UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.   )
Filed by the Registrant ☒
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Preliminary Proxy Statement

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

Definitive Proxy Statement

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Soliciting Material under §240.14a-12
APPLIED OPTOELECTRONICS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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April 23, 2021
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of the Stockholders of Applied Optoelectronics, Inc. (the “Company”), on Thursday, June 3, 2021, at 9:30 a.m. Central Time. We plan to hold the meeting at our principal office located at 13139 Jess Pirtle Blvd., Sugar Land, TX 77478. In light of the COVID-19 pandemic, we may elect to change the annual meeting location and hold a “virtual” meeting instead of a physical meeting. If we make such a change, we will provide you reasonable advance notice via a press release and filing with the Securities and Exchange Commission, as well as a posting on our Investor Relations website.
The items of business are listed in the following Notice of Annual Meeting of Stockholders and are more fully addressed in the Proxy Statement. At this meeting you are being asked to elect the two Class II directors named in the Proxy Statement to hold office for three-year terms, to ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year, to approve, on an advisory basis, our executive compensation and approve the 2021 equity incentive plan.
Please read the Proxy Statement, which presents important information about the Company and each of the items being presented for stockholder vote. Whether or not you intend to be present in person, your vote is very important. Please vote promptly by telephone or internet or by marking, signing and returning your proxy card (if you have received one) so that your shares will be represented. If you attend the meeting you will, of course, have the right to revoke the proxy and vote your shares in person. If you hold your shares through an account with a brokerage firm, bank or other nominee, please follow the instructions you receive from your brokerage firm, bank or other nominee to vote your shares.
We hope that you will be able to attend the meeting in person. We look forward to seeing you there.
Sincerely yours,
[MISSING IMAGE: SG_CHIHHSIANGTHOMPSON-BW.JPG]
Chih-Hsiang (Thompson) Lin
Chairman and Chief Executive Officer
 

 
[MISSING IMAGE: LG_APPLIEDOPTINC-PN.JPG]
NOTICE OF 2021 ANNUAL MEETING OF STOCKHOLDERS
To Be Held On June 3, 2021
The 2021 annual meeting of stockholders (“Annual Meeting”) of Applied Optoelectronics, Inc., a Delaware corporation (the “Company”) will be held on Thursday, June 3, 2021, at 9:30 a.m. Central Time, at our principal offices at 13139 Jess Pirtle Blvd., Sugar Land, TX 77478, for the following purposes:
1.   To elect the two Class II directors named in the Proxy Statement to hold office for three-year terms until the 2024 annual meeting of stockholders and until their respective successors are elected and qualified, which we refer to as Proposal No. 1.
2.   To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021, which we refer to as Proposal No. 2.
3.   To approve, on an advisory basis, our executive compensation, which we refer to as Proposal No. 3 or the “say-on-pay” vote.
4.   To approve the 2021 equity incentive plan, which we refer to as Proposal No. 4.
5.   To transact such other business as may properly come before the meeting or any adjournment or postponement of the meeting.
Our Board of Directors recommends a vote FOR Proposals 1, 2, 3 and 4. Stockholders of record at the close of business on April 5, 2021 are entitled to notice of, and to vote at, the meeting and any adjournment or postponement thereof. For ten days prior to the meeting, a complete list of stockholders entitled to vote at the meeting will be available for examination by any stockholder, for any purpose relating to the meeting, during ordinary business hours at our principal offices and during the Annual Meeting. The list of stockholders will also be made available for examination by any stockholder during the Annual Meeting.
Securities and Exchange Commission (“SEC”) rules permit us to furnish proxy materials to stockholders over the Internet. We will be mailing to our stockholders a Notice of Internet Availability of Proxy Materials, which indicates how to access our proxy materials on the Internet. We are constantly focused on improving the ways people connect with information, and believe that providing our proxy materials over the Internet increases the ease and ability of our stockholders to connect with the information they need while reducing the environmental impact of our Annual Meeting. If you would prefer to receive a paper copy of the proxy materials, you may request them by following the procedures set forth in the Notice of Internet Availability of Proxy Materials.
Your vote is very important. Whether or not you plan to attend the Annual Meeting, we encourage you to read this proxy statement and submit your proxy or voting instructions as soon as possible. If you are a stockholder of record, you may vote your shares over the Internet at www.proxyvote.com, telephonically by dialing 1-800-690-6903 or if you requested to receive printed proxy materials, via your enclosed proxy card. If the shares you own are held in “street name” by a bank or brokerage firm, your bank or brokerage firm will provide a Notice of Availability of Proxy Materials, or, if requested, a printed set of proxy materials together with a voting instruction form, which you may use to direct how your shares will be voted.
You are cordially invited to join us at the Annual Meeting. However, to ensure your representation, we request that you vote at your earliest convenience, whether or not you plan to attend the Annual Meeting. You may revoke your proxy at any time prior to the Annual Meeting by following the instructions in the Proxy Statement or by attending the Annual Meeting and voting in person.
 

