357,138   -   -
    02/07/19 (29)    -   -   -   -   -   8,333   $468,815   -   -
    10/31/19 (30)    -   -   -   -   -   5,725   $322,089   -   -
    10/31/19 (8)    -   -   -   -   -   -   -   5,725   $322,089
    10/31/19 (31)    -   -   -   -   -   11,450   $644,177   -   -

Alex Wong

    01/27/14     5,241   -   -   $60.22   06/29/20   -   -   -   -
    04/28/14     5,240   -   -   $61.40   06/29/20   -   -   -   -
    08/01/14     5,241   -   -   $78.11   06/29/20   -   -   -   -
    10/24/14     3,425   -   -   $62.11   06/29/20   -   -   -   -
    01/30/15     3,425   -   -   $76.81   06/29/20   -   -   -   -
    04/24/15     3,425   -   -   $85.69   06/29/20   -   -   -   -
    07/31/15     3,425   -   -   $79.38   06/29/20   -   -   -   -
    10/23/15     4,100   -   -   $89.29   06/29/20   -   -   -   -
    01/29/16     4,100   -   -   $73.31   06/29/20   -   -   -   -
      04/29/16     4,100   -   -   $71.55   06/29/20   -   -   -   -

 

  (1)

Mr. Lu is not included in this table, as in connection with his departure, his outstanding stock options and RSU awards ceased to vest as of December 31, 2019 and his vested stock options ceased to be exercisable as of March 30, 2020.

  (2)

The dollar amounts shown in columns (i) and (k) are determined by multiplying the number of shares or units reported in columns (h) and (j), respectively, by $56.26 per share (the Company’s closing stock price on the NASDAQ Global Select Market on June 26, 2020, the last trading day of fiscal 2020).

  (3)

The unvested portions of this RSU award were scheduled to vest in four installments on August 19, 2020, August 19, 2021, August 19, 2022 and August 19, 2023.

  (4)

This is the unvested portion of the performance-based MSUs granted to Mr. Hurlston in August 2019, which is scheduled to vest in four installments on August 19, 2020, August 19, 2021, August 19, 2022 and August 19, 2023. The number of performance-based MSUs that may be earned will vary based on over- or under-performance of our TSR compared to that of the SPSISC Index TSR over a one-year, a two-year, a three-year and a four-year performance period (as determined on August 18, 2020, August 18, 2021, August 18, 2022 and August 18, 2023). Payouts are scaled such that below-target performance will result in a reduction in the number of shares of our common stock earned using a two-to-one ratio. Above-target performance will result in a payout of 100% of the target number of shares for the one-year, two-year and three-year performance periods with any additional payout deferred until delivery of shares based on our performance over the four-year performance period, where Mr. Hurlston will receive the number of shares of our common stock earned using a two-to-one ratio for the four-year performance period less any shares that were delivered for the one-year, two-year and three-year performance periods (subject to a cap of 200% of the target number of shares subject to the MSU awards if our TSR is 50 percentage points or more above the SPSISC Index TSR). If the shares determined for the four-year performance period less any shares that were delivered for the one-year, two-year and three-year performance periods is negative, no claw-back applies. The number of shares reported in the table above reflects the target number of shares subject to the award that were allocated to each of the performance periods that were still in progress as of June 27, 2020.

  (5)

This is the unvested portion of the performance-based MSUs granted to Mr. Hurlston in September 2019, which is scheduled to vest in four installments on September 24, 2020, September 24, 2021, September 24, 2022 and September 24, 2023. The number of performance-based MSUs that may be earned will vary based on over- or under-performance of our TSR compared to that of the SPSISC Index TSR over a one-year, a two-year, a three-year and a four-year performance period (as determined on August 18, 2020, August 18, 2021, August 18, 2022 and August 18, 2023). Payouts are scaled such that below-target performance will result in a reduction in the number of shares of our common stock earned using a two-to-one ratio. Above-target performance will result in a payout of 100% of the target number of shares for the one-year, two-year and three-year performance periods with any additional payout deferred until delivery of shares based on our performance over the four-year performance period, where Mr. Hurlston will receive the number of shares of our common stock earned using a two-to-one ratio for the four-year performance period less any shares that were delivered for the one-year, two-year and three-year performance periods (subject to a cap of 200% of the target number of shares subject to the MSU awards if our TSR is 50 percentage points or more above the SPSISC Index TSR). If the shares determined for the four-year performance period less any shares that were delivered for the one-year, two-year and three-year performance periods is negative, no claw-back applies. The number of shares reported in the table above reflects the target number of shares subject to the award that were allocated to each of the performance periods that were still in progress as of June 27, 2020.

