PROPOSAL 4
ADVISORY VOTE ON FREQUENCY OF AN ADVISORY VOTE ON THE COMPENSATION OF
THE NAMED EXECUTIVE OFFICERS
Under the Dodd-Frank Act and Section 14A of the Exchange Act, our stockholders are also enabled to indicate their preference regarding how frequently NeoPhotonics should solicit a non-binding advisory vote on the compensation of our named executive officers as disclosed in the compensation discussion and analysis, the compensation tables and the related narrative disclosure in our proxy statements. Accordingly, we are asking our stockholders to cast an advisory vote on how frequently we should seek an advisory vote on the compensation of our named executive officers, commonly referred to as a “say on pay” vote, as provided in Proposal 3. This advisory vote is referred to herein as the “frequency of say on pay” vote. Under this Proposal, you may vote on whether you would prefer to have a “Say-on-Pay” vote once every year, once every two years or once every three years. Alternatively, you may abstain from casting a vote.
After considering the benefits and consequences of each option for the frequency of say on pay vote, our board of directors recommends submitting the advisory vote on the compensation of our named executive officers to our stockholders every three years. Our executive compensation program is designed in large part to create long-term stockholder value. Therefore, our board of directors believes that holding a frequency of say on pay vote every three years is sufficient and appropriate to assess whether these programs are appropriately motivating employees and driving stockholder value. If we were to hold such votes more frequently, we believe the potential for substantial changes in compensation programs as a result of those votes could interfere with the incentives being provided to executive officers to maximize long-term stockholder value. Corporate results could also be impacted because the potential for more frequent changes in approach may result in a lack of focus on aligning compensation with longer-term company strategies.
You may cast your vote on your preferred voting frequency by choosing the option of every “1 YEAR”, “2 YEARS” or “3 YEARS,” or abstain from voting when you vote in response to the resolution set forth below. To be determined as the frequency with which NeoPhotonics shall conduct an advisory vote on the compensation of our named executive officers, the selection receiving a majority of the votes present and entitled to vote will be considered the frequency preferred by our stockholders. Votes to “ABSTAIN” will have the same effect as “AGAINST” votes for all three alternatives. Broker non-votes will have no effect. Accordingly, the board of directors is asking stockholders to indicate their preferred voting frequency by voting for once every year, once every two years or once every three years or abstaining from voting on the following resolution:
“RESOLVED, that the option of one year, two years, or three years that receives a majority of votes cast for this resolution will be determined to be the preferred frequency with which NeoPhotonics Corporation is to hold an advisory stockholder vote to approve the compensation of the named executive officers, as disclosed pursuant to the Securities and Exchange Commission’s compensation disclosure rules (including the compensation discussion and analysis, compensation tables and narrative discussion).”
Our board of directors and our Compensation Committee value the opinions of our stockholders in this matter, and our board of directors will give careful consideration to the majority vote of our stockholders and will evaluate any appropriate next steps. However, because this vote is advisory and therefore not binding on the board of directors or NeoPhotonics, our board of directors may decide that it is in the best interests of our stockholders that we hold an advisory vote on executive compensation more or less frequently than the option preferred by a majority of our stockholders. The advisory vote of our stockholders will not be construed to create or imply any change or addition to the fiduciary duties of the board of directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” A “3 YEARS” FREQUENCY FOR FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION.
Executive Officers
The following table sets forth the names, ages and positions of our executive officers as of April 5, 2017, the record date:
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Name
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Age
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Position
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Timothy S. Jenks
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61
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President, Chief Executive Officer, Director and Chairman of the Board of Directors
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Clyde Raymond Wallin
(1)
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63
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Senior Vice President and Chief Financial Officer
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Benjamin L. Sitler
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61
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Senior Vice President of Global Sales
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Dr. Chi Yue (“Raymond”) Cheung
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49
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Senior Vice President and Chief Operating Officer
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Dr. Wupen Yuen
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47
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Senior Vice President and General Manager
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__________________
(1) On March 31, 2017, Mr. Wallin notified us of his intention to resign his position with the Company, effective on May 15, 2017. Mr. Wallin has agreed to continue to serve as Senior Vice President and Chief Financial Officer through May 15, 2015, after which time he has agreed to provide certain transition and consulting services to ensure the transition of his duties and responsibilities. We have begun a search process for a successor Chief Financial Officer.
Our executive officers are appointed by, and serve at the discretion of, our board of directors. There are no familial relationships among our directors and executive officers. The biographical information of Timothy S. Jenks, our President and Chief Executive Officer, can be found in Proposal 1 in this proxy statement under the section entitled “Class I directors continuing in office until the 2020 Annual Meeting.” Set forth below is biographical information, including the experiences, qualifications, attributes and skills of our other executive officers.
Executive Officers
Clyde Raymond Wallin
has served as our Senior Vice President and Chief Financial Officer since December 2013. Mr. Wallin served as Vice President Finance and Chief Financial Officer at Micrel, Inc. from January 2009 until October 2013, during which time he was responsible for both accounting and finance matters, and was additionally Vice President of Human Resources at Micrel from January 2010 until October 2013, during which time he was responsible for all human resource related matters. Mr. Wallin has more than 30 years of experience in the high technology industry. From 2000 to 2009 he served in several Chief Financial Officer roles including iWatt, Kendin Communications, and at Sipex Corporation where he also served as its Treasurer, Secretary and Principal Accounting Officer. Mr. Wallin previously held senior financial management positions with Cirrus Logic. He holds an M.B.A. in Finance from the University of Chicago and a Bachelors of Science in Economics with Honors from the University of Oregon.
Benjamin L. Sitler
has served as our Senior Vice President of Global Sales since August 2014. Mr. Sitler previously served as our Senior Vice President of Sales and Product Management from February 2013 to August 2014, as our Vice President of Global Sales from July 2007 to February 2013 and as our Vice President of Tunable Products from November 2006 to July 2007. From June 2003 until November 2006, Mr. Sitler served as President and Chief Executive Officer of Paxera Corporation, a provider of tunable lasers, which was acquired by us in November 2006. From December 2002 until May 2003, Mr. Sitler served as Vice President of Business Development of JCP Photonics, Inc., a tunable fiber laser company. From November 1999 until September 2002, Mr. Sitler served as Vice President of Worldwide Sales of Lightwave Microsystems Corporation, a communications equipment company that was acquired by us in 2003. From 1984 until 1999, Mr. Sitler served in a variety of positions for Raychem Corporation. Mr. Sitler is a former naval officer, and holds a master of business administration degree from the Anderson School of Business at the University of California, Los Angeles and a Bachelor of Science degree in mechanical engineering from the U.S. Naval Academy.
Raymond Cheung, Ph.D.
has served as our Senior Vice President and Chief Operating Officer since October 2012 and is an employee of NeoPhotonics (China) Co., Ltd. Previously, he served as our Vice President and Chief Operating Officer from November 2008 to October 2012 and prior to that as our Vice President of Product Engineering from June 2007 to August 2007. From April 2004 until May 2007, Dr. Cheung served as Director of SAE Magnetics (HK) Ltd., a
hard disc drive design and manufacturing company, and was responsible for manufacturing operations in Dongguan, China. Dr. Cheung has also held various senior technical, operations and management positions with Hong Kong Applied Science & Technology Research Institute and Philips Semiconductor. Dr. Cheung holds a doctorate degree in materials and mechanics from Cambridge University (UK) and a bachelor of engineering degree in mechanical engineering from King’s College London (UK).
Wupen Yuen, Ph.D.
has served as our Senior Vice President and General Manager since August 2014. Mr. Yuen previously served as our Senior Vice President of Product and Technology Development from October 2012 to August 2014, as our Vice President of Product Development and Engineering from September 2006 to October 2012 and prior to that as our Director of Business Development since joining us in January 2005. From August 2002 until December 2004, Dr. Yuen served as Chief Technology Officer of Bandwidth9, Inc., a telecommunications tunable laser company. Dr. Yuen holds a doctorate degree in electrical engineering and a master of science in electrical engineering from Stanford University and a bachelor of science in electrical engineering from National Taiwan University.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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The following table sets forth information regarding beneficial ownership of our common stock as of February 28, 2017, by:
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·
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each person or group of affiliated persons known by us to be the beneficial owner of more than 5% of our common stock;
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·
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each of our named executive officers as set forth in the Summary Compensation Table in this proxy statement;
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·
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each of our directors; and
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·
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all executive officers and directors as a group.
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The percentage ownership information shown in the table below is based upon 42,641,534 shares of common stock outstanding as of February 28, 2017.
Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our common stock. We have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission. These rules generally attribute beneficial ownership of shares to persons who possess sole or shared voting or investment power with respect to such shares. The information does not necessarily indicate beneficial ownership for any other purpose. Under these rules, the number of shares of common stock deemed outstanding includes shares issuable upon exercise of options and warrants held by the respective person or group which may be exercised or converted within 60 days after February 28, 2017. These shares are deemed to be outstanding and beneficially owned by the person holding those options for the purpose of computing the percentage ownership of that person or entity, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person or entity.
Unless otherwise indicated and subject to applicable community property laws, to our knowledge, each stockholder named in the following table possesses sole voting and investment power over the shares listed, except for those jointly owned with that person’s spouse. Unless otherwise indicated below, the address of each person listed on the table is c/o NeoPhotonics Corporation, 2911 Zanker Road, San Jose, California 95134 USA.
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Beneficial ownership
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Name and Address of Beneficial Owner
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Total Shares of Common Stock
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Percent
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5% Stockholders:
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Funds affiliated with Oak Investment Partners
(1)
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5,571,335
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13.1
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%
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525 University Avenue, Suite 1300, Palo Alto, CA 94301
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Joint Stock Company “RUSNANO”
(2)
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4,972,905
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11.7
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%
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Prospect 60-letiya Oktyabrya 10a, 117036, Moscow, Russian Federation
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Wellington Management Co. LLP
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2,815,000
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6.6
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%
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280 Congress Street, Boston, MA 02210-1024
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Dimensional Fund Advisors LP
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2,603,500
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6.1
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%
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6300 Bee Cave Road, Building One, Austin, TX 78746
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Named executive officers and directors:
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Timothy S. Jenks
(3)
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796,169
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1.8
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%
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Clyde R. Wallin
(4)
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204,183
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*
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Benjamin L. Sitler
(5)
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344,651
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*
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Dr. Raymond Cheung
(6)
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198,000
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*
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Dr. Wupen Yuen
(7)
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312,382
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*
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Charles J. Abbe
(8)
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86,958
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*
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Dmitry Akhanov
(9)
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23,357
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*
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Bandel L. Carano
(10)
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5,611,326
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13.2
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%
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Rajiv Ramaswami
(11)
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28,117
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*
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Michael J. Sophie
(12)
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46,961
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*
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Ihab Tarazi
(13)
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2,213
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*
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All executive officers and directors as a group (11 people)(14)
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7,654,317
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17.3
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%
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*
Represents less than 1%.
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(1)
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Includes 1,622,872 shares beneficially owned by Oak Investment Partners IX, Limited Partnership (“Oak IX”); 17,291 shares beneficially owned by Oak IX Affiliates Fund, Limited Partnership (“Oak IX Affiliates”); 38,947 shares beneficially owned by Oak IX Affiliates Fund—A, Limited Partnership (“Oak IX Affiliates-A”); 3,731,759 shares beneficially owned by Oak Investment Partners X, Limited Partnership (“Oak X”); 59,911 shares beneficially owned by Oak X Affiliates Fund, Limited Partnership (“Oak X Affiliates”); and 100,555 shares beneficially owned by Oak Investment Partners XI, Limited Partnership (“Oak XI”). Each of these entities has sole voting and investment power with respect to the shares they beneficially own. Oak Associates IX, LLC is the general partner of Oak IX, Oak IX Affiliates, LLC is the general partner of each of Oak IX Affiliates and Oak IX Affiliates-A, Oak Associates X, LLC is the general partner of Oak X, Oak X Affiliates, LLC is the general partner of Oak X Affiliates, and Oak Associates XI, LLC is the general partner of Oak XI. As the general partner, these entities have shared voting and investment power over the shares held by the entity for which they are the general partner. Each of Bandel L. Carano (one of our directors), Edward F. Glassmeyer, Fredric W. Harman and Ann H. Lamont are managing members of each of the general partners described above, and are each deemed to have shared voting and investment power over the shares held by the various funds, and therefore the entire 5,571,335 shares.
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(2)
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Rusnano is a joint stock company organized under the laws of the Russian Federation. The supervisory board of Rusnano has sole voting and investment power with respect to the shares beneficially owned by Rusnano. The Russian Federation owns 100% of Rusnano. Dmitry Akhanov, a member of our board of directors, is the President and Chief Executive Officer of Rusnano USA, Inc., a U.S. subsidiary of Rusnano, but he disclaims beneficial ownership of these shares.
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(3)
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Includes 573,025 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2017 and 200,263 shares of common stock. In addition 22,881 shares of common stock were held in trusts that belong to his family members.
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(4)
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Includes 175,801 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2017 and 28,382 shares of common stock.
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(5)
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Includes 267,788 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2017 and 76,863 shares of common stock.
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(6)
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Consists solely of shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2017.
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(7)
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Includes 289,505 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2017 and 22,877 shares of common stock.
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(8)
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Includes 27,527 shares of common stock issuable upon the
exercise
of options exercisable within 60 days of February 28, 2017 and 59,431 shares of common stock.
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(9)
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Includes 12,785 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2017 and 10,572 shares of common stock. Although Mr. Akhanov is the President and Chief Executive Officer of Rusnano USA, Inc., a U.S. subsidiary of Rusnano, he has no voting or dispositive power over any shares held by Rusnano.
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(10)
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Includes the shares of common stock detailed in Note (1) above held by the fund entities affiliated with Oak Investment Partners. Also includes 39,991 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2017.
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(11)
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Includes 17,545 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2017 and 10,572 shares of common stock.
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(12)
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Includes 35,299 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2017 and 11,662 shares of common stock.
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(13)
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Consists solely of shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2017.
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(14)
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Includes 1,639,479 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2017.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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Section 16(a) of the Exchange Act requires our directors, executive officers and greater than ten percent beneficial owners of our common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Directors, executive officers and greater than ten percent stockholders are required by the rules and regulations of the Securities and Exchange Commission to furnish us with copies of all Section 16(a) reports they file. Based solely on a review of the copies of these reports furnished to us, we are not aware of any required Section 16(a) reports that were not filed on a timely basis.
Copies of the insider trading reports as filed with the Securities and Exchange Commission are available at
http://IR.neophotonics.com
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EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain information with respect to our equity compensation plans in effect as of December 31, 2016.
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Plan Category
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Number of securities to be issued upon exercise of outstanding options and rights
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Weighted-average exercise price of outstanding options
(1)
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Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
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(a)
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(b)
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(c)
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Equity compensation plans approved by security holders
(2)
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6,121,422
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$
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5.30
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1,003,188
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(3)
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Equity compensation plans not approved by security holders
(4)
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269,391
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$
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3.47
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392,706
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(5)
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(1)
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Consists solely of outstanding options as there is no exercise price for outstanding restricted stock units. Our common stock was not publicly traded prior to our initial public offering in February 2011, and the exercise price of the options granted prior to our initial public offering was determined by our board of directors on the grant date based on its determination of the fair market value of our common stock on such grant date.