 
Please note that, as part of our concern regarding the health and safety of our stockholders, directors, officers, employees, meeting attendees and the public in light of the COVID-19 pandemic, we may elect to change the Annual Meeting location and hold a “virtual” meeting instead of a physical meeting. If we make such a change, we will provide you reasonable advance notice via a press release and SEC filing, as well as a posting on our Investor Relations website.
We look forward to seeing you at the Annual Meeting.
By order of the Board of Directors,
[MISSING IMAGE: SG_DAVIDKUO-BW.JPG]
David Kuo
General Counsel and Corporate Secretary
April 23, 2021
 

 
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 3, 2021: The Notice of 2021 Annual Meeting of Stockholders, Proxy Statement and the 2020 Annual Report on Form 10-K are available at www.proxyvote.com.
Attending the Meeting
Unless we announce that the meeting will be held virtually, the meeting will be held at 13139 Jess Pirtle Blvd., Sugar Land, TX 77478.

Doors open at 9:00 a.m. Central Time.

Meeting starts at 9:30 a.m. Central Time.

Attendance at the Annual Meeting is limited to our stockholders, their proxyholders and guests of the Company. Proof of Company stock ownership and photo identification is required to attend the Annual Meeting.

The use of cameras or other audio or video recording devices is not allowed.
Due to the public health impact of COVID-19 and related travel concerns, we may impose additional procedures or limitations on meeting attendees beyond those described above and in the accompanying proxy statement. Such additional precautionary measures may include, in compliance with guidance issued by the U.S. Centers for Disease Control, restricting the number of meeting attendees gathered in one room and requiring that all meeting attendees remain at minimum six feet from other persons at all times.
In the event we are unable to hold the meeting in person, we are planning for the possibility that the meeting may be held virtually by means of remote communication. If we take this step, we will provide you reasonable advance notice via a press release and filing with the Securities and Exchange Commission, as well as a posting on our Investor Relations website with details on how to participate in the meeting. If a meeting by remote communication becomes necessary, it will not impact your ability to vote in advance of the meeting by telephone, internet or mail as described in the accompanying proxy statement.
Questions
For Questions Regarding:
Contact:
Annual meeting
Applied Optoelectronics, Inc. Investor Relations
David Kuo at david_kuo@ao-inc.com
Stock ownership for registered holders
Continental Stock Transfer & Trust Company (800) 509-5586 (within the U.S. and Canada) or (212) 509-4000 (worldwide) or cstmail@continentalstock.com
Stock ownership for beneficial holders
Please contact your broker, bank or other nominee
Voting for registered holders
Applied Optoelectronics, Inc. Investor Relations
David Kuo at david_kuo@ao-inc.com
Voting for beneficial holders
Please contact your broker, bank or other nominee
 