  (6)

The unvested portions of this RSU award were scheduled to vest in four installments on September 24, 2020, September 24, 2021, September 24, 2022 and September 24, 2023.

  (7)

The unvested portions of this RSU award are scheduled to vest in three installments on October 31, 2020, October 31, 2021 and October 31, 2022.

  (8)

These are the unvested portions of the performance-based MSUs granted to our NEOs, which are scheduled to vest on September 30, 2020, September 30, 2021 and September 30, 2022, as applicable. The number of performance-based MSUs that may be earned will vary based on over- or under-performance of our TSR compared to that of the SPSISC Index TSR over a one-year, a two-year, and a three-year performance period, with each such period beginning on October 1 of the fiscal year in which the award was granted and ending on September 30 at the end of the applicable period (i.e., on September 30, 2018, September 30, 2019 and September 30, 2020 for grants made in fiscal 2018; on September 30, 2019, September 30, 2020 and September 30, 2021 for grants made in fiscal 2019; and on September 30, 2020, September 30, 2021 and September 30, 2022 for grants made in fiscal 2020). The vesting of any earned MSUs is subject to the NEO’s continued employment through the end of the applicable performance period. Payouts are scaled such that below-target performance will result in a reduction in the number of shares of our common stock earned using a two-to-one ratio. Above-target performance will result in a payout of 100% of the target number of shares for the one-year and two-year performance periods with any additional payout deferred until delivery of shares based on our performance over the three-year performance period, where the NEO will receive the number of shares of our common stock earned using a two-to-one ratio for the three-year performance period less any shares that were delivered for the one-year and two-year performance periods (subject to a cap of 200% of the target number of shares subject to the MSU awards if our TSR is 50 percentage points or more above the SPSISC Index TSR). If the shares determined for the three-year performance period less any shares that were delivered for the one-year and two-year performance periods is negative, no claw-back applies. The number of shares reported in the table above reflects the target number of shares subject to the award that were allocated to each of the performance periods that were still in progress as of June 27, 2020.

 

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Table of Contents
  (9)

This is the unvested portion of the performance-based PSUs granted to Mr. Hurlston in October 2019, which is scheduled to vest in three installments on October 31, 2020, October 31, 2021 and October 31, 2022. The shares of common stock represent a 200% payout of the target quantity based on non-GAAP earnings per share during the one-year performance period ending on June 27, 2020.

  (10)

The unvested portions of these RSU awards were scheduled to vest in four installments on October 21, 2020, October 21, 2021, October 21, 2022 and October 21, 2023.

  (11)

These are the unvested portions of the performance-based MSUs granted to Mr. Butler in October 2019, which are scheduled to vest on September 30, 2020, September 30, 2021 and September 30, 2022. The number of performance-based MSUs that may be earned will vary based on over- or under-performance of our TSR compared to that of the SPSISC Index TSR over a one-year, a two-year, and a three-year performance period (as determined on September 30, 2020, September 30, 2021 and September 30, 2022). Payouts are scaled such that below-target performance will result in a reduction in the number of shares of our common stock earned using a two-to-one ratio. Above-target performance will result in a payout of 100% of the target number of shares for the one-year and two-year performance periods with any additional payout deferred until delivery of shares based on our performance over the three-year performance period, where Mr. Butler will receive the number of shares of our common stock earned using a two-to-one ratio for the three-year performance period less any shares that were delivered for the one-year and two-year performance periods (subject to a cap of 200% of the target number of shares subject to the MSU awards if our TSR is 50 percentage points or more above the SPSISC Index TSR). If the shares determined for the three-year performance period less any shares that were delivered for the one-year and two-year performance periods is negative, no claw-back applies. The number of shares reported in the table above reflects the target number of shares subject to the award that were allocated to each of the performance periods that were still in progress as of June 27, 2020.