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(2)
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Consists of our 2004 Stock Option Plan, our 2010 Equity Incentive Plan (the “2010 Plan”) and our 2010 Employee Stock Purchase Plan.
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(3)
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The number of shares of our common stock reserved for issuance under the 2010 Plan will automatically increase on January 1st each year, starting on January 1, 2012 and continuing through January 1, 2020, by 3.5% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, or such lesser number of shares of common stock as determined by our board of directors. Pursuant to the evergreen provision contained therein, in January 2016, an additional
1,434,499
shares of our common stock were added to the 2010 Plan. Our 2010 Employee Stock Purchase Plan became effective upon the consummation of our initial public offering in February 2011 and the number of shares of our common stock reserved for issuance under the 2010 Employee Stock Purchase Plan will automatically increase on January 1st each year, starting on January 1, 2012 and continuing through January 1, 2020, in an amount equal to the lesser of (a) 3.5% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, (b) 600,000 shares of our common stock or (c) such lesser number of shares of common stock as determined by our board of directors. Pursuant to the evergreen provision contained therein, in January 2016 an additional
600,000
shares of our common stock were added to the 2010 Employee Stock Purchase Plan.
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(4)
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Consists solely of our 2011 Inducement Award Plan.
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(5)
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In January 2016, an additional 100,000 shares of our common stock were added to the 2011 Inducement Award Plan.
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Compensation Discussion and Analysis
This Compensation Discussion and Analysis discusses the principles underlying our executive compensation program and the policies and practices that contributed to our executive compensation actions and decisions for 2016, and the most important factors relevant to an analysis of these policies and practices. It also provides qualitative information regarding the manner and context in which compensation was paid and awarded to and earned by our executive officers and places in perspective the data presented in the compensation tables and accompanying narrative below.
This Compensation Discussion and Analysis provides information about the material components of our executive compensation program for the following executive officers, to whom we refer collectively in this discussion as the “named executive officers”:
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·
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Timothy S. Jenks, our President and Chief Executive Officer (our “CEO”);
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·
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Clyde R. Wallin, our Senior Vice President and Chief Financial Officer;
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·
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Benjamin L. Sitler, our Senior Vice President of Global Sales;
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·
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Dr. Raymond Cheung, our Senior Vice President and Chief Operating Officer; and
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·
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Dr. Wupen Yuen, our Senior Vice President and General Manager.
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2017 Management Changes
On March 31, 2017, Mr. Wallin notified us of his intention to resign his position with the Company, effective on May 15, 2017. Mr. Wallin has agreed to continue to serve as Chief Financial Officer through May 15, 2017, and after such date has agreed to provide certain transition and consulting services to ensure the transition of his duties and responsibilities. We have begun a search process for a successor Chief Financial Officer.
Executive Summary
2016 Business Highlights
We are a leading designer and manufacturer of hybrid photonic integrated optoelectronic modules and subsystems for bandwidth-intensive, high-speed communications networks.
In 2016, we achieved the following financial and operational results:
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·
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Achieved 42% growth for our High Speed Products in 2016;
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·
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Achieved record annual revenues of $411.4 million, compared to $339.4 million in 2015, which represented year-over-year growth of 21%;
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·
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Achieved non-GAAP and adjusted EBITDA profitability in each of the quarters in 2016;
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·
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Continued to introduce new product solutions for the highest speed communications networks in telecom and datacenter applications. At the Optical Fiber Communications (OFC) Conference and exhibition we conducted live operating demonstrations for customers and industry analysts of our new 64/64 CFP2-ACO pluggable module which utilizes our highest speed coherent components and is capable of 600 Gbps (Billion-bits-per-second) single wavelength transmission for datacenter applications, as well as our 64 Gbaud Micro-Modulator with integrated drivers, our CFP-DCO pluggable coherent module, our new 8x16 Multi-Cast switch for contentionless ROADMS and our 400G CFP8 pluggable module for client side applications. We announced our partnership with Ciena Corporation to manufacture and market a 400 Gbps single wavelength coherent transponder based on the Ciena Wavelogic Ai digital signal processor. We also announced a new 28Gbaud EML with integrated drivers and a non-hermetic laser array to provide the light for silicon-photonics based short reach 100G and above transceivers for use inside datacenters;
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·
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Took actions to sell or discontinue certain products that were not meeting corporate profitability targets while continuing to ramp new and 100G products that were delivering revenue growth and margin expansion; and
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·
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Signed a definitive agreement for the sale of our access and low speed transceiver product lines.
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2016 Executive Compensation Highlights
Consistent with our business results and our competitive marketplace for executive talent, our Compensation Committee took the following actions with respect to the 2016 compensation of the named executive officers, with details discussed further below:
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·
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Adjusted base salaries mid-year consistent with our compensation philosophy;
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·
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Awarded annual bonuses under our 2016 Variable Pay Plan, based on our actual performance as evaluated against several corporate financial and operational performance measures, in amounts determined in the sole discretion of our Compensation Committee;
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·
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Granted equity awards in the form of stock options that link their interests with those of our stockholders.
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Executive Compensation Policies and Practices
We endeavor to maintain sound governance standards consistent with our executive compensation policies and practices. Our Compensation Committee evaluates our executive compensation program on an ongoing basis to ensure that it is consistent with our short-term and long-term goals given the dynamic nature of our business and the market in which we compete for executive talent. The following policies and practices were in effect during 2016:
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·
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Independent Compensation Committee
. Our Compensation Committee comprises solely of independent directors.
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·
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Compensation Committee Advisor
. Our Compensation Committee has periodically engaged its own independent compensation consultant to assist with its executive compensation review. This consultant was engaged by the Compensation Committee to provide these services in 2016.
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·
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Executive Compensation Review
. Our Compensation Committee conducts a periodic review and approval of our compensation strategy, including a review of our compensation peer group used for comparative purposes and a review of our compensation-related risk profile to ensure that our compensation-related risks are not reasonably likely to have a material adverse effect on the Company.
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·
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Executive Compensation Policies and Practices
. Our compensation philosophy and related corporate governance policies and practices are complemented by several specific compensation practices that are designed to align our executive compensation with long-term stockholder interests, including the following:
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·
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Compensation At-Risk
. Our executive compensation program is designed so that a significant portion of compensation is “at risk” based on corporate performance, as well as equity-based to align the interests of our executive officers and stockholders;
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·
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Limited Perquisites
. We provide only limited perquisites or other personal benefits to our executive officers;
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·
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No Tax Reimbursements
. We do not provide any tax reimbursement payments (including “gross-ups”) on any perquisites or other personal benefits;
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·
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No Special Health or Welfare Benefits
. Our U.S. executive officers participate in broad-based company-sponsored health and welfare benefits programs on the same basis as our other full-time, U.S. salaried employees;
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·
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No Post-Employment Tax Reimbursements
. We do not provide any tax reimbursement payments (including “gross-ups”) on any post-employment payments or benefits;
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·
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“Double-Trigger” Change-in-Control Arrangements
. All change-in-control payments and benefits are based on a “double-trigger” arrangement (that is, they require both a change-in-control of the Company plus a qualifying termination of employment before payments and benefits are paid);
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·
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Multi-Year Vesting Requirements
. Other than RSUs granted as part of year-end bonuses in lieu of cash, the equity awards granted to our executive officers vest or are earned over multi-year periods, consistent with current market practice and our retention objectives;
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·
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Stock Ownership Guidelines
. We require our CEO to maintain a minimum level of ownership in our common stock; and
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·
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Hedging Prohibited
. We prohibit our executive officers and other employees from hedging or engaging in other inherently speculative transactions with respect to their holdings of Company securities.
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Recent Stockholder Advisory Vote on Executive Compensation
We conducted our most recent stockholder advisory vote on the compensation of the named executive officers (commonly known as a “Say-on-Pay” vote) at our 2014 Annual Meeting of Stockholders. Our stockholders approved the compensation of the named executive officers with approximately 98.6% of the votes cast in favor of the proposal. Previously, at our 2011 Annual Meeting of Stockholders, approximately 95.3% of stockholder votes were cast in favor of our 2011 Say-On-Pay proposal.
We believe that the outcome of the 2011 and 2014 Say-on-Pay votes reflects our stockholders’ support of our compensation approach, specifically our efforts to attract, retain and motivate the named executive officers. Accordingly, we have made no significant design changes to our executive compensation program as a result of the 2011 or 2014 Say-on-Pay votes.
Based on the results of a separate stockholder advisory vote on the frequency of future stockholder advisory votes regarding the compensation of the named executive officers (commonly known as a “Say-When-on-Pay” vote) conducted at our 2011 Annual Meeting of Stockholders, our board of directors determined that we will hold our Say-on-Pay votes on a triennial basis.
We value the opinions of our stockholders and will continue to consider the outcome of future Say-on-Pay and Say-When-on-Pay votes, including at the 2017 Annual Meeting, as well as feedback received throughout the year, when making compensation decisions for our executive officers, including the named executive officers. Further, to the extent there is any significant vote in favor of one frequency over the other options, even if less than a majority, our board of directors will consider our stockholders’ concerns and evaluate any appropriate next steps. Subject to the Board’s evaluation, we expect that after the 2017 Annual Meeting, the next Say-on-Pay votes will take place at the 2020 Annual Meeting and the 2023 Annual Meeting.
Compensation Philosophy and Objectives
Our executive compensation program consists of four primary components—base salary, an annual cash bonus opportunity, long-term incentive compensation in the form of equity awards, and post-employment compensation arrangements. We also provide our U.S.-based executive officers with the same health and welfare benefits that are available to all U.S. salaried employees. In China, Dr. Cheung (our Senior Vice President and Chief Operating Officer) is provided the same health and welfare benefits that are provided to the top tier of salaried employees in southern China, and additionally is provided access to Hong Kong health services.
Our executive compensation program is designed to achieve the following objectives:
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provide total compensation packages that attract, motivate, reward, and retain exceptional executive-level talent;
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·
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establish a direct and meaningful link between corporate, individual, and team performance and the compensation payable in respect of such performance;
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·
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provide strong incentives for our executive officers create stockholder value; and
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·
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align the financial interests of our executive officers with those of our stockholders.
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While our Compensation Committee (or our board of directors, as applicable) reviews the total compensation package for each of our executive officers, including each of the named executive officers, in connection with the decisions it makes each year regarding each individual compensation component, generally the amount of any one compensation component is determined independent of the amount of any other component. Our Compensation Committee performs at least an annual review of our executive officers’ target total direct compensation opportunities to determine whether they meet our compensation objectives.
Compensation-Setting Process
Role of our Compensation Committee
Our Compensation Committee oversees our executive compensation program in relation to our competitive marketplace for talent (including our executive compensation policies and practices), approves the compensation of our executive officers, and administers our various employee stock plans. Specifically, our Compensation Committee is responsible for:
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reviewing and approving the compensation and other terms of employment of our executive officers, including the named executive officers, and other senior members of management, and reviewing and approving corporate performance goals and objectives relevant to such compensation; and
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·
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administering our stock option plans, stock purchase plans, compensation plans, and similar programs, including the adoption, amendment and termination of such plans.
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Our Compensation Committee approved target annual cash bonus opportunities for 2016 performance in March 2016 (which were adjusted in July 2016) and determined bonus payments based on 2016 performance for our executive officers in March 2017.
Our Compensation Committee may, at its discretion and in accordance with the philosophy of making all information available to our board of directors, present executive compensation matters to the entire board of directors for their review and approval.
In the course of its deliberations, in any given year, our Compensation Committee may review and consider materials such as our financial reports and projections, operational data, tax and accounting information regarding potential compensation, executive stock ownership information, analyses of historical executive compensation levels, and current company-wide compensation levels, competitive market data and the recommendations of our CEO.
Role of our Management
For our executive officers other than our CEO, our Compensation Committee solicits and considers the performance evaluations and compensation recommendations submitted by our CEO. In the case of our CEO, the non-employee members of our board of directors evaluate his performance and our compensation committee determines whether to make any adjustments to his compensation.
Our human resources and finance departments work with our CEO to propose for the consideration and approval of our Compensation Committee the design of our executive compensation program, to recommend changes to existing compensation components, to recommend financial and other performance measures and related target levels to be achieved under our incentive compensation plans, to prepare analyses of financial data and other briefing materials and, ultimately, to implement the decisions of our Compensation Committee or our board of directors, as applicable.
No executive officer, including no named executive officer, was present or participated directly in the final determinations or deliberations of our Compensation Committee or our board of directors, as applicable regarding the amount or component of his or her own 2016 compensation package.
Role of our Compensation Consultant
For 2016, our Compensation Committee engaged Compensia, a national compensation consulting firm, to assist it in its deliberations on the compensation payable to our executive officers, including the named executive officers. Our Compensation Committee may also consider input from Compensia on the compensation payable to non-employee members of our board of directors.
The nature and scope of services of Compensia’s services in 2016 included the following:
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providing advice regarding best practices and market trends in executive compensation;
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assisting with the design of our equity compensation program, and other executive compensation arrangements, as needed;
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preparing for and attending meetings of our Compensation Committee, as requested by the committee Chair; and
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working with our management and human resource personnel to obtain any information needed about us to provide its services.
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revising and updating the peer group of companies against which compensation matters are reviewed, and
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producing a report on executive compensation regarding the relative market positions of each component of compensation for each of the named executive officers.
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The Company pays the cost for Compensia’s services. In April 2016, our Compensation Committee reviewed the independence of Compensia pursuant to the criteria set forth in Exchange Act Rule 10C-1 and the applicable listing standards of The New York Stock Exchange. Our Compensation Committee determined that the work of Compensia did not give rise to any conflict of interest.
Competitive Positioning
Our Compensation Committee’s objective of maintaining an executive compensation program that is competitive includes a balance between motivating and retaining our executive officers and maintaining a reasonable and responsible cost structure. Our Compensation Committee does not establish a specific target percentile for the target total direct compensation opportunities of our executive officers, including the named executive officers (that is, we do not engage in “benchmarking” as that term is commonly used). When setting the amount of each compensation component for our executive officers, our Compensation Committee (or the independent members of our board of directors, as applicable) considers a number of factors, the importance of any one of which may vary in any given year, including:
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corporate and/or individual performance, as we believe this encourages our executive officers to focus on achieving our business objectives;
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the need to motivate our executive officers to address particular business challenges that are unique within any given year;
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the experiences and individual knowledge of the members of our Compensation Committee (or the independent members of our board of directors, as applicable) regarding compensation of similarly-situated executives at other companies (with reference to third party surveys), as we believe this approach helps us to compete in hiring and retaining the best possible talent while at the same time maintaining a reasonable and responsible cost structure;
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internal pay parity of the compensation paid to one executive officer as compared to another, as we believe this contributes to retention and a spirit of teamwork among our executive officers;
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the performance of each individual executive officer, based on a subjective assessment of his or her contributions to our overall performance, ability to lead his or her business unit or function, work as part of a team and reflect our core values;
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the potential dilutive effect on our stockholders generally from equity awards granted to our executive officers;
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common pay practices and local economic conditions in foreign countries where an executive officer may work;
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broader economic conditions, to ensure that our pay strategies are effective yet responsible, particularly in the face of any unanticipated consequences of the broader economy on our business;
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individual negotiations with our executive officers, particularly in connection with their initial compensation package, as these individuals may be leaving meaningful compensation opportunities at their prior employer to work for us, as well as negotiations upon their departure, as we recognize the benefit to our stockholders of smooth transitions; and
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recommendations provided by our CEO for his direct reports.