 
Applied Optoelectronics, Inc.
Table of Contents
Page
Notice of 2021 Annual Meeting of Stockholders
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APPLIED OPTOELECTRONICS, INC.
13139 Jess Pirtle Blvd., Sugar Land, TX 77478
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 3, 2021
The Board of Directors (the “Board”) of Applied Optoelectronics, Inc. (the “Company”) is soliciting your proxy for the 2021 Annual Meeting of Stockholders to be held on June 3, 2021, or any adjournment or postponement thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders. This Proxy Statement and related materials are first being made available to stockholders beginning on April 23, 2021. A Notice of Internet Availability of Proxy Materials indicating how to access our proxy materials over the Internet will be sent, or given, to stockholders beginning on April 23, 2021. References in this Proxy Statement to the “Company,” “we,” “our,” “us” and “Applied Optoelectronics” are to Applied Optoelectronics, Inc. and its consolidated subsidiaries, and references to the “Annual Meeting” are to the 2021 Annual Meeting of Stockholders. This Proxy Statement covers our 2020 fiscal year, which was from January 1, 2020 through December 31, 2020 (“fiscal 2020”). Certain information contained in this Proxy Statement is incorporated by reference into Part III of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed by the Company with the U.S. Securities and Exchange Commission (“SEC”) on February 25, 2021.
SOLICITATION AND VOTING
Record Date
Only stockholders of record at the close of business on April 5, 2021 will be entitled to notice of and to vote at the meeting and any adjournment thereof. As of this record date there were 26,787,041 shares of common stock outstanding and entitled to vote.
Quorum
A majority of the shares of common stock issued and outstanding as of the record date must be represented at the meeting, either in person or by proxy, to constitute a quorum for the transaction of business at the meeting. Your shares will be counted towards the quorum if you submit a valid proxy (or one is submitted on your behalf by your broker or bank) or if you vote in person at the meeting. In addition, shares present in person, but not voting, shares for which we receive signed proxies, but for which holders have abstained from voting, and shares represented by proxies returned by a bank, broker, or other nominee holding shares will each be counted as present for purposes of determining the presence of a quorum.
Vote Required to Adopt Proposals
Each share of our common stock outstanding on the record date is entitled to one vote on each of the two director nominees under Proposal No. 1. Each share of our common stock outstanding on the record date is entitled to one vote on each other proposal.
Proposal No. 1.   For the election of directors, the two director nominees to serve as Class II directors will be elected by a plurality of the votes cast by the stockholders entitled to vote at the election so that two nominees who receive the highest number of “For” votes will be elected as Class II directors. You may vote “For” or “Withhold” with respect to each director nominee.
Proposal No. 2.   Approval of Proposal No. 2 to ratify our independent registered public accounting firm requires the affirmative vote of a majority of the votes cast on the proposal at the Annual Meeting. Abstentions will have no effect on the outcome of the proposal, and there should be no broker “non-votes” on the proposal because brokers have discretion to vote on this proposal, as described in more detail below.
Proposal No. 3.   Approval of Proposal No. 3 requires the affirmative vote of a majority of the votes cast on the proposal at the Annual Meeting. However, the say-on-pay vote is only advisory in nature and has no binding effect on us or the Board. Nevertheless, the Board will consider the result of the say-on-pay vote when
 
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making future compensation decisions regarding our named executive officers. Abstentions and “broker non-votes” will have no effect on the outcome of the proposal.
Proposal No. 4.   Approval of Proposal No. 4 requires the affirmative vote of a majority of the shares cast on the proposal at the Annual Meeting. Abstentions will have the same effect as a vote against the proposal, but “broker non-votes” will have no effect on the outcome of the proposal.
Effect of Abstentions and Broker Non-Votes
Shares not present at the meeting and shares voted “Withhold” will have no effect on the election of directors. With respect to all proposals, shares will not be voted in favor of the matter if they either (1) abstain from voting on a particular matter or (2) are “broker non-votes.” For Proposal No. 4, an abstention will have the same effect as a vote against such proposal. If your shares are held in an account at a bank or brokerage firm, that bank or brokerage firm may vote your shares on Proposal No. 2, but will not be permitted to vote your shares of common stock with respect to Proposals No. 1, 3 and 4, unless you provide instructions as to how your shares should be voted (where no instructions are provided, this is a “broker non-vote”). If an executed proxy card is returned by a bank or broker holding shares which indicates that the bank or broker has not received voting instructions to vote on Proposals No. 1, 3 and 4, the shares will not be considered to have been voted with respect to such matters, but will be considered present for the purposes of establishing quorum for the Annual Meeting. Your bank or broker will vote your shares of common stock on Proposals No. 1, 3 and 4, only if you provide instructions on how to vote by following the instructions they provide to you. Accordingly, we encourage you to vote promptly, even if you plan to attend the Annual Meeting.
Voting Instructions
If you vote promptly by telephone or internet or by marking, signing and returning your proxy card (if you have received one) or otherwise appropriately complete and submit your voting instructions, the persons named as proxies will follow your voting instructions. If no choice is indicated on the proxy card, but the proxy card is signed, the shares will be voted as the Board recommends on each proposal. Many banks and brokerage firms have a process for their beneficial owners to provide instructions via telephone or the Internet. The voting form that you receive from your bank or broker will contain instructions for voting.
Depending on how you hold your shares, you may vote in one of the following ways:
Stockholders of Record:   You may vote by proxy or over the internet or by telephone. Please follow the instructions provided on the proxy card if you received one, or available at proxyvote.com. You may also vote by signing and returning your proxy card, if you received one, in the prepaid envelope, or by attending the Annual Meeting and voting in person.
Beneficial Stockholders:   Your bank, broker or other holder of record will provide you with a voting instruction card for you to use to instruct them on how to vote your shares. Check the instructions provided by your bank, broker or other holder of record to see which options are available to you. However, since you are not the stockholder of record, you may not vote your shares in person at the Annual Meeting unless you request and obtain a valid proxy from your bank, broker or other agent.
Votes submitted by telephone or via the Internet must be received by 11:59 p.m. Eastern Time on June 2, 2021. Submitting your proxy by telephone or via the internet will not affect your right to vote in person should you decide to attend the Annual Meeting in person.
If you are a stockholder of record, you may revoke your proxy and change your vote at any time before the polls close at the Annual Meeting by returning a later-dated proxy card, by voting again by Internet or telephone as more fully detailed on your proxy card, by delivering written instructions to the Corporate Secretary before the Annual Meeting, or by voting again at the Annual Meeting. Attendance at the Annual Meeting will not in and of itself cause your previously voted proxy to be revoked unless you specifically so request or vote again at the Annual Meeting. If your shares are held in an account at a bank, brokerage firm or other agent, you may change your vote by submitting new voting instructions to your bank, brokerage firm or other agent or if you have obtained a legal proxy from your bank, brokerage firm or other agent giving you the right to vote your shares, by attending the Annual Meeting and voting in person.
 