  (12)

This is the unvested portion of the performance-based PSUs granted to Mr. Butler in October 2019, which is scheduled to vest in three installments on October 31, 2020, October 31, 2021 and October 31, 2022. The shares of common stock represent a 200% payout of the target quantity based on non-GAAP earnings per share during the one-year performance period ending on June 27, 2020.

  (13)

The unvested portion of this RSU award is scheduled to vest in one installment on July 31, 2021.

  (14)

This is the unvested portion of the performance-based PSUs granted to Mr. Awsare in December 2017, which is scheduled to vest in one installment on December 13, 2020. The shares of common stock represent a 101.2% payout of the target quantity based on non-GAAP earnings per share during the four fiscal quarter period ended December 2018.

  (15)

The unvested portion of this RSU award is scheduled to vest in one installment on April 30, 2021.

  (16)

The unvested portions of this RSU award are scheduled to vest in two installments on October 31, 2020 and October 31, 2021.

  (17)

The unvested portions of this RSU award are scheduled to vest in three installments on October 31, 2020, October 31, 2021 and October 31, 2022.

  (18)

This is the unvested portion of the performance-based PSUs granted to Mr. Awsare in October 2019, which is scheduled to vest in three installments on October 31, 2020, October 31, 2021 and October 31, 2022. The shares of common stock represent a 200% payout of the target quantity based on non-GAAP earnings per share during the one-year performance period ending on June 27, 2020.

  (19)

The unvested portions of this RSU award are scheduled to vest in four installments on March 30, 2021, March 30, 2022, March 30, 2023 and March 30, 2024.

  (20)

The unvested portion of this RSU award is scheduled to vest in one installment on October 31, 2020.

  (21)

This is the unvested portion of the performance-based PSUs granted to Mr. McFarland in October 2017, which is scheduled to vest in one installment on October 31, 2020. The shares of common stock represent a 101.2% payout of the target quantity based on non-GAAP earnings per share during the four fiscal quarter period ended December 2018.

  (22)

The unvested portions of these RSU awards are scheduled to vest in two installments on October 31, 2020 and October 31, 2021.

  (23)

This is the unvested portion of the performance-based PSUs granted to Mr. McFarland in November 2018, which is scheduled to vest in two installments on November 13, 2020 and November 13, 2021. The shares of common stock represent a 45% payout of the target quantity based on non-GAAP earnings per share during the one-year performance period ending on June 29, 2019.

  (24)

The unvested portions of this RSU award are scheduled to vest in three installments on October 31, 2020, October 31, 2021 and October 31, 2022.

  (25)

This is the unvested portion of the performance-based PSUs granted to Mr. McFarland in October 2019, which is scheduled to vest in three installments on October 31, 2020, October 31, 2021 and October 31, 2022. The shares of common stock represent a 200% payout of the target quantity based on non-GAAP earnings per share during the one-year performance period ending on June 27, 2020.

  (26)

The unvested portion of this RSU award is scheduled to vest in one installment on October 31, 2020.

  (27)

This is the unvested portion of the performance-based PSUs granted to Mr. Nolan in December 2017, which is scheduled to vest in one installment on December 13, 2020. The shares of common stock represent a 101.2% payout of the target quantity based on non-GAAP earnings per share during the four fiscal quarter period ended December 2018.

  (28)

The unvested portions of these RSU awards are scheduled to vest in two installments on October 31, 2020 and October 31, 2021.

  (29)

The unvested portions of these RSU awards are scheduled to vest in two installments on January 31, 2021 and January 31, 2022.

  (30)

The unvested portions of these RSU awards are scheduled to vest in three installments on October 31, 2020, October 31, 2021 and October 31, 2022.

  (31)

This is the unvested portion of the performance-based PSUs granted to Mr. Nolan in October 2019, which is scheduled to vest in three installments on October 31, 2020, October 31, 2021 and October 31, 2022. The shares of common stock represent a 200% payout of the target quantity based on non-GAAP earnings per share during the one-year performance period ending on June 27, 2020.