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These factors provide the framework for compensation decision-making and final decisions regarding the compensation opportunity for our executive officers, including the named executive officers.
For purposes of evaluating our executive compensation against the competitive market, our Compensation Committee uses a compensation peer group of 18 technology companies, which was developed with the assistance of Compensia. The companies composing the compensation peer group were selected on the basis of their similarity to us in size (as determined by revenue and market capitalization), business strategy, and industry. Our Compensation Committee reviews the compensation peer group in years when it requests a peer assessment of executive compensation and makes adjustments to its composition, taking into account changes in both our business and the businesses of the companies in the peer group.
The compensation peer group for 2016 consisted of the following companies:
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Alpha and Omega Semiconductor
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EDaktronics
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MaxLinear
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Bel Fuse, Inc.
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Extreme Networks, Inc.
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Newport Corporation
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CalAmp Corporation
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GSI Group, Inc.
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Oclaro, Inc.
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Calix, Inc.
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Inphi Corporation
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Semtech Corporation
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Comtech Communications, Inc.
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IXYS
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Shoretel
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Digi International, Inc.
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Lattice Semiconductor
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Vishay Precision Group
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To analyze the compensation practices of the companies in the compensation peer group, Compensia gathered data from public filings of the peer companies. This data, supplemented with broader survey data of compensation for technology companies of similar revenue size was then used by our Compensation Committee as a reference when evaluating our current compensation levels in the course of its deliberations on compensation design and amounts.
Compensation Components
Our executive compensation program has four primary components—base salary, an annual cash bonus opportunity, long-term incentive compensation in the form of equity awards, and post-employment compensation arrangements. We also provide our executive officers with the same health and welfare benefits that are available to all salaried employees in the country in which they reside. The following table summarizes the factors which were material to the decisions of our Compensation Committee in 2016 and the reasons such compensation component is provided.
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Compensation Component
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Objectives
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Material Factors Considered
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Base salary
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Attract and retain experienced executive officers within the affordability of business performance
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Board members’ experience and knowledge
Historical negotiations and base salary levels
Broader market conditions
Compensation paid at other publicly-traded technology companies based on competitive market data
Ability to afford
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Annual cash bonus opportunity
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Retain exceptional talent
Motivate executive officers to achieve corporate objectives
Link corporate and individual performance with compensation paid
Provide incentives to promote our growth and create stockholder value
Align the financial interests of the executive officers with those of our stockholders
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Board members’ experience and knowledge
Level of achievement of corporate objectives, particularly in light of broader market conditions
Subjective review of each executive officer’s overall individual performance
Internal pay equity
Broader market conditions
Balance Sheet and expected future cash flows
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Long-term incentive compensation
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Retain exceptional talent
Motivate executive officers to achieve longer-term corporate objectives
Link corporate and individual performance with compensation paid
Provide incentives to promote our growth and create stockholder value
Align the financial interests of the executive officers with those of our stockholders
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Board members’ experience and knowledge
Level of achievement of corporate objectives, particularly in light of broader market conditions
Internal pay equity
The potential dilutive effect on our stockholders
Compensation paid at other publicly-traded technology companies based on competitive market data
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Compensation Component
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Objectives
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Material Factors Considered
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Post-employment compensation
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Retain exceptional talent
Motivate executive officers to achieve corporate objectives, which may in any given year include completion of a strategic transaction
Align the financial interests of the executive officers with those of our stockholders, that is, the completion of a desired transaction without regard to executive’s own compensation/job security
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Board members’ experience and knowledge
Internal pay equity
Historical individual negotiations with executive officers
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The following table illustrates the proportions of base salary, target variable bonus and equity awards in 2016:
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Named Executive Officer
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Base Salary
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Target Variable Bonus
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Equity Awards
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Timothy S. Jenks
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22%
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22%
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56%
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Clyde R. Wallin
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35%
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19%
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46%
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Benjamin L. Sitler
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34%
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18%
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48%
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Dr. Raymond Cheung
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37%
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20%
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43%
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Dr. Wupen Yuen
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35%
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19%
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46%
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Base Salary
In June 2016, our Compensation Committee reviewed the base salaries of our executive officers, including the named executive officers. As part of this review, our Compensation Committee considered information from Compensia regarding the expected range for annual base salary increases in 2016. After considering the competitive market data provided by Compensia, as well as the collective knowledge and experience of its members on compensating individuals in positions held by the executives at other companies, the factors described above and a salary freeze of base pay in 2014, our Compensation Committee decided to increase the base salaries of our executive officer in varying amounts.
The base salaries of the named executive officers for 2016, effective as of July 1, 2016, were as follows:
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Named Executive Officer
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2015 Base Salary
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2016 Base Salary
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Percentage Increase
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Mr. Jenks
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$
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475,000
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$
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500,000
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5.3
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%
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Mr. Wallin
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$
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310,000
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$
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325,000
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4.8
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%
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Mr. Sitler
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$
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280,000
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$
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290,000
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3.6
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%
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Dr. Cheung
(1)
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$
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370,000
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$
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361,000
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(2.4)
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%
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Dr. Yuen
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$
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295,000
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$
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312,000
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5.8
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%
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(1)
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Dr. Cheung’s base salary is calculated in U.S. dollars at the average exchange rate for the applicable year. Dr. Cheung’s actual base salary was paid in RMB, the legal currency of the People’s Republic of China. Dr. Cheung’s adjusted base salary represents a 4% increase over his prior year base salary under the RMB currency in which he is paid.
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Annual Cash Bonus
Each year, we seek to motivate our executive officers, including the named executive officers, to successfully execute our annual financial and operational objectives through an annual bonus opportunity. In designing these bonus opportunities, our CEO works with our Compensation Committee to develop appropriate performance measures and related target levels, which are then reviewed and approved by our board of directors. The performance measures and related payout levels are determined based on management’s business forecast both at the corporate and business unit levels, as reviewed and approved by our board of directors.
In the period January to April 2016, our management proposed an annual bonus plan for 2016 (the “2016 Variable Pay Plan”) to our Compensation Committee for its review and approval. Our Compensation Committee considered and refined the terms and conditions of the 2016 Variable Pay Plan, which was subsequently approved in April 2016. In June 2016, our Compensation Committee approved target bonus percentages under the 2016 Variable Pay Plan, based on its assessment of the competitive data.
Target Annual Cash Bonus Opportunities
In June 2016, our Compensation Committee established the updated target annual bonus opportunities for the named executive officers as follows:
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Named Executive Officer
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Target Annual Bonus Opportunity (as a percentage of base salary)
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Target Annual Bonus Opportunity ($)
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Mr. Jenks
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100%
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$
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500,000
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Mr. Wallin
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55%
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$
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178,750
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Mr. Sitler
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55%
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$
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159,500
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Dr. Cheung
(1)
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55%
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$
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198,550
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Dr. Yuen
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55%
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$
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171,600
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(1)
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Dr. Cheung’s target annual bonus opportunity is calculated in U.S. dollars at the average exchange rate for the year. Dr. Cheung’s actual annual bonus payment, if any, is paid in RMB, the legal currency of the People’s Republic of China.
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These target annual bonus opportunities were determined by our Compensation Committee based on its members’ collective knowledge and experiences, the recommendations of our CEO (except with respect to his own target annual bonus opportunity), and considerations for internal pay equity, that is, while our Compensation Committee generally believes compensation for the named executive officers should increase with their level of responsibility, it also recognized that achievement of the corporate objectives underlying the 2016 Variable Pay Plan would require a team effort among management, and, therefore, the target annual bonus opportunities should fall within a narrow range, with the largest percentage awarded to our CEO in light of his overall responsibility for the successful execution of our annual operating plan.
Corporate Performance Measures
Our Compensation Committee structured the 2016 Variable Pay Plan so that a pool for the payment of bonuses would be funded throughout the year based on our Compensation Committee’s assessment of our overall corporate performance as measured by the following financial performance measures:
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our U.S. non-GAAP operating income as compared to our annual operating plan; and
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execution of key product development programs expected to generate profitable revenue beginning in 2016 and beyond.
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Each of these development program has specific target customers, identified milestones and completion dates. The criteria for assessment include timely and cost-effective delivery of named products to the target performance specification and to the target development stage or product launch. The assessment was to be made based on timeliness, budget adherence, technical risk assessment and customer impact.
For purposes of the 2016 Variable Pay Plan, non-GAAP “operating income” was to be calculated by excluding certain items included under GAAP, including stock-based compensation expense, restructuring expenses, business acquisition-related costs and expenses including the amortization of purchased intangible assets, amortization of fair value adjustments to fixed assets and inventory, fair value adjustments to contingent consideration, escrow settlement gain, asset impairment charge and the related tax effects.
Our Compensation Committee selected these financial and operational performance measures because it believed they were the best indicators of our ability to successfully execute our annual operating plan and factors critical to improving our competitive position and increasing the value of our common stock. Our Compensation Committee believed these objectives, therefore, best aligned the financial interests of the named executive officers with those of the stockholders.
In addition, our Compensation Committee established weightings and target performance levels for each of the corporate performance measures. The measures were weighted as follows: 67% on non-GAAP operating income and 33% on execution of certain development programs.
For the financial performance measure, our Compensation Committee established threshold and target levels contingent on our actual performance for 2016. The threshold performance for Non-GAAP operating income was $15.5 million and the target for Non-GAAP operating income was $34.5 million. Although expressed as a potential payment
outcome, the target level for this measure was merely a non-binding guideline to be used by our Compensation Committee as one factor in determining the actual bonuses payments, if any, to be made to the named executive officers. With respect to the operational performance measure, our Compensation Committee regularly reviewed the progress of each program using criteria which included on-time, on-budget delivery of named products to the target development stage or product launch, with assessment being made on timeliness, technical risk assessment and customer impact.
In approving the 2016 Variable Pay Plan, our Compensation Committee did not assign a specific dollar payment amount to any of the performance measures or to its assessment of individual performance achievements. Instead, as in prior years our Compensation Committee intended to award actual bonus payments for 2016 based upon the subjective judgment of its members as to the appropriate bonus amounts after assessing:
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our actual corporate performance as compared against the threshold and target levels for the financial performance measure;
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·
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an assessment of our actual performance as compared against the expected progress for the operational performance measures;
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·
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an evaluation of whether each named executive officer has performed his duties and responsibilities in a satisfactory manner; and
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Our overall budget (that is, the appropriate level of bonuses to pay after consideration of the broader economic conditions and our balance sheet and expected cash flows).
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2016 Bonus Awards
On March 10, 2017, our Compensation Committee approved annual bonuses to our named executed officers for 2016 performance as follows:
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Named Executive Officer
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2016 Cash Bonus Award
|
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Timothy S. Jenks
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$
|
385,000
|
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Clyde R. Wallin
|
|
|
127,125
|
|
Dr. Raymond Cheung
(1)
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|
|
147,500
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|
Dr. Wupen Yuen
|
|
|
147,500
|
|
Benjamin L. Sitler
|
|
|
121,650
|
|
|
(1)
|
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Calculated in U.S. dollars at the average exchange rate for the year. Dr. Cheung’s actual bonus was paid in Chinese RMB.
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In making these decisions our Compensation Committee considered our actual corporate performance results against the target levels established for the year as described above, as well as:
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the performance review for each named executive officers conducted by our CEO (other than for himself) and our Compensation Committee’s own assessment of such individual performances;
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·
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our Compensation Committee’s evaluation of our CEO’s performance; and
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·
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our Compensation Committee’s evaluation of the propriety of the total amount of the bonus payment in light of our balance sheet, expected cash flows, and broader economic considerations, notwithstanding our actual performance results and the material role that each named executive officer played in achieving these results.
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Our Compensation Committee does not apply any specific weighting or formula for these factors, but considers them as a whole. Our Compensation Committee also evaluates each named executive officer’s individual performance and his contributions to our achievement of the objectives set forth in our annual operating plan.
Under the 2016 Variable Pay Plan, our Compensation Committee could exercise its discretion to award up to 50% of the final earned 2016 bonuses to our executive officers in the form of restricted stock unit awards. All 2016 bonuses to our executive officers were paid in cash in March 2017.
Long-Term Incentive Compensation
We use equity awards in the form of stock options and service-based restricted stock unit awards to ensure that our executive officers, including the named executive officers, have a continuing stake in our long-term success. We structure our long-term incentive compensation in the form of equity awards because we believe that if our executive officers own shares of our common stock with values that are significant to them, they will have an incentive to act to maximize longer-term stockholder value instead of short-term gain. We also believe that equity awards are an integral component of our efforts to attract exceptional executive officers, senior management and employees.
We believe that properly structured long-term incentive compensation arrangements work to align the long-term interests of our executive officers and stockholders by creating a strong, direct link between their compensation and stock price appreciation. Our stock options, which are granted with exercise prices equal to the fair market value of our common stock on the date of grant, provide an appropriate long-term incentive for our executive officers, since the options reward them only to the extent that our stock price grows and stockholders realize value following their grant date. Our service-based restricted stock unit awards will increase or decrease in value to the same extent as our common stock. Our Compensation Committee recognizes that full value awards, such as restricted stock unit awards, have a greater intrinsic value to our executive officers than stock options and, therefore, may have an increased retention effect. Stock options may provide even greater motivation than full value awards to drive stockholder return, however, which is why our Compensation Committee also grants such equity awards.
In determining the size of the equity awards granted in 2016 to the named executive officers, as well as the mix of stock options and restricted stock unit awards, our Compensation Committee made its decisions based primarily on its members’ experience and knowledge, equity compensation data provided by Compensia, internal pay equity (that is, generally similar award sizes as among our executive officers, with larger awards to our CEO in light of his roles and responsibilities), our performance (that is, the progress as of the date of grant toward the achievement of the financial measures described above under the discussion of the 2016 Variable Pay Plan) and the potential dilutive effect on our stockholders, and the other factors described above. These factors were considered as a whole, without any specific weighting or formula.