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Electronic Availability of Proxy Statement and 2020 Annual Report
As permitted by SEC rules, we are making this Proxy Statement and our 2020 Annual Report available to stockholders electronically via the internet at www.proxyvote.com. On April 23, 2021, we will begin mailing to our stockholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access this proxy statement and our 2020 Annual Report and how to vote online. If you received that notice, you will not receive a printed copy of the proxy materials unless you request it by following the instructions for requesting such materials contained in the notice. We are constantly focused on improving the ways people connect with information, and believe that providing our proxy materials over the internet increases the ease and ability of our stockholders to connect with the information they need while reducing the environmental impact of our Annual Meeting.
Solicitation of Proxies
We will bear the cost of soliciting proxies. In addition to soliciting stockholders by mail, we will request banks, brokers and other intermediaries holding shares of our common stock beneficially owned by others to obtain proxies from the beneficial owners and will reimburse them for their reasonable, out-of-pocket costs for forwarding proxy and solicitation material to the beneficial owners of common stock. We may use the services of our officers, directors and employees to solicit proxies, personally or by telephone, without additional compensation.
Voting Results
We will announce preliminary voting results at the Annual Meeting. We will report final results in a Form 8-K report filed with the SEC.
 
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
We have a classified Board consisting of two Class I directors, two Class II directors and three Class III directors. At each annual meeting of stockholders, directors are elected for a term of three years to succeed those directors whose terms expire at the annual meeting date.
The term of the Class II directors, William H. Yeh and Alex Ignatiev, will expire on the date of the upcoming Annual Meeting. Accordingly, two persons are to be elected to serve as Class II directors of the Board at the meeting. Dr. Ignatiev is not standing for re-election. The Board’s nominees for election by the stockholders to those two positions are the current Class II member of the Board, William H. Yeh and the new nominee, Cynthia (Cindy) DeLaney. If elected, each nominee will serve as a director until our annual meeting of stockholders in 2024 and until their respective successors are elected and qualified. If any of the nominees declines to serve or becomes unavailable for any reason (although we know of no reason to anticipate that this will occur), or if a vacancy occurs before the election, the proxies may be voted for such substitute nominees as we may designate. The proxies cannot vote for more than two persons.
The two nominees for Class II director receiving the highest number of FOR votes will be elected as Class II directors.
We believe that each of our directors has demonstrated business acumen, ethical integrity and an ability to exercise sound judgment as well as a commitment of service to us and our Board.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF WILLIAM H. YEH AND CYNTHIA (CINDY) DELANEY AS CLASS II DIRECTORS.
Biographical information concerning each of our directors, including the nominees, is set forth below. Also set forth below are the specific experience, qualifications, attributes or skills that led our nominating and corporate governance committee to conclude that each person should serve as a director.
Name
Principal Occupation
Age
Director
Since
Female
Racially/
Ethnically
Diverse
Class I Directors Whose Terms Expire at the 2023 Annual Meeting of Stockholders:
Che-Wei Lin
President of ASMedia Technology, Inc. 57
2014
X
Elizabeth Loboa
Provost and Vice President for Academic Affairs at Southern Methodist University
54
2020
X
X
Class II Directors Whose Terms Expire at the 2021 Annual Meeting of Stockholders:
William H. Yeh
President and Chief Executive Officer of Golden Star Management, Inc. 68
2000
X
Alex Ignatiev
Professor of physics, chemistry and electrical and computer engineering at the University of Houston 76
2013
New Class II Director Nominee:
Cynthia (Cindy)
DeLaney

Global Fuel Oil Commodity Trading Manager of Shell
Trading
55
X
Class III Directors Whose Terms Expire at the 2022 Annual Meeting of Stockholders:
Chih-Hsiang
(Thompson) Lin