 

SYNAPTICS INCORPORATED   PROXY STATEMENT   71


Table of Contents

OPTION EXERCISES AND STOCK VESTED — FISCAL 2020

The following table summarizes the exercise of stock options and vesting of stock awards during fiscal 2020 that were previously granted to our NEOs.

 

        Option Awards      Stock Awards
 Name       

Number of
Shares Acquired
on Exercise

(#)

  

Value Realized

on Exercise

($)(1)

    

Number of

Shares Acquired
on Vesting

(#)

  

Value Realized

on Vesting

($)(2)

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

 Michael Hurlston

      -    -      -    -

 Dean Butler

      -    -      -    -

 Saleel Awsare

      -    -      16,747    $733,158

 Phillip Kumin

      -    -      -    -

 Richard Lu

      -    -      8,529    $359,156

 John McFarland

      8,556    $123,950      14,830    $624,491

 Kermit Nolan

      13,536    $609,127      13,450    $692,061

 Alex Wong

      41,651    $744,677      17,403    $732,840

 

  (1)

The dollar amounts shown in column (c) above are determined by multiplying the number of shares subject to the exercise by the difference between the Company’s closing stock price per share on the date of exercise and the exercise price.

  (2)

The dollar amounts shown in column (e) above are determined by multiplying the number of shares or units, as applicable, that vested by the Company’s closing stock price per share on the vesting date.

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL

The following section describes the payments and benefits that would be provided to certain NEOs (other than Messrs. Wong and Lu) in connection with a termination of their employment with the Company and/or a change of control of the Company as of June 27, 2020. For Messrs. Wong and Lu, we have described the actual benefits they received in connection with their separation from employment below.

Severance Policies

Under the Severance Policy, if a NEO’s employment is terminated prior to a “change of control” of the Company either by the Company without “good cause” or by the NEO for “good reason” (as such terms are defined in the policy), contingent on the NEO providing a general release of claims, the NEO is entitled to receive the following payments and benefits: (i) 50% of the executive’s base salary and a pro rata portion of the executive’s target bonus (or, in the case of the CFO only, the greater of 50% of the CFO’s target bonus or a pro rata portion of the CFO’s target bonus) paid in installments over six months, except that, in the case of the Chief Executive Officer, the severance amount is 100% of the Chief Executive Officer’s base salary and 100% of the Chief Executive Officer’s target bonus and is paid in installments over twelve months; and (ii) payment of the premiums charged for the NEO, the NEO’s spouse and the NEO’s eligible dependents to continue health coverage under COBRA for six months after the date of termination (in the case of the Chief Executive Officer, twelve months).

Under the Change of Control Severance Policy, if a NEO’s employment is terminated either by the Company without “good cause” or by the NEO for “good reason” within three months prior to, or eighteen months following, a “change of control” (as such terms are defined in the policy), contingent on the NEO providing a general release of claims, the NEO is entitled to receive the following payments and benefits: (i) 150% of the executive’s base salary and 150% of the executive’s target bonus (or, in the case of the Chief Executive Officer, 200% of base salary and 200% of target bonus) paid in installments over eighteen months; (ii) payment of the premiums charged for the NEO, the NEO’s spouse and the NEO’s eligible dependents to continue health coverage under COBRA for eighteen months after the date of termination; (iii) continuation of life insurance coverage comparable to that provided to the NEO immediately prior to termination of employment for eighteen months; and (iv) accelerated vesting of all of the NEO’s outstanding and unvested equity awards granted by the Company (excluding MSU awards). Further, under the Change of Control Severance Policy, in the event any payment to a NEO would be subject to the excise tax imposed by Section 4999 of the Code (as a result of the payment being classified as a “parachute payment” under Section 280G of the Code), the NEO will receive such payment as would entitle such NEO to receive the greatest after-tax benefit, even if it means that we pay such NEO a lower aggregate payment so as to minimize or eliminate the potential excise tax that would be imposed by Section 4999. We do not provide for tax gross-up payments for any elements of compensation, including for excise taxes imposed pursuant to Sections 280G and 4999 of the Internal Revenue Code.

 

72   PROXY STATEMENT   SYNAPTICS INCORPORATED


Table of Contents

Equity Awards