In August 2016, our Compensation Committee approved the grant of the following equity awards to the named executive officers:
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|
|
|
|
|
Named Executive Officer
|
|
Stock Options (Number of Shares)
|
|
Stock Options (Grant Date Fair Value)
|
|
Timothy S. Jenks
|
|
75,000
|
|
$
|
547,980
|
|
Clyde R. Wallin
|
|
30,000
|
|
$
|
219,192
|
|
Benjamin L. Sitler
|
|
30,000
|
|
$
|
219,192
|
|
Dr. Raymond Cheung
|
|
30,000
|
|
$
|
219,192
|
|
Dr. Wupen Yuen
|
|
30,000
|
|
$
|
219,192
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Restricted Stock Units (Number of Shares)
|
|
Restricted Stock Units (Grant Date Fair Value)
|
|
Timothy S. Jenks
|
|
55,000
|
|
$
|
674,850
|
|
Clyde R. Wallin
|
|
16,000
|
|
$
|
196,320
|
|
Benjamin L. Sitler
|
|
16,000
|
|
$
|
196,320
|
|
Dr. Raymond Cheung
|
|
16,000
|
|
$
|
196,320
|
|
Dr. Wupen Yuen
|
|
16,000
|
|
$
|
196,320
|
|
Health and Welfare Benefits
We provide the following benefits to our executive officers, including the named executive officers, based in the United States, on the same terms and conditions as provided to all other eligible employees:
|
·
|
|
health, dental, and vision insurance;
|
|
·
|
|
medical and dependent care flexible spending accounts;
|
|
·
|
|
short-term and long-term disability, accidental death and dismemberment insurance;
|
|
·
|
|
a Section 401(k) defined contribution plan for U.S. based employees; and
|
|
·
|
|
a nonqualified deferred compensation plan for certain of our U.S. employees including our U.S.-based executive officers, to provide them an opportunity to defer certain compensation on a pre-tax basis and accumulate tax-deferred earnings.
|
We believe these benefits are consistent with benefits provided by other companies based on the experiences and individual knowledge of the members of our Compensation Committee regarding the compensation of similarly-situated executives at other companies and help us to attract and retain high quality executives. In addition, Dr. Cheung’s annual compensation includes RMB 54,000 ($8,130 based on an average exchange rate of RMB 6.6424 per U.S. dollar in 2016) to cover the cost of family health insurance premiums in the People’s Republic of China and RMB 9,290 ($1,399 based on an average exchange rate of RMB 6.6424 per U.S. dollar in 2016) to cover the cost of commercial medical insurance.
Perquisites and Other Personal Benefits
Currently, we do not view perquisites or other personal benefits as a significant component of our executive compensation program. Consequently, we provide only limited perquisites or other personal benefits to our executive officers, including the named executive officers. In considering potential perquisites, our Compensation Committee reviews the cost to us as compared to the perceived value of providing such benefits.
In the future, we may provide perquisites or other personal benefits in limited circumstances, such as where we believe it is appropriate to assist an individual executive officer in the performance of his or her duties, to make our executive officers more efficient and effective, and for recruitment, motivation, or retention purposes. All future practices with respect to perquisites or other personal benefits will be approved and subject to periodic review by our Compensation Committee.
Post-Employment Compensation Arrangements
Each of the named executive officers is eligible to receive payments and benefits in the event of certain involuntary terminations of employment, including a termination of employment in connection with a change in control of the Company, under the terms of their respective severance agreements. These agreements (and the payments and benefits offered under each such agreement) reflect the negotiations of each of the applicable named executive officer as well as a desire to have internal parity among the named executive officers with respect to their potential post-employment compensation arrangements. We consider these arrangements to be critical to attracting and retaining high caliber executives.
In addition, we believe that providing certain payments and benefits and partial vesting acceleration of outstanding and unvested equity awards in the event of a termination of employment in connection with a change in control of the Company, if structured appropriately, serve to minimize the distractions to an executive officer and reduce the risk that a named executive officer terminates his employment with us before an acquisition is consummated.
We believe that these arrangements allow the named executive officers to focus on continuing normal business operations and, in the case of change in control payments and benefits, on the success of a potential business combination, rather than being distracted by how business decisions that may be in the best interest of our stockholders will impact each named executive officer’s own financial security. That is, we believe that these arrangements help ensure stability among the named executive officers, and will help enable the named executive officers to maintain a balanced perspective in making overall business decisions during periods of uncertainty.
In light of these objectives, in August 2016 we entered into retention agreements providing for updated severance and change in control benefits with all five of our named executive officers. We entered into these arrangements after a review of existing arrangements by the compensation committee, with the committee taking into account market assessment data prepared by the committee’s independent compensation consultant. Each retention agreement amended and superseded the prior severance rights agreement with each such named executive officer. For a detailed description of these arrangements with the named executive officers, see “Management—Potential Payments Upon Termination or Change in Control” below.
Employee Stock Plans
Under the terms of our employee stock plans and agreements with our executive officers, including the named executive officers, the vesting of outstanding and unvested stock options and restricted stock unit awards is partially accelerated in the event of certain material corporate transactions, where equity awards are not assumed or substituted, as well as in the event of certain involuntary terminations of employment following certain material corporate transactions (change of control).
We believe these accelerated vesting provisions are appropriate in light of the collective knowledge and experiences of the members of our Compensation Committee on compensating individuals in the positions held by our executive officers at other companies (without reference to any specific compensation peer group or any specific level of compensation), and, therefore, allow us to attract and retain high quality executive officers, and, in the case of accelerated vesting upon certain involuntary terminations of employment following a change in control of the Company, the accelerated vesting allows our executive officers to focus on closing a transaction that may be in the best interest of our stockholders even though the transaction may otherwise result in a termination of their employment and, absent such accelerated vesting, a forfeiture of their unvested equity awards.
Severance Arrangement for Mr. Wallin
On March 31, 2017, Mr. Wallin notified us of his intention to resign his position with the Company, effective on May 15, 2017. Mr. Wallin has agreed continue to serve as Chief Financial Officer through May 15, 2017, and has agreed to provide certain transition and consulting services, as described below, to ensure the transition of his duties and responsibilities. We have launched a search process for a successor Chief Financial Officer.
In connection with his resignation, Mr. Wallin entered into a separation agreement with the Company on April 4, 2017. Under the separation agreement, Mr. Wallin will continue his current compensation arrangements and benefit plan eligibility with us through May 15, 2017. Subject to Mr. Wallin’s execution of a general release of claims, we will provide Mr. Wallin the severance benefits specified in his retention agreement dated August 5, 2016, which include (a) a single lump-sum amount equal to his current annual base salary of $325,000, (b) a cash payment in the amount of $72,000, which Mr. Wallin may, but is not required to use towards continued health coverage, and (c) accelerated vesting of Mr. Wallin’s outstanding equity awards that provide for time-based vesting as though the awards continued to vest for a period of eighteen (18) months following the date of termination of his employment with the Company (the “separation date”).
After May 15, 2017, Mr. Wallin has agreed to provide consulting services to us as may be requested by us from time to time for a three-month transition period, including providing guidance on Company matters during his employment relationship with us and transitioning his assignments, for which he will be compensated at a rate of $300 per hour. Any stock options that are outstanding, vested and exercisable as of Mr. Wallin’s separation date generally will remain exercisable for three months following the termination of his consulting services. Mr. Wallin’s equity awards will not continue vesting during his consulting period.
Other Compensation Policies
CEO Stock Ownership Guidelines
As part of our overall corporate governance policies, and to align the interests of our CEO with the interests of our stockholders, our board of directors believes that our CEO should have a significant financial stake in the Company. Accordingly, we maintain a policy that our CEO should own shares of our common stock with a value equal to or exceeding his or her then-current annual base salary. Pursuant to this policy, Mr. Jenks, our current CEO, was required to attain this ownership level within two years from the date the policy was adopted by our board of directors (April 25, 2013). In the future, his successor will be required to attain this ownership level within two years of the date of becoming our Chief
Executive Officer. Our board of directors may evaluate, in its discretion, whether this requirement should be waived in the case of a Chief Executive Officer, who, because of his or her personal circumstances, would incur a hardship by complying with this requirement.
As of December 31, 2016, Mr. Jenks’ beneficial ownership of shares of our common stock exceeded his annual base salary.
We encourage our executive officers, including the other named executive officers, to hold a significant equity interest in our common stock, but have not set specific ownership guidelines for these individuals.
Hedging Prohibition Policy
We have adopted a policy that prohibits our executive officers, including the named executive officers, other members of management, and the non-employee members of our board of directors from engaging in short sales, transactions in put or call options, hedging transactions, or other inherently speculative transactions with respect to our securities. We adopted this policy as a matter of good corporate governance and because, by not allowing these individuals to engage in such transactions, they are subject to the full risks of ownership of their unvested equity awards. As a result, their equity compensation is strongly correlated to stock price performance over the vesting period.
Equity Award Grant Policy
It is our policy not to intentionally accelerate or delay the public release of material information in consideration of a pending equity award to allow the recipient to benefit from a more favorable stock price. Annual awards are typically considered each summer after our public release of second quarter financial results. New Hire equity awards are typically made on the 15
th
of the month following the date of hire.
Compensation Recovery Policy
At this time, we do not have a formal policy regarding the adjustment or recovery of awards or payments if the relevant performance measures upon which they are based are restated or otherwise adjusted in a manner that would reduce the size of the award or payment. We intend to adopt a general compensation recovery (“clawback”) policy covering our annual and long-term incentive award plans and arrangements once the SEC adopts final rules implementing the requirement of Section 954 of the Dodd-Frank Act.
Tax and Accounting Considerations
Deductibility of Compensation
Section 162(m) of the Code generally disallows public companies a tax deduction for federal income tax purposes of remuneration in excess of $1 million paid to the chief executive officer and each of the three other most highly-compensated executive officers (other than the chief financial officer) in any taxable year. Generally remuneration in excess of $1 million may only be deducted if it is “performance-based compensation” within the meaning of the Code or satisfies the conditions of another exemption. In this regard, the compensation income realized upon the exercise of stock options granted under a stockholder-approved stock option plan generally will be deductible so long as the options are granted by a committee whose members are non-employee directors and certain other conditions are satisfied.
Our Compensation Committee believes that, in establishing the cash and equity incentive compensation plans and arrangements for our executive officers, the potential deductibility of the compensation payable under those plans and arrangements should be only one of a number of relevant factors taken into consideration, and not the sole governing factor. For that reason, our Compensation Committee may deem it appropriate to provide one or more executive officer with the opportunity to earn incentive compensation, whether through cash incentive awards tied to our financial performance or equity awards tied to the executive officer’s continued service, which may be in excess of the amount deductible by reason of Section 162(m) or other provisions of the Code.
Our Compensation Committee believes it is important to maintain cash and equity incentive compensation at the requisite level to attract and retain the individuals essential to our financial success, even if all or part of that compensation may not be deductible by reason of the Section 162(m) limitation.
Nonqualified Deferred Compensation
Our Compensation Committee takes into account whether components of the compensation for our executive officers will be adversely impacted by the penalty tax imposed by Section 409A of the Code, and aims to structure these components to be compliant with or exempt from Section 409A to avoid such potential adverse tax consequences.
“Golden Parachute” Payments
Sections 280G and 4999 of the Code provide that executive officers and directors who hold significant equity interests and certain other service providers may be subject to an excise tax if they receive payments or benefits in connection with a change in control of the Company that exceeds certain prescribed limits, and that we, or a successor, may forfeit a deduction on the amounts subject to this additional tax. We did not provide any executive officer, including any named executive officer, with a “gross-up” or other reimbursement payment for any tax liability that he or she might owe as a result of the application of Sections 280G or 4999 during 2016 and we have not agreed and are not otherwise obligated to provide any named executive officer with such a “gross-up” or other reimbursement.
Accounting for Stock-Based Compensation
We follow Financial Accounting Standard Board Accounting Standards Codification Topic 718 (“ASC Topic 718”) for our stock-based compensation awards. ASC Topic 718 requires companies to measure the compensation expense for all share-based payment awards made to employees and members of the board of directors, including stock options, based on the grant date “fair value” of these awards. This calculation is performed for accounting purposes and reported in the compensation tables below, even though our executive officers may never realize any value from their awards. ASC Topic 718 also requires companies to recognize the compensation cost of their stock-based compensation awards in their income statements over the period that an executive officer is required to render service in exchange for the stock option or other award.
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COMPENSATION COMMITTEE REPORT
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Our Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this proxy statement with management. Based on our Compensation Committee’s review of, and the discussions with management with respect to, the Compensation Discussion and Analysis, our Compensation Committee recommended to our board of directors that the Compensation Discussion and Analysis be included in our proxy statement and incorporated into our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
From the members of our Compensation Committee:
Charles J. Abbe
Rajiv Ramaswami
Ihab Tarazi
Compensation Risk Assessment
From time to time, our board of directors and our Compensation Committee review the potential risks associated with the structure and design of our various compensation plans. In April 2016, our Compensation Committee reviewed the material compensation plans and arrangements for all employees and determined that none of our compensation policies and practices is reasonably likely to have a material adverse effect on the Company.
Overall, our board of directors believes that our compensation programs generally contain a balance of fixed and variable features, as well as complementary performance measures and reasonable goals, all of which operate to mitigate risk and reduce the likelihood of employees engaging in excessive risk-taking behavior with respect to the compensation-related aspects of their jobs. In addition, our material compensation plans and arrangements operate within the corporate governance and review structure that serves and supports our risk mitigation practices.
Summary Compensation Table
The following table provides information for the years ended December 31, 2016, 2015 and 2014, regarding the compensation of our principal executive officer, principal financial officer, and each of our three other most highly compensated persons serving as executive officers, or our named executive officers, for 2016.
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Name and principal position
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Year
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|
Salary ($)
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Bonus ($)
(1)
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Option awards ($)
(2)
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Stock awards ($)
(2)
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Non-Equity Incentive Plan Compensation ($)
(3)
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Non-Qualified Deferred Compensation Earnings ($)
(4)
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All Other Compensation ($)
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Total ($)
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Timothy S. Jenks
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2016
|
|
486,538
|
|
-
|
|
547,980
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|
674,850
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|
385,000
|
|
-
|
|
1,500
|
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2,095,868
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President and Chief Executive Officer
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2015
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435,481
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|
-
|
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340,275
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|
569,223
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|
600,000
|
|
-
|
|
2,308
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|
1,947,287
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|
|
2014
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|
400,000
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|
-
|
|
240,823
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|
-
|
|
348,723
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|
-
|
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1,500
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|
991,046
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Clyde R. Wallin
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2016
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313,346
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|
-
|
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219,192
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196,320
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|
127,125
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120,085
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1,500
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857,483
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Senior Vice President and Chief Financial Officer
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2015
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294,442
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-
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|
136,110
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223,892
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180,000
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|
59,654
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|
1,500
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|
835,944
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|
|
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2014
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|
280,615
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|
-
|
|
117,077
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|
-
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132,512
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|
-
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1,500
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531,704
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Dr. Raymond Cheung
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2016
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319,764
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(5)
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-
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219,192
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196,320
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147,500
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(6)
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-
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9,528
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(7)
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892,304
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Senior Vice President and Chief Operating Officer
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2015
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325,948
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(5)
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-
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149,721
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255,820
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262,711
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(6)
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-
|
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10,036
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(7)
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1,004,236
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2014
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343,801
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(5)
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-
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152,070
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-
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163,297
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(6)
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-
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10,143
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(7)
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669,311
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Dr. Wupen Yuen
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2016
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302,846
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-
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219,192
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196,320
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147,500
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-
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3,500
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869,358
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Senior Vice
President and General Manager
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2015
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284,461
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-
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149,721
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233,067
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225,000
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-
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3,493
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895,742
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2014
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275,000
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-
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131,215
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-
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121,472
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-
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3,493
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531,180
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Benjamin L. Sitler
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2016
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268,650
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-
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219,192
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196,320
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121,650
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-
|
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3,192
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809,004
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Senior Vice President of Global Sales
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2015
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268,865
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-
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108,888
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178,359
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170,000
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-
|
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3,269
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729,381
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2014
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265,000
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-
|
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100,737
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-
|
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104,619
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-
|
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3,493
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473,849
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(1)
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The bonus amounts for named executive officers are included in the non-equity incentive plan compensation column in this table.