Chairman and Chief Executive Officer of Applied
Optoelectronics, Inc.
58
1997
X
Richard B. Black
Chairman and Chief Executive Officer of ECRM, Inc. 87
2001
Min-Chu (Mike) Chen
Director of Seth Nanotechnology Inc. 71
2013
X
 
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Nominees for Election to a Three Year Term Expiring at the 2024 Annual Meeting of Stockholders
William H. Yeh has served as a director on our Board since May 2000. Since 1997, he has served as the Chief Executive Officer and President of Golden Star Management, Inc., a real estate investment and management company. Since 2005, he has served as President of Pearlyeh Investments Inc., a real estate development and investment company. Since 2014, he has served as president of Stonemetal Capital, LLC, an equity financial company and as president of Pearl Yeh Charitable Foundation LLC, a charitable foundation focused on cultural exchange and education programs. He served as the Vice Chairman of Central Bancorp, Inc. (the holding company of United Central Bank, now Hanmi Bank) from 1997 to 2014. He served as an Advisor of Hanmi Bank for the Texas region from 2014 to 2019. Mr. Yeh received a BS degree from National Cheng Kung University in Taiwan and a MS degree from University of Houston — Clear Lake. The Board believes that Mr. Yeh is qualified to serve as a director based on his business and financial management and leadership experience and his years of service on our Board.
Cynthia (Cindy) DeLaney has been nominated as a candidate to be elected to serve on our Board at the 2021 Annual Meeting of the Stockholders. Ms. DeLaney was recommended by a member of our management team. Since January 2014, Ms. DeLaney has served as the Global Fuel Oil commodity trading manager for Shell Trading. In this role she manages Shell’s global Fuel Oil trading activities with primary trading offices in Singapore, Rotterdam and Houston, covering Asia, Europe, and the Americas, and other offices in cities such as Calgary, Dubai and Moscow. For the previous nine years (2005-2013), she managed the Americas Fuel Oil Trading team. Before her position as the Americas Trading Manager, Ms. DeLaney was a trader in fuel oil, VGO, gasoline and gasoline components (1999-2005). She has over 25 years’ experience as a trader and in technical aspects of the petrochemical/refining industry. In her role as the Global Trading Manager of Fuel Oil, Ms. DeLaney has increased the profitability of Shell’s global fuel oil trading business which grew steadily over her tenure. Since October 2016, Ms. DeLaney has served as a director and Vice President of Shell Trading US Company (STUSCo). She is also a member of the Executive group of the Houston Chapter of the Women’s Energy Network (WEN) which works to promote and develop women’s careers in Energy and STEM fields. Ms. DeLaney started her working career in 1991 as an Electrical Engineer at Arco Chemical Company (now Lyondell) in Houston. She moved from technical to commercial activities at Arco, eventually trading MTBE and gasoline components from Arco’s Newtown Square, Pennsylvania headquarters. In 1998, she moved to Koch Industries, in Houston, to trade MTBE before being hired in 1999 by Shell to trade gasoline, and then Fuel Oil and VGO. Ms. DeLaney has B.S. in Electrical Engineering from Louisiana State University. The Board believes Ms. DeLaney is qualified to serve as a director based on her leadership experience and extensive experience in business.
Directors Continuing in Office until the 2022 Annual Meeting of Stockholders
Chih-Hsiang (Thompson) Lin, Ph.D., founded Applied Optoelectronics, Inc. in February 1997 and has served as President and Chief Executive Officer since our inception. He currently serves as the Chairman of our Board, a position he has held since January 2014. He has served as a director on our Board since 1997, and he served as Chairman of our Board from May 2000 through September 2002, and again from June 2008 through October 2009. Since May 2015, Dr. Lin has served on the University of Missouri’s Chancellor’s Advisory Group and since November 2016 he has served as a chair on the University of Missouri’s Industrial Advisory Board for the College of Engineering. Dr. Lin also served as a research associate professor from 1998 to 2000 and as a senior research scientist from 1994 to 1998 at the University of Houston. Dr. Lin holds a BS degree in Nuclear Engineering from National Tsing Hua University in Taiwan and a MS degree and a Ph.D. in Electrical and Computer Engineering from University of Missouri — Columbia. The Board believes that Dr. Lin is qualified to serve as a director based on his extensive background in business management, technological expertise, his role as founder, President and Chief Executive Officer and his years of service on our Board.
Richard B. Black has served as a director on our Board since August 2001. Since 1983, he has served as the Chairman and Chief Executive Officer of ECRM, Incorporated, a worldwide supplier of laser based