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(2)
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Amount reflects the aggregate grant date fair value of the awards granted, calculated in accordance with applicable accounting guidance for share based payment transactions. The valuation assumptions used in determining such amounts are described in Note 14 to the consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the Securities and Exchange Commission on March 16, 2017. These amounts do not reflect the actual economic value realized by the named executive officers. Option awards amounts in 2014 include repriced stock options with incremental grant date fair value of $90,006, $59,163, $51,525, $50,779, and $42,823 for Mr. Jenks, Mr. Wallin, Dr. Cheung, Dr.Yuen and Mr. Sitler, respectively.
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(3)
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The amounts in this column are performance-based bonuses in respect of performance for the years ended December 31, 2016, 2015 and 2014, but were actually paid in the following year. Bonuses in 2014 consist of cash and restricted stock unit awards. The dollar amount of the portion of the performance-based bonuses paid in restricted stock unit awards in 2014 was $189,723, $72,092, $88,840, $66,087 and $56,919 for Mr. Jenks, Mr. Wallin, Dr. Cheung, Dr. Yuen and Mr. Sitler, respectively. The number of shares subject to these restricted stock unit awards was determined by dividing the dollar amount of the performance-based bonus to be paid in restricted stock units divided by the average closing price of our common stock for a 24-day calendar period from March 3, 2015 through March 26, 2015.
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(4)
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Non-qualified deferred compensation earnings are included in the salary amounts for the respective years.
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(5)
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Dr. Cheung’s salary in 2014, 2015 and 2016 was RMB 2,118,400, RMB 2,029,800 and RMB 2,124,000, respectively. Conversion to U.S. dollars is based on an average exchange rate of RMB 6.1617, RMB 6.2274 and RMB 6.6424 per U.S. dollar in 2014, 2015 and 2016, respectively.
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(6)
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Dr. Cheung’s bonus in 2014, 2015 and 2016 was RMB 1,006,187, RMB 1,636,000 and RMB 979,753, respectively. Conversion to U.S. dollars is based on an average exchange rate of RMB 6.1617, RMB 6.2274 and RMB 6.6424 per U.S. dollar in 2014, 2015 and 2016, respectively.
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(7)
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Represents and medical insurance and family health insurance premiums of RMB 63,290. Conversion to U.S. dollars is based on an average exchange rate of RMB 6.6424 per U.S. dollar in 2016.
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Non-Qualified Deferred Compensation Plan
The following table provides information regarding to the activity in the non-qualified deferred compensation plan for each of our named executive officers who participated in such plan during the year ended December 31, 2016:
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Name
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Executive contributions in last fiscal year
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Company contributions in last fiscal year
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Aggregate earnings in last fiscal year
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Aggregate withdrawals/distributions
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Aggregate balance at last fiscal year end
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Clyde R. Wallin
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$
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120,085
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$
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-
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$
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14,597
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$
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-
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$
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191,292
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Grants of Plan-Based Awards
The following table provides information regarding grants of plan-based awards to each of our named executive officers during the year ended December 31, 2016.
Grants of Plan-Based Awards For Fiscal Year 2016
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Estimated Future Payouts Under Non-Equity Incentive Plan Awards
(1)
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Name
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Grant Date
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Target ($)
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All Other Stock Awards: Number of Shares of Stock or Units (#)
(2)
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All Other Option Awards: Number of Securities Underlying Options (#)
(3)
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Exercise price of option awards ($ per share)
(2)(3)
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Grant Date Fair value of Restricted Stock Units And Options Awards ($)
(4)
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Timothy S. Jenks
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08/02/16
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$
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500,000
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55,000
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$
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—
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$
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674,850
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08/02/16
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|
—
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75,000
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$
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12.27
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$
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547,980
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Clyde R. Wallin
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08/02/16
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$
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178,750
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16,000
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|
$
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—
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$
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196,320
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08/02/16
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|
|
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—
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30,000
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$
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12.27
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$
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219,192
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Benjamin L. Sitler
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08/02/16
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$
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159,500
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16,000
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|
$
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—
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$
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196,320
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08/02/16
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—
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30,000
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$
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12.27
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$
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219,192
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Dr. Raymond Cheung
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08/02/16
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$
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198,550
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16,000
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|
$
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—
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|
$
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196,320
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|
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08/02/16
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|
|
|
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—
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30,000
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$
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12.27
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$
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219,192
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Dr. Wupen Yuen
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08/02/16
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$
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171,600
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16,000
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|
|
|
$
|
—
|
|
$
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196,320
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|
|
|
08/02/16
|
|
|
|
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—
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|
30,000
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$
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12.27
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$
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219,192
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(1)
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Reflects awards under our 2016 Variable Pay Plan as described under “Compensation Discussion and Analysis.” There were no thresholds or maximum amounts approved for the named executive officers.
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(2)
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Restricted stock units were granted with no exercise price.
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(3)
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Options were granted with an exercise price equal to 100% of the fair market value on the date of grant, which was determined by reference to the closing sales price of our common stock on the New York Stock Exchange on the grant date.
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(4)
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In accordance with Securities and Exchange Commission rules, this column represents the aggregate grant date fair value of each equity award, calculated in accordance with applicable accounting guidance for stock-based payment transactions. For each stock award, the grant date fair value is calculated using the closing price of our common stock on the grant date. The valuation assumptions used in determining the grant date fair value of the option awards are described in Note 14 to the consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the Securities and Exchange Commission on March 16, 2017. These amounts do not reflect the actual economic value realized by the named executive officers.
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The material terms of the named executive officers’ annual compensation, including base salaries, bonus opportunities, equity awards and potential severance benefits are described in greater detail below under the section titled “Employment agreements.” The explanations of the amounts of compensation awarded in 2016, including how each individual element of compensation was determined, are set forth above in the section titled “Compensation Discussion and Analysis.” As discussed in greater detail in “Compensation Discussion and Analysis,” the number of stock option awards and restricted stock units granted is determined by our board of directors based on a number of subjective factors. Typically, restricted stock units granted to our named executive officers vest over 36 months with 1/3rd of the shares vesting on each anniversary of the date of grant and stock option grants to our named executive officers vest over 48 months with 25% of the options vesting on the first anniversary of the date of grant and the remainder vesting monthly over the next 36 months, and in each case subject to continued employment (except as such vesting may be partially accelerated upon certain material corporate transactions or involuntary terminations of employment). However, RSUs granted in March 2015 as part of 2014 bonuses, were fully vested upon grant. The shares subject to the stock option or restricted stock units granted in October 2015 vest over a three-year period, with one-half of the shares subject to the grants vesting on April 27, 2017, one-fourth of the shares subject to the grants vesting on April 27, 2018 and one-fourth of the shares subject to the grants vesting on October 27, 2018. The shares subject to the stock option or restricted stock units granted in August 2016 vest over a three-year period, with 30%, 30% and 40% of the shares subject to the grants vesting on August 2, 2017, August 2, 2018, and August 2, 2019, respectively. The stock option grants and the restricted stock unit grants were made under our 2010 Equity Incentive Plan. We did not pay dividends on our common stock during 2016.
Outstanding Equity Awards at December 31, 2016
The following table presents certain information concerning outstanding equity awards held by each of our named executive officers as of December 31, 2016. All vesting is generally contingent upon continued employment with us, except as such vesting may be partially accelerated upon certain material corporate transactions or involuntary terminations of employment.
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Option Awards
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Stock Awards
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Name
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Number of securities underlying unexercised options exercisable
(1)
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Number of securities underlying unexercised options unexercisable
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Option exercise price
(2)
($)
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Option expiration date
|
|
Number of shares of stock that have not vested (#)
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|
Market value of shares of stock that have not vested
(6)
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Timothy S. Jenks
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|
23,529
|
|
—
|
$
|
4.25
|
|
5/16/2017
|
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50,000
|
(5)
|
$
|
540,500
|
|
|
|
51,286
|
|
—
|
|
4.25
|
|
11/4/2018
|
|
55,000
|
(4)
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594,550
|
|
|
|
22,242
|
|
—
|
|
4.25
|
|
5/27/2019
|
|
—
|
|
|
—
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|
|
|
75,000
|
|
—
|
|
3.30
|
|
10/7/2024
|
|
—
|
|
|
—
|
|
|
|
100,000
|
|
—
|
|
5.11
|
|
12/11/2022
|
|
—
|
|
|
—
|
|
|
|
111,250
|
(3)
|
6,875
|
(3)
|
3.50
|
|
5/15/2017
|
|
—
|
|
|
—
|
|
|
|
1,232
|
(3)
|
54
|
(3)
|
3.50
|
|
5/14/2018
|
|
—
|
|
|
—
|
|
|
|
9,350
|
(3)
|
407
|
(3)
|
3.50
|
|
5/27/2019
|
|
—
|
|
|
—
|
|
|
|
16,098
|
(3)
|
701
|
(3)
|
3.50
|
|
1/26/2020
|
|
—
|
|
|
—
|
|
|
|
17,249
|
(3)
|
751
|
(3)
|
3.50
|
|
12/12/2020
|
|
—
|
|
|
—
|
|
|
|
34,499
|
(3)
|
1,501
|
(3)
|
3.50
|
|
8/1/2021
|
|
—
|
|
|
—
|
|
|
|
13,895
|
(3)
|
605
|
(3)
|
3.50
|
|
7/30/2022
|
|
—
|
|
|
—
|
|
|
|
47,916
|
(3)
|
2,084
|
(3)
|
3.50
|
|
9/17/2023
|
|
—
|
|
|
—
|
|
|
|
—
|
|
75,000
|
(5)
|
7.59
|
|
10/26/2025
|
|
—
|
|
|
—
|
|
|
|
—
|
|
75,000
|
(4)
|
12.27
|
|
8/1/2026
|
|
—
|
|
|
—
|
|
Clyde R. Wallin
|
|
10,800
|
|
—
|
|
3.30
|
|
10/7/2024
|
|
20,000
|
(5)
|
|
216,200
|
|
|
|
—
|
|
30,000
|
(5)
|
7.59
|
|
10/26/2025
|
|
16,000
|
(4)
|
|
172,960
|
|
|
|
75,000
|
|
—
|
|
6.86
|
|
12/22/2023
|
|
—
|
|
|
—
|
|
|
|
61,874
|
(3)
|
3,126
|
(3)
|
3.50
|
|
12/22/2023
|
|
—
|
|
|
—
|
|
|
|
—
|
|
30,000
|
(4)
|
12.27
|
|
8/1/2026
|
|
—
|
|
|
—
|
|
Benjamin L. Sitler
|
|
28,800
|
|
—
|
|
3.30
|
|
10/7/2024
|
|
16,000
|
(5)
|
|
172,960
|
|
|
|
—
|
|
24,000
|
(5)
|
7.59
|
|
10/26/2025
|
|
16,000
|
(4)
|
|
172,960
|
|
|
|
3,833
|
(3)
|
167
|
(3)
|
3.50
|
|
10/23/2017
|
|
—
|
|
|
—
|
|
|
|
570
|
(3)
|
25
|
(3)
|
3.50
|
|
5/14/2018
|
|
—
|
|
|
—
|
|
|
|
8,050
|
(3)
|
350
|
(3)
|
3.50
|
|
1/26/2020
|
|
—
|
|
|
—
|
|
|
|
75,000
|
|
—
|
|
5.11
|
|
12/11/2022
|
|
—
|
|
|
—
|
|
|
|
32,007
|
(3)
|
1,393
|
(3)
|
3.50
|
|
7/30/2017
|
|
—
|
|
|
—
|
|
|
|
15,901
|
(3)
|
693
|
(3)
|
3.50
|
|
11/4/2018
|
|
—
|
|
|
—
|
|
|
|
22,998
|
(3)
|
1,001
|
(3)
|
3.50
|
|
5/27/2019
|
|
—
|
|
|
—
|
|
|
|
11,499
|
(3)
|
501
|
(3)
|
3.50
|
|
12/12/2020
|
|
—
|
|
|
—
|
|
|
|
14,374
|
(3)
|
626
|
(3)
|
3.50
|
|
8/1/2021
|
|
—
|
|
|
—
|
|
|
|
9,583
|
(3)
|
417
|
(3)
|
3.50
|
|
7/30/2022
|
|
—
|
|
|
—
|
|
|
|
19,166
|
(3)
|
834
|
(3)
|
3.50
|
|
9/17/2023
|
|
—
|
|
|
—
|
|
|
|
—
|
|
30,000
|
(4)
|
12.27
|
|
8/1/2026
|
|
—
|
|
|
—
|
|
Dr. Raymond Cheung
|
|
75,000
|
|
—
|
|
5.11
|
|
12/11/2022
|
|
22,000
|
(5)
|
|
237,820
|
|
|
|
25,000
|
|
—
|
|
3.30
|
|
10/7/2024
|
|
16,000
|
(4)
|
|
172,960
|
|
|
|
—
|
|
33,000
|
(5)
|
7.59
|
|
10/26/2025
|
|
—
|
|
|
—
|
|
|
|
9,166
|
(3)
|
834
|
(3)
|
3.50
|
|
7/23/2017
|
|
—
|
|
|
—
|
|
|
|
4,583
|
(3)
|
417
|
(3)
|
3.50
|
|
11/4/2018
|
|
—
|
|
|
—
|
|
|
|
4,583
|
(3)
|
417
|
(3)
|
3.50
|
|
11/3/2018
|
|
—
|
|
|
—
|
|
|
|
11,000
|
(3)
|
1,000
|
(3)
|
3.50
|
|
5/27/2019
|
|
—
|
|
|
—
|
|
|
|
5,500
|
(3)
|
500
|
(3)
|
3.50
|
|
1/26/2020
|
|
—
|
|
|
—
|
|
|
|
5,500
|
(3)
|
500
|
(3)
|
3.50
|
|
12/12/2020
|
|
—
|
|
|
—
|
|
|
|
8,250
|
(3)
|
750
|
(3)
|
3.50
|
|
8/1/2021
|
|
—
|
|
|
—
|
|
|
|
4,583
|
(3)
|
417
|
(3)
|
3.50
|
|
7/30/2022
|
|
—
|
|
|
—
|
|
|
|
11,458
|
(3)
|
1,042
|
(3)
|
3.50
|
|
9/17/2023
|
|
—
|
|
|
—
|
|
|
|
—
|
|
30,000
|
(4)
|
12.27
|
|
8/1/2026
|
|
—
|
|
|
—
|
|
Dr. Wupen Yuen
|
|
40,000
|
|
—
|
|
3.30
|
|
10/7/2024
|
|
22,000
|
(5)
|
|
237,820
|
|
|
|
—
|
|
33,000
|
(5)
|
7.59
|
|
10/26/2025
|
|
16,000
|
(4)
|
|
172,960
|
|
|
|
9,583
|
(3)
|
417
|
(3)
|
3.50
|
|
7/30/2022
|
|
—
|
|
|
—
|
|
|
|
75,000
|
|
—
|
|
5.11
|
|
12/11/2022
|
|
—
|
|
|
—
|
|
|
|
21,083
|
(3)
|
917
|
(3)
|
3.50
|
|
5/15/2017
|
|
—
|
|
|
—
|
|
|
|
7,666
|
(3)
|
334
|
(3)
|
3.50
|
|
10/23/2017
|
|
—
|
|
|
—
|
|
|
|
386
|
(3)
|
17
|
(3)
|
3.50
|
|
5/14/2018
|
|
—
|
|
|
—
|
|
|
|
15,719
|
(3)
|
684
|
(3)
|
3.50
|
|
11/4/2018
|
|
—
|
|
|
—
|
|
|
|
22,998
|
(3)
|
1,001
|
(3)
|
3.50
|
|
5/27/2019
|
|
—
|
|
|
—
|
|
|
|
10,733
|
(3)
|
467
|
(3)
|
3.50
|
|
1/26/2020
|
|
—
|
|
|
—
|
|
|
|
11,500
|
(3)
|
500
|
(3)
|
3.50
|
|
12/12/2020
|
|
—
|
|
|
—
|
|
|
|
17,250
|
(3)
|
750
|
(3)
|
3.50
|
|
8/1/2021
|
|
—
|
|
|
—
|
|
|
|
23,957
|
(3)
|
1,043
|
(3)
|
3.50
|
|
9/17/2023
|
|
—
|
|
|
—
|
|
|
|
—
|
|
30,000
|
(4)
|
12.27
|
|
8/1/2026
|
|
—
|
|
|
—
|
|
|
(1)
|
|
Unless otherwise noted, shares subject to the stock option are vested in full.
|
|
(2)
|
|
Our common stock was not publicly traded prior to our initial public offering in February 2011, and the exercise price of the awards granted prior to our initial public offering was determined by our board of directors on the grant date based on its determination of the fair market value of our common stock on such grant date. The exercise price of the awards granted after our initial public offering in February 2011 was determined by reference to the closing sales price of our common stock on the grant date.
|
|
(3)
|
|
The shares subject to the stock option will vest over a two-year period, with half of the shares subject to vesting on January 1, 2016, and the remainder vesting in 12 equal monthly installments thereafter.
|
|
(4)
|
|
The restricted stock units subject to the award vest over a three year period, with 30%, 30% and 40% of the shares subject to the grants vesting on the first, second and third anniversaries of the vesting commencement date, respectively.
|
|
(5)
|
|
The shares subject to the stock option or restricted stock units will vest over a three-year period, with one-half of the shares subject to the grants vesting on April 27, 2017, one-fourth of the shares subject to the grants vesting on April 27, 2018 and one-fourth of the shares subject to the grants vesting on October 27, 2018.
|
|
(6)
|
|
Value calculated based on the closing price of our common stock on December 30, 2016, which was the last trading day of 2016, of $10.81 per share.
|
Option Exercises and Stock Vested During Fiscal 2016
The following table shows information regarding option exercises and the vesting of restricted stock held by our named executive officers during 2016.
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Stock Awards
|
|
Name
|
|
Number of shares acquired on exercise (#)
|
|
Value realized on exercise ($)
(1)
|
|
Number of shares acquired on vesting (#)
|
|
Value realized on vesting ($)
(2)
|
|
Timothy S. Jenks
|
|
46,875
|
|
339,431
|
|
11,500
|
|
144,900
|
|
Clyde R. Wallin
|
|
28,000
|
|
298,084
|
|
8,333
|
|
90,913
|
|
Benjamin L. Sitler
|
|
—
|
|
—
|
|
5,000
|
|
63,000
|
|
Dr. Raymond Cheung
|
|
95,500
|
|
890,555
|
|
5,833
|
|
73,496
|
|
Dr. Wupen Yuen
|
|
—
|
|
—
|
|
5,833
|
|
73,496
|
|
|
(1)
|
|
The value realized on vesting equals (a) the closing price per share of our common stock as reported on the New York Stock Exchange on the vesting date less the exercise price per share, multiplied by (b) the gross number of shares acquired on exercise.
|
|
(2)
|
|
The value realized on vesting equals the closing price per share of our common stock as reported on the New York Stock Exchange on the vesting date multiplied by the gross number of shares acquired on vesting.
|
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
Employment Agreements
Definitions
. Except as otherwise expressly set forth below, for purposes of the current retention agreements entered into with our named executive officers, the following definitions apply:
“Cause” means the occurrence of any of the following events: (i) any act of personal dishonesty taken by the named executive officer in connection with his responsibilities as an employee and intended to result in substantial personal enrichment of the named executive officer; (ii) the conviction of a felony; (iii) a willful act by the named executive officer that constitutes gross misconduct and which materially injures us; and (iv) following delivery to the named executive officer of a written demand for performance from us, which describes the basis for our belief that the named executive officer has not substantially performed his duties, continued violations by him of his obligations to us that are demonstrably willful and deliberate on the named executive officer’s part.
“Change in Control” means the occurrence of any of the following events: (i) any person becomes the beneficial owner, directly or indirectly, of our securities representing 50% or more of the total voting power represented by our then-outstanding voting securities; (ii) the consummation of the sale or disposition of all or substantially all of our assets; (iii) the consummation of a merger or consolidation with any other entity, other than a merger or consolidation that would result in our voting securities outstanding immediately prior thereto continuing to represent at least 60% of the total voting power represented by our voting securities or the voting securities of such surviving entity (or its parent) outstanding immediately after such merger or consolidation; or (iv) certain changes affecting the majority of the directors of our board of directors.
“Disability” means that the named executive officer has been unable to perform his duties as the result of his incapacity due to physical or mental illness, and such inability, at least 26 weeks after its commencement, is determined
to be total and permanent by a physician selected by us or our insurers and acceptable to the named executive officer or his legal representative.
“Good Reason” means the named executive officer’s voluntary resignation from all positions he holds with us, effective within 90 days after the occurrence of: (i) a material reduction or other material adverse change in the named executive officer’s job duties, responsibilities, authority or requirements, including the removal of such job duties, responsibilities, authority or requirements; (ii) any material reduction of the named executive officer’s annual base compensation; (iii) our requiring the named executive officer to move his primary work location to a location that increases his one-way commute by more than 50 miles from our then-current location; or (iv) our failure to obtain the assumption, in all material respects, of the retention agreement by any of our successors; provided that the named executive officer must provide written notice to us of the existence of one of these conditions within 60 days after its initial existence, and we must be provided with a period of 30 days during which we may cure the circumstances giving rise to the condition, in which case no Good Reason will exist.
“Involuntary Termination” means (i) any termination of the named executive officer’s employment by us without Cause (other than by reason of death or Disability) or (ii) the named executive officer’s resignation for Good Reason.
Timothy S. Jenks
. On March 30, 2010, we entered into an employment letter agreement with Mr. Jenks. Prior to the execution of this letter agreement, we had not entered into a binding offer letter with Mr. Jenks. Pursuant to this letter agreement, Mr. Jenks continues to serve, on an at-will basis, as our Chairman, Chief Executive Officer and President. This employment letter agreement originally provided for an annual base salary of $320,000 per year, subject to periodic review and adjustment. The letter also indicates Mr. Jenks’ general eligibility for annual variable pay based on our performance, stock awards and long-term incentives.
Effective as of August 5, 2016, we entered into a retention agreement with Mr. Jenks, which replaced a prior severance rights agreement with Mr. Jenks dated as of April 30, 2012. The retention agreement provides for the payment of severance benefits to Mr. Jenks in the event of the termination of his employment as described below.
Involuntary termination generally
. The retention agreement provides that upon an Involuntary Termination of Mr. Jenks’ employment, subject to his execution of a binding release of claims, Mr. Jenks would receive the following severance benefits: (1) a lump sum severance payment equal to (A) 200% of his base salary, (B) 100% of his target bonus for the year of termination and (C) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Jenks’ outstanding equity awards will accelerate as to the number of shares that would have vested subject to continued service over the 18-month period following termination (including, a waiver of any performance-based criteria).
Involuntary termination following a change in control
. The agreement also provides that upon an Involuntary Termination of Mr. Jenks’ employment within 12 months following a Change in Control and subject to his execution of a binding release of claims, Mr. Jenks would receive the following severance benefits: (1) a lump sum severance payment equal to (A) 200% of his base salary, (B) 200% of his target bonus for the year of termination and (C) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Jenks’ outstanding equity awards will accelerate in full (including, a waiver of any performance-based criteria).
The retention agreement with Mr. Jenks also provides that if he is involuntarily terminated prior to a change in control and he can reasonably demonstrate to our board’s satisfaction that such termination was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a change in control, then he will be entitled to the greater amount of severance benefits payable on an involuntary termination following a change in control.
Finally, the agreement provides for a supplemental cash payment, in addition to any death benefits payable under our life insurance policies, in the event that Mr. Jenks’ employment terminates due to his death while he is outside of his country of residence (for any reason), if necessary to provide for total death benefits equal to two times his then-current annual base salary.
Clyde R. Wallin
. In December 2013, we entered into an offer letter with Mr. Wallin to serve as our Senior Vice President and Chief Financial Officer, on an at-will basis. The offer letter provided for an initial annual base salary of
$285,000 per year, subject to periodic review and adjustment. The letter also indicates Mr. Wallin’s general eligibility for annual variable pay based on our performance, stock awards and long term incentives.
On April 4, 2017, we entered into a separation agreement with Mr. Wallin that supersedes all prior agreements providing for severance benefits, including the retention agreement described below, pursuant to which Mr. Wallin has agreed to remain our Chief Financial Officer through May 15, 2017. After May 15, 2017, Mr. Wallin has agreed to provide consulting services to the Company for a three-month transition period as may be requested by the Company from time to time.
Effective as of August 5, 2016, we entered into a retention agreement with Mr. Wallin, which has now been superseded by his separation agreement. The April 2017 separation agreement provides materially the same severance benefits specified in Mr. Wallin’s August 2016 retention agreement. The August 2016 retention agreement would have provided for the payment of severance benefits to Mr. Wallin in the event of the termination of his employment as described below.
Involuntary termination generally
. Under the superseded retention agreement, if Mr. Wallin’s employment terminated as a result of Involuntary Termination, and provided that Mr. Wallin provided a valid and effective release of all employment related claims, Mr. Wallin would have received the following severance benefits: (1) a lump sum severance payment equal to: (A) 100% of his base salary and (B) a cash payment equal to $72,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Wallin’s outstanding equity awards would accelerate as to the number of shares that would have vested subject to continued service over the 18 month period following termination (but no waiver of any performance based criteria).
Involuntary termination following a change in control
. Under the superseded retention agreement, if Mr. Wallin’s employment terminated as a result of Involuntary Termination on or within 12 months following a Change in Control, and provided that Mr. Wallin provided a valid and effective release of all employment related claims, Mr. Wallin would have received the following severance benefits: (1) a lump sum severance payment equal to (A) 150% his base salary, (B) 100% of his target bonus for the year of termination, and (C) a cash payment equal to $72,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Wallin’s outstanding equity awards would accelerate in full (but no waiver of any performance-based criteria).
Finally, the superseded agreement provided for a supplemental cash payment, in addition to any death benefits payable under our life insurance policies, in the event that Mr. Wallin’s employment terminated due to his death while he was outside of his country of residence (for any reason), if necessary to provide for total death benefits equal to two times his then-current annual base salary.
Benjamin L. Sitler
. We currently have not entered into a binding employment offer letter with Mr. Sitler. Mr. Sitler’s original offer letter with us expired at the end of 2007. Mr. Sitler’s employment with us is on an at-will basis.
Effective as of August 5, 2016, we entered into a retention agreement with Mr. Sitler. The retention agreement provides for the payment of severance benefits to Mr. Sitler in the event of the termination of his employment as described below.
Involuntary termination generally
. Under the retention agreement, if Mr. Sitler’s employment terminates as a result of Involuntary Termination, and provided that Mr. Sitler provides a valid and effective release of all employment related claims, Mr. Sitler would receive the following severance benefits: (1) a lump sum severance payment equal to: (A) 100% of his base salary and (B) a cash payment equal to $72,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Sitler’s outstanding equity awards will accelerate as to the number of shares that would have vested subject to continued service with the Company over the 18 month period following termination (but no waiver of any performance-based criteria).
Involuntary termination following a change in control
. Under the retention agreement, if Mr. Sitler’s employment terminates as a result of Involuntary Termination on or within 12 months following a Change in Control, and provided that Mr. Sitler provides a valid and effective release of all employment related claims, Mr. Sitler would receive the following severance benefits: (1) a lump sum severance payment equal to (A) 150% his base salary, (B) 100% of his target bonus for the year of termination, and (C) a cash payment equal to $72,000 (intended to assist in the payment of, but not required
to be used for, continued health insurance); and (2) the vesting of all of Mr. Sitler’s outstanding equity awards will accelerate in full (but no waiver of any performance-based criteria).
Finally, the agreement provides for a supplemental cash payment, in addition to any death benefits payable under our life insurance policies, in the event that Mr. Sitler’s employment terminates due to his death while he is outside of his country of residence (for any reason), if necessary to provide for total death benefits equal to two times his then-current annual base salary.
Dr. Raymond Cheung
. On August 14, 2007, consistent with local labor laws in China, we entered into a fixed-term labor contract with Dr. Cheung which expired on June 30, 2012, and effective as of July 1, 2012, we entered into a new fixed-term labor contract with Dr. Cheung which is set to expire on June 30, 2016, unless terminated prior to such date upon any of the following: (i) Dr. Cheung reaches retirement; (ii) Dr. Cheung dies or has been pronounced dead or missing by a Chinese court; (iii) our bankruptcy; (iv) the revocation of our business license, termination of our business, or our dissolution; or (v) as required by law. Upon the ordinary course expiration of the term of employment, if Dr. Cheung is still employed by us, the labor contract will remain valid until the labor contract is renewed or until either party rescinds the employment relationship.
Effective as of August 5, 2016, we entered into a retention agreement with Dr. Cheung. The retention agreement provides for the payment of severance benefits to Dr. Cheung in the event of the termination of his employment as described below.
Involuntary termination generally
. Under the retention agreement, if Dr. Cheung’s employment terminates as a result of Involuntary Termination, and provided that Dr. Cheung provides a valid and effective release of all employment related claims, Dr. Cheung would receive the following severance benefits: (1) a lump sum severance payment equal to: (A) 200% of his base salary and (B) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Dr. Cheung’s outstanding equity awards will accelerate as to the number of shares that would have vested subject to continued service over the 18 month period following termination (but no waiver of any performance-based criteria).
Involuntary termination following a change in control
. Under the retention agreement, if Dr. Cheung’s employment terminates as a result of Involuntary Termination on or within 12 months following a Change in Control, and provided that Dr. Cheung provides a valid and effective release of all employment related claims, Dr. Cheung would receive the following severance benefits: (1) a lump sum severance payment equal to (A) 200% his base salary, (B) 200% of his target bonus for the year of termination, and (C) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Dr. Cheung’s outstanding equity awards will accelerate in full (but no waiver of any performance-based criteria).
Finally, the agreement provides for a supplemental cash payment, in addition to any death benefits payable under the Company’s life insurance policies, in the event that Dr. Cheung’s employment terminates due to his death while he is outside of his country of residence (for any reason), if necessary to provide for total death benefits equal to two times his then-current annual base salary.
Dr. Wupen Yuen
. In January 2005, we entered into an offer letter with Dr. Yuen to serve as our Director of Business Development on an at-will basis. The offer letter provided for an initial annual base salary of $165,000 per year, subject to periodic review and adjustment.
Effective as of August 5, 2016, we entered into a retention agreement with Dr. Yuen. The retention agreement provides for the payment of severance benefits to Dr. Yuen in the event of the termination of his employment as described below.
Involuntary termination generally
. Under the retention agreement, if Dr. Yuen’s employment terminates as a result of Involuntary Termination, and provided that Dr. Yuen provides a valid and effective release of all employment related claims, Dr. Yuen would receive the following severance benefits: (1) a lump sum severance payment equal to: (A) 200% of his base salary and (B) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Dr. Yuen’s outstanding equity awards will accelerate as to the number of shares that would have vested subject to continued service over the 18 month period following termination (but no waiver of any performance-based criteria).
Involuntary termination following a change in control
. Under the retention agreement, if Dr. Yuen’s employment terminates as a result of Involuntary Termination on or within 12 months following a Change in Control, and provided that Dr. Yuen provides a valid and effective release of all employment related claims, Dr. Yuen would receive the following severance benefits: (1) a lump sum severance payment equal to (A) 200% his base salary, (B) 200% of his target bonus for the year of termination, and (C) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Dr. Yuen’s outstanding equity awards will accelerate in full (but no waiver of any performance-based criteria).
Finally, the agreement provides for a supplemental cash payment, in addition to any death benefits payable under our life insurance policies, in the event that Dr. Yuen’s employment terminates due to his death while he is outside of his country of residence (for any reason), if necessary to provide for total death benefits equal to two times his then-current annual base salary.
Potential Payments upon Termination or Change in Control
Based on the Retention Agreements as discussed in the section above entitled “Executive Compensation—Employment Agreements,” the following table describes the payments that we would have made to our named executive officers in connection with certain terminations of employment and/or certain corporate transactions like a Change in Control, if such events had occurred on December 31, 2016, the last business day of our most recently completed fiscal year. All severance benefits are contingent upon the individual’s execution of a general release of all claims.
Potential payments upon involuntary termination, not in connection with a change in control.
Timothy S. Jenks
. Under the retention agreement effective August 5, 2016, upon an Involuntary Termination and subject to his execution of a binding release of claims, Mr. Jenks would have received the following severance benefits: (1) a lump sum severance payment equal to (A) 200% of his base salary, (B) 200% of his target bonus for the year of termination and (C) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Jenks’ outstanding equity awards will accelerate as to the number of shares that would have vested subject to continued service over the 18-month period following termination (including, a waiver of any performance-based criteria).
Clyde R. Wallin
. The retention agreement with Mr. Wallin was superseded on April 4, 2017 by his separation agreement. Under the superseded retention agreement with Mr. Wallin effective August 5, 2016, upon an Involuntary Termination and subject to his execution of a binding release of claims, Mr. Wallin would have received the following severance benefits: (1) a lump sum severance payment equal to (A) 150% his base salary and (B) a cash payment equal to $72,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Wallin’s outstanding equity awards will accelerate as to the number of shares that would have vested subject to continued service over the 18-month period following termination (but no waiver of any performance-based criteria).
Benjamin L. Sitler
. Under the retention agreement effective August 5, 2016, upon an Involuntary Termination and subject to his execution of a binding release of claims, Mr. Sitler would have received the following severance benefits: (1) a lump sum severance payment equal to (A) 100% his base salary and (B) a cash payment equal to $72,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Sitler’s outstanding equity awards will accelerate as to the number of shares that would have vested subject to continued service with the Company over the 18 month period following termination (but no waiver of any performance-based criteria).
Dr. Raymond Cheung
. Under the retention agreement effective August 5, 2016, upon an Involuntary Termination and subject to his execution of a binding release of claims, Dr. Cheung would have received the following severance benefits: (1) a lump sum severance payment equal to (A) 200% his base salary and (B) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Dr. Cheung’s outstanding equity awards will accelerate as to the number of shares that would have vested subject to continued service over the 18-month period following termination (but no waiver of any performance-based criteria).
Dr. Wupen Yuen
. Under the severance rights agreement effective August 5, 2016, upon an Involuntary Termination and subject to his execution of a binding release of claims, Dr. Yuen would have received the following severance benefits: (1) a lump sum severance payment equal to (A) 200% his base salary and (B) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Dr. Yuen’s outstanding equity awards will accelerate as to the number of shares that would have vested subject to continued service over the 18-month period following termination (but no waiver of any performance-based criteria).
Potential payments upon a change in control, stock awards not assumed.
Pursuant to our 2004 Stock Option Plan and our 2010 Equity Incentive Plan, in the event that there had been a change in control (as defined in the 2004 Stock Option Plan and the 2010 Equity Incentive Plan in a manner that is generally consistent with the definition set forth above) on December 31, 2016, and if the surviving or acquiring corporation had elected not assume or substitute for outstanding options (or assume the repurchase rights held in respect of shares purchased under such options, as applicable), the vesting of outstanding options held by each of our named executive officers on such date would have accelerated as to that number of shares that would otherwise have vested and become exercisable as of December 31, 2017, that is, the date that is 12 months after the date of the change in control.
Potential payments upon a change in control concurrent with an involuntary termination of employment.
Timothy S. Jenks
. Under the retention agreement that was in effect on December 31, 2016, upon an Involuntary Termination of Mr. Jenks’ employment or as a result of a successor failing to assume our obligations under the retention agreement, in either case within 12 months following a Change in Control and subject to his execution of a binding release of claims, Mr. Jenks would receive the following severance benefits: (1) a lump sum severance payment equal to (A) 200% of his base salary, (B) 200% of his target bonus for the year of termination, and (C) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Jenks’ outstanding equity awards would have accelerated in full (including a waiver of any performance-based criteria).
Clyde R. Wallin
. The retention agreement with Mr. Wallin was superseded on April 4, 2017 by his separation agreement. Under the superseded retention agreement in effect on December 31, 2016, upon an Involuntary Termination of Mr. Wallin’s employment or as a result of a successor failing to assume our obligations under the retention agreement, in either case within 12 months following a Change in Control and subject to his execution of a binding release of claims, Mr. Wallin would have received the following severance benefits: (1) a lump sum severance payment equal to (A) 150% of his base salary, (B) 100% of his target bonus for the year of termination, and (C) a cash payment equal to $72,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Wallin’s outstanding equity awards would have accelerated in full (but no waiver of any performance-based criteria).
Benjamin L. Sitler
. Under the retention agreement in effect on December 31, 2016, upon an Involuntary Termination of Mr. Sitler’s employment or as a result of a successor failing to assume our obligations under the retention agreement, in either case within 12 months following a Change in Control and subject to his execution of a binding release of claims, Mr. Sitler would have received severance benefits the following severance benefits: (1) a lump sum severance payment equal to (A) to 150% of his base salary, (B) 100% of his target bonus for the year of termination and (C) a cash payment equal to $72,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Sitler’s outstanding equity awards would have accelerated in full (but no waiver of any performance-based criteria).
Dr. Raymond Cheung
. Under the retention agreement in effect on December 31, 2016, upon an Involuntary Termination of Dr. Cheung’s employment or as a result of a successor failing to assume our obligations under the retention agreement, in either case within 12 months following a Change in Control, and subject to his execution of a binding release of claims, Dr. Cheung would have received the following severance benefits: (1) a lump sum severance payment equal to (A) 200% of his base salary, (B) 200% of his target bonus for the year of termination, and (C) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Dr. Cheung’s outstanding equity awards would have accelerated would have accelerated in full (but no waiver of any performance-based criteria)
Dr. Wupen Yuen
. Under the retention agreement in effect on December 31, 2016, upon an Involuntary Termination of Dr. Yuen’s employment or as a result of a successor failing to assume our obligations under the retention agreement, in either case within 12 months following a Change in Control and subject to his execution of a binding release of claims, Dr. Yuen would have received the following severance benefits: (1) a lump sum severance payment equal to (A) to 200% of his base salary, (B) 200% of his target bonus for the year of termination, and (C) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Dr. Yuen’s outstanding equity awards would have accelerated would have accelerated in full (but no waiver of any performance-based criteria).
Potential payments upon termination or change in control
The following table shows the amounts each of our named executive officers would receive in the event of his termination and/or upon a change in control, assuming the event took place on December 31, 2016, the last business day of our most recently completed fiscal year. All severance benefits are contingent upon the individual’s execution of a general release of all claims.
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Named Executive Officer
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Termination or Change in Control Event
(1)
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Salary ($)
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Bonus ($)
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Benefits ($)
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Equity Acceleration ($)
(2)
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Total ($)
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Timothy S. Jenks
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Involuntary termination
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1,000,000
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(3)
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500,000
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(4)
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144,000
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(5)
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859,737
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2,503,737
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Change in control—awards assumed and involuntary termination
(10)
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1,000,000
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(3)
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1,000,000
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(6)
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144,000
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(5)
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1,471,419
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3,615,419
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Change in control—awards not assumed and involuntary termination
(11)
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1,000,000
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(3)
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1,000,000
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(6)
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144,000
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(5)
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1,471,419
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3,615,419
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Change in control—awards not assumed and employment continues
(12)
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-
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-
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-
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859,737
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859,737
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Clyde R. Wallin
(13)
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Involuntary termination
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325,000
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(7)
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—
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72,000
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(8)
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309,342
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706,342
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Change in control—awards assumed and involuntary termination
(10)
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487,500
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(9)
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178,750
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(4)
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72,000
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(8)
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508,611
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1,246,861
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Change in control—awards not assumed and involuntary termination
(11)
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487,500
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(9)
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178,750
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(4)
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72,000
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(8)
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508,611
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1,246,861
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Change in control—awards not assumed and employment continues
(12)
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—
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—
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—
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—
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—
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Benjamin L. Sitler
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Involuntary termination
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290,000
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(7)
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—
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72,000
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(8)
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283,479
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645,479
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Change in control—awards assumed and involuntary termination
(10)
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435,000
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(9)
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159,500
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(4)
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72,000
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(8)
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467,111
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1,133,611
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Change in control—awards not assumed and involuntary termination
(11)
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435,000
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(9)
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159,500
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(4)
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72,000
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(8)
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467,111
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1,133,611
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Change in control—awards not assumed and employment continues
(12)
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-
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-
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-
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283,479
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283,479
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Dr. Raymond Cheung
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Involuntary termination
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722,000
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(3)
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—
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144,000
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(5)
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352,909
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1,218,909
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Change in control—awards assumed and involuntary termination
(10)
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722,000
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(3)
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397,100
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(6)
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144,000
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(5)
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560,001
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1,823,101
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Change in control—awards not assumed and involuntary termination
(11)
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722,000
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(3)
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397,100
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(6)
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144,000
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(5)
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560,001
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1,823,101
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Change in control—awards not assumed and employment continues
(12)
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-
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-
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-
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352,909
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352,909
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Dr. Wupen Yuen
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Involuntary termination
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624,000
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(3)
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—
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144,000
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(5)
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354,758
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1,122,758
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Change in control—awards assumed and involuntary termination
(10)
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624,000
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(3)
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343,200
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(6)
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144,000
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(5)
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561,850
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1,673,050
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Change in control—awards not assumed and involuntary termination
(11)
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624,000
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(3)
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343,200
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(6)
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144,000
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(5)
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561,850
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1,673,050
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Change in control—awards not assumed and employment continues
(12)
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-
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-
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-
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354,758
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354,758
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(1)
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No compensation is payable where there is a change in control, awards are assumed and employment continues.
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(2)
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The value realized is the gain that our named executive officers would receive, calculated as the difference between the closing price per share of our common stock on December 31, 2016, of $10.81 per share, and the exercise price of the named executive officers’ unvested options or awards subject to acceleration upon or following a change in control event.
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(3)
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Represents 200% of base salary calculated at a rate in effect on December 31, 2016.
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(4)
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Represents 100% of target bonus for such named executive officer for 2016.
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(5)
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Represents a cash payment that is intended to assist in the payment of, but not required to be used for, continued health insurance.
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(6)
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Represents 200% of target bonus for such named executive officer for 2016.
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(7)
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Represents 100% of base salary calculated at a rate in effect on December 31, 2016.
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(8)
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Represents a cash payment that is intended to assist in the payment of, but not required to be used for, continued health insurance.
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(9)
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Represents 150% of base salary calculated at a rate in effect on December 31, 2016.
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(10)
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Represents benefits received by such named executive officer upon a change in control in which the surviving or acquiring entity elects to assume or substitute outstanding options or awards concurrent with an involuntary termination of employment of such named executive officer.
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(11)
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Represents benefits received by such named executive officer upon a change in control in which the surviving or acquiring corporation elected not to assume or substitute outstanding options or awards concurrent with an involuntary termination of employment of such named executive officer.
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(12)
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Represents benefits received by such named executive officer upon a change in control in which the surviving or acquiring corporation elected not to assume or substitute outstanding options or awards and such named executive officer’s employment continues.
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(13)
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On March 31, 2017, Mr. Wallin informed the Company his intention to resign from his position, effective as of May 15, 2017. Mr. Wallin has agreed to serve as an officer and employee through such date.
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Non-Employee Director Compensation Policy Prior to January 2017
From April 2011 through December 2016,
we provided the following compensation package for our non-employee directors.
Cash Compensation.
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Annual retainer
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$
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36,000
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Additional retainer Audit Committee chair
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24,000
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Additional retainer Audit Committee member
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12,000
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Additional retainer Compensation Committee chair
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9,000
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Additional retainer Compensation Committee member
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6,000
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Additional retainer Nominating and Corporate Governance Committee chair
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9,000
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Additional retainer Nominating and Corporate Governance Committee member
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6,000
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Additional payment for Lead Director per regular meeting
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1,000
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Additional payment for Technical Advisory Board per regular meeting
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2,500
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(1)
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(1)
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If meeting requires one day or more of travel, then amount paid was $5,000.
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Equity Compensation
. Our non-employee director compensation policy provided that on the date of each annual stockholders’ meeting, each non-employee director would receive (A) a grant of an option to purchase that number of shares of our common stock equal to (1) $25,000 divided by (2) the fair market value of a share of our common stock on the date of such grant, which would vest ratably over 12 months and (B) a grant of restricted stock units covering that number of shares of our common stock equal to (1) $25,000 divided by (2) the fair market value of a share of our common stock on the date of such grant, which would vest on the 12 month anniversary of the date of grant. Each of the option grants would have an exercise price equal to the fair market value of our common stock on the date of grant.
Non-Employee Director Compensation Policy effective January 2017
On January 18, 2017, our board of directors approved several changes to our non-employee director compensation policy, effective January 2017. Such changes were recommended to the board by the compensation committee of the board. As updated, the policy provides
the following compensation package for our non-employee directors.
Cash Compensation
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Annual retainer
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$
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42,500
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Additional retainer Audit Committee chair
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20,000
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Additional retainer Audit Committee member
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10,000
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Additional retainer Compensation Committee chair
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15,000
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Additional retainer Compensation Committee member
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5,500
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Additional retainer Nominating and Corporate Governance Committee chair
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10,000
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Additional retainer Nominating and Corporate Governance Committee member
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4,600
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Additional retainer for Lead Independent Director
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7,500
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Additional payment for Technical Advisory Board per regular meeting
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2,500
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(1)
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(1)
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If meeting requires one day or more of travel, then amount paid will be $5,000.
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Equity Compensation
. Our non-employee director compensation policy provides that on the date of each annual stockholders’ meeting, each non-employee director will receive (A) a grant of an option to purchase that number of shares of our common stock with a target value equal to (1) $37,500 (for 2017) and $47,000 (for 2018 and thereafter), which shall vest ratably over 12 months and (B) a grant of restricted stock units covering that number of shares of our common stock equal to (1) $37,500 (for 2017) and $47,000 (for 2018 and thereafter) divided by (2) the fair market value of a share of our common stock on the date of such grant, which shall vest on the 12 month anniversary of the date of
grant. Each of the option grants shall have an exercise price equal to the fair market value of our common stock on the date of grant. Target value for the stock option grants will be calculated using a Black-Scholes model and based on a 30-day trading average (ending the day before the grant date).
Director Compensation Table
The following table sets forth information regarding fees paid to our non-employee directors for their service on our board of directors during the year ended December 31, 2016.
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Fees Earned or Paid in Cash ($)
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|
Option Awards ($)
(1)
|
|
Stock Awards ($)
(1)
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|
Total ($)
|
|
Charles J. Abbe
|
$
|
61,250
|
$
|
14,828
|
$
|
24,993
|
$
|
101,071
|
|
Dmitry Akhanov
|
|
42,000
|
|
14,828
|
|
24,993
|
|
81,821
|
|
Bandel Carano
(2)
|
|
45,000
|
|
14,828
|
|
-
|
|
59,828
|
|
Michael J. Sophie
|
|
60,000
|
|
14,828
|
|
24,993
|
|
99,821
|
|
Ihab Tarazi
|
|
54,500
|
|
14,828
|
|
24,993
|
|
94,321
|
|
Rajiv Ramaswami
|
|
47,000
|
|
14,828
|
|
24,993
|
|
86,821
|
|
|
(1)
|
|
Amounts reflect the grant date fair value of stock options and stock awards (restricted stock units) granted in 2016 calculated in accordance with applicable accounting guidance for share-based payment transactions. Only one stock option and only one restricted stock unit award was granted to each non-employee director in 2016. The valuation assumptions used in determining such amounts are described in Note 14 to the consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the Securities and Exchange Commission on March 16, 2017.
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(2)
|
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Bandel Carano has elected not to receive restricted stock unit award as part of his non-employee director compensation.
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As of December 31, 2016, our non-employee directors held outstanding stock options and stock awards as follows:
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|
|
|
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|
Name
|
|
Stock Options
|
|
Stock Awards
|
|
Charles J. Abbe
|
|
27,970
|
|
2,656
|
|
Dmitry Akhanov
|
|
13,228
|
|
2,656
|
|
Bandel L. Carano
|
|
40,434
|
|
-
|
|
Michael J. Sophie
|
|
35,742
|
|
2,656
|
|
Ihab Tarazi
|
|
2,656
|
|
2,656
|
|
Rajiv Ramaswami
|
|
17,988
|
|
2,656
|
|
|
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
|
Our Compensation Committee currently consists of Messrs. Abbe, Tarazi and Ramaswami. Effective as of the 2016 Annual Meeting, Mr. Tarazi replaced Mr. Lee Sen Ting as a member of the Compensation Committee. None of the members of our Compensation Committee have, at any time, been one of our officers or employees. None of our executive officers serve, or in the past year have served, as a member of the board of directors or Compensation Committee of any entity that has one or more executive officers who serve on our board of directors or Compensation Committee.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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Related Party Transactions
The following is a summary of transactions since January 1, 2016, to which we were or are a party in which the amount involved exceeded or exceeds $120,000 and in which any of our directors, executive officers, holders of more than 5% of any class of our voting securities or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest, other than compensation arrangements with directors and executive officers, which are described where required under the “Executive Compensation” and “Management—Director Compensation” sections of this proxy statement.
Agreements with Rusnano
In April 2012, we entered into a share purchase agreement with Rusnano, pursuant to which we agreed to sell and issue an aggregate of 4,972,905 shares of common stock at a purchase price of $8.00 per share for aggregate gross proceeds of approximately $39,783,240. Immediately after the closing of such transaction, Rusnano owned approximately 16.7% of our issued and outstanding common stock. See “Security Ownership of Certain Beneficial Owners and Management” for additional information about Rusnano. Dmitry Akhanov, a member of our board of directors, is the President and Chief Executive Officer of Rusnano USA, Inc., a U.S. subsidiary of Rusnano.
In connection with the foregoing transaction, we entered into a rights agreement with Rusnano pursuant to which we agreed to, among other matters: (i) file one or more registration statements covering the resale of shares of our common stock held by Rusnano prior to the expiration of a lock-up agreement between us and Rusnano, (ii) grant piggyback registration rights to Rusnano for shares of our common stock held by Rusnano following the expiration of the lock-up agreement in the event we propose to register shares in an underwritten offering, (iii) grant Rusnano the right to designate one nominee for our board of directors, (iv) grant Rusnano a right of first offer to purchase its pro rata share of all equity securities (subject to an exclusion for shares issued in a public offering and other customary exceptions set forth therein) that we may propose to sell and issue after the date of the rights agreement, and (v) make a $30.0 million investment towards our Russian operations (the “investment commitment”).
In July 2015, we further amended our rights agreement with Rusnano. The amendment to the rights agreement became effective on June 30, 2015 and provides for an updated investment plan for our Russian subsidiaries that includes a non-cash transfer of licensing rights to intellectual property, non-cash transfers of existing equipment and commitments to complete the remaining milestones of approximately one-half of the overall investment through fiscal year 2019. It also provides that the maximum amount of penalties to be paid by us for failure to meet the investment obligation will not exceed $5.0 million in the aggregate, with the following penalties for failure to meet specified milestones and exit options at the end of the following years, subject to a 90-day cure period following such years:
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·
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By December 31, 2015, if the actual cumulative investment and spending to our Russian subsidiaries was less than $13.0 million, or if we had not sold any products manufactured by our Russian subsidiary, or if we had not completed agreed-upon manufacturing milestones, then we would have been subject to a $5.0 million penalty within 30 days after the end of the applicable cure period; if the cumulative investments and spending to our Russian subsidiaries were less than $15.4 million but more than $13.0 million by December 31, 2015 and was not cured within the applicable cure period, we would have been subject to a $1.5 million penalty within 30 days after the end of the applicable cure period. We fulfilled this milestone and contributed over $15.4 million in cash and assets to our Russian subsidiaries as of December 31, 2015. We also satisfied the requirement related to sale of products manufactured by our Russian subsidiary as of December 31, 2015. However, we were not in full compliance with the completion of agreed-upon manufacturing
|
milestones as of December 31, 2015 (and as of the end of the cure period ended March 30, 2016) since certain required equipment was delivered but not fully installed and operational as of that date. We have remediated these issues and, in August 2016, we entered into the second amendment to the rights agreement with Rusnano to address this matter. The amendment extended the foregoing manufacturing deadlines to June 30, 2016, which we completed as of June 30, 2016. As a result, we were not held liable for the $5.0 million penalty;
|
|
·
|
|
By December 31, 2016, if the actual cumulative investment and spending to our Russian subsidiaries was less than $18.8 million, we would have been subject to a $1.5 million penalty within 30 days after the end of the applicable cure period. We fulfilled this milestone and contributed over $18.8 million in cash and assets to our Russian subsidiaries as of December 31, 2016;
|
|
·
|
|
At the end of 2016, we would have been subject to pay an exit fee of $3.5 million to Rusnano should we had decided to cease the operations of our Russian subsidiaries, provided that the cumulative investments and spending including the tangible asset transfers, other than intangible asset transfers which was limited to a maximum valuation of $5.7 million, exceeded $10.0 million. Since we did not cease the operations of our Russian subsidiaries at the end of 2016, we were not held liable for the $3.5 million penalty; and
|
|
·
|
|
At the end of 2019, we will be subject to pay an exit fee of $2.0 million to Rusnano should we decide to cease the operations of our Russian subsidiaries, if the cumulative investments and spending are less than $30.0 million.
|
We also entered into a Commitment to File Registration Statement and Related Waiver of Registration Rights with Rusnano on December 18, 2014, whereby Rusnano waived certain registration rights in connection with a potential offering by us of shares of our common stock, and we committed to file with the SEC a resale registration statement on Form S-1 covering the resale of all shares of our common stock held by Rusnano. We filed such resale registration statement in April 2015, which is no longer effective. We expect to file a resale registration statement in 2017 covering the same amount of shares held by Rusnano.
In August 2016, we also entered into a Letter of Agreement with Rusnano, signed and effective August 2, 2016, whereby we committed to establish a 10G SFP+ transceiver line in Russia in 2017 and to undertake related capital expenditures of approximately $100,000 (which will not be counted toward our overall $30 million investment commitment under the rights agreement). Since our transceiver business was recently sold by us in January 2017, we intend to undertake such expense by spending the $100,000 commitment in another manner to be discussed and agreed between the parties.
Indemnification of Officers and Directors
Our certificate of incorporation includes a provision that eliminates, to the fullest extent permitted by law, the personal liability of a director for monetary damages resulting from breach of his fiduciary duty as a director.
Our bylaws provide that:
|
·
|
|
we are required to indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions;
|
|
·
|
|
we may indemnify our other employees and agents as provided in indemnification contracts entered into between us and our employees and agents;
|
|
·
|
|
we are required to advance expenses, as incurred, to our directors and officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; and
|
|
·
|
|
the rights conferred in the bylaws are not exclusive.
|
In addition to the indemnification required in our certificate of incorporation and bylaws, we have entered into indemnity agreements with each of our current directors and officers. These agreements provide for the indemnification of our directors and officers for all reasonable expenses and liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were our agents. We have also obtained directors’ and officers’ insurance to cover our directors, officers and some of our employees for liabilities, including liabilities under securities laws. We believe that these indemnification provisions and agreements and this insurance are necessary to attract and retain qualified directors and officers.
At present, there is no pending litigation or proceeding involving any of our directors, officers or employees regarding which indemnification by us is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.
Policies and Procedures for Related Party Transactions
We believe that we executed all of the transactions set forth above on terms no less favorable to us than we could have obtained from unaffiliated third parties. It is our intention to ensure that all future transactions between us and our officers, directors and principal stockholders and their affiliates, are approved by the Audit Committee of our board of directors, and are on terms no less favorable to us than those that we could obtain from unaffiliated third parties.
All related party transactions will be reviewed and approved by our Audit Committee. Pursuant to our code of business conduct and ethics, the Audit Committee is responsible for approving, prior to our entry into any transaction involving related parties, all transactions in which we are a participant and in which any parties related to us has or will have a direct or indirect material interest. In reviewing and approving these transactions, our Audit Committee will obtain, or will direct our management to obtain on its behalf, all information that the committee believes to be relevant and important to a review of the transaction prior to its approval.
We know of no other business that will be presented at the Annual Meeting. If any other business is properly brought before the Annual Meeting, it is intended that proxies in the accompanying form will be voted in accordance with the judgment of the persons voting the proxies.
Whether or not you intend to be present at the Annual Meeting, we urge you to submit your voted proxy promptly.
By order of the board of directors,
|
|
|
|
Timothy S. Jenks
|
|
President, Chief Executive Officer and
|
|
Chairman of the Board of Directors
|
|
San Jose, California
|
|
Dated: April 14, 2017
|
|
A copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the Securities and Exchange Commission, is available without charge upon written request to Judi L. Otteson, Vice President & General Counsel, NeoPhotonics Corporation, 2911 Zanker Road, San Jose, California 95134 USA.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on June 1, 2017, at our principal office located at 2911 Zanker Road, San Jose, California 95314 USA.
The proxy statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the Securities and Exchange Commission are available
at http://IR.neophotonics.com
.
DIRECTIONS TO THE ANNUAL MEETING OF STOCKHOLDERS OF
NEOPHOTONICS CORPORATION
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|
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FROM SAN JOSE
|
|
FROM SAN FRANCISCO
|
|
FROM OAKLAND
|
|
|
|
|
|
|
|
Take 101 northbound.
Take exit 392 at Montague Expy.
Merge onto Montague Expy.
Turn right at Zanker Road.
Turn right into NeoPhotonics’ parking lot.
Proceed to the building at 2911 Zanker to check in.
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|
Take 101 southbound.
Take exit 392 at Montague Expy.
Merge onto Montague Expy.
Turn right at Zanker Road.
Turn right into NeoPhotonics’ parking lot.
Proceed to the building at 2911 Zanker to check in.
|
|
Take 880 southbound.
Take exit 7 at Montague Expy.
Merge onto Montague Expy.
Turn left at Zanker Road.
Turn right into NeoPhotonics’ parking lot.
Proceed to the building at 2911 Zanker to check in.
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ANNUAL MEETING OF STOCKHOLDERS OF NEOPHOTONICSCORPORATION June 7, 2016 GO GREEN e-Consent makes it easy to go paperless. With e-Consent, you can quickly access your proxy material, statements and other eligible documents online, while reducing costs, clutter and paper waste. Enroll today via www.amstock.com to enjoy online access. NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL: The Notice of Meeting, proxy statement and proxy card are available at http://www.astproxyportal.com/ast/16875/ Please sign, date and mail your proxy card in the envelope provided as soon as possible. Please detach along perforated line and mail in the envelope provided. 20203000000000000000 3 060716 THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES LISTED IN PROPOSAL NO. 1, AND "FOR" PROPOSAL NO. 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE X The Board of Directors recommends you vote FoR the following: 1. Election of Directors: The Board of Directors recommends you vote FoR the following proposal: FOR AGAINST ABSTAIN FOR ALL NOMINEES WITHHOLD AUTHORITY FOR ALL NOMINEES FOR ALL EXCEPT (See instructions below) NOMINEES: O Rajiv Ramaswami O Ihab Tarazi 2. Ratification of the selection by our Audit Committee of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016. NOTE: In their discretion, the proxies are authorized to vote upon such other business as may properly come before the Annual Meeting of Stockholders or any adjournment or postponement thereof. INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. Signature of Stockholder Date: Signature of Stockholder Date: Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
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NEOPHOTONICS CORPORATION PROXY FOR ANNUAL MEETING OF STOCKHOLDERS JUNE 7, 2016 10:00 AM THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS The stockholder(s) hereby appoint(s) Timothy S. Jenks and Clyde R. Wallin or either of them, as proxies of the stockholders, each with the power to appoint his substitute, and hereby authorize(s) them to represent and to vote, as designated on the reverse side of this proxy card, all of the shares of common stock of NEOPHOTONICS CORPORATION that the stockholder(s) is/are entitled to vote at the Annual Meeting of Stockholders to be held at 10:00 AM Pacific Time on June 7, 2016, at 2911 Zanker Road, San Jose, CA 95134 USA, and any adjournment or postponement thereof. The Board of Directors recommends a vote "FOR" all nominees listed in Proposal No. 1, and "FOR" Proposal No. 2. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE STOCKHOLDER(S). IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED "FOR" ALL NOMINEES FOR THE BOARD OF DIRECTORS LISTED IN PROPOSAL NO. 1, AND "FOR" PROPOSAL NO. 2. (Continued and to be signed on the reverse side.) 1.1 14475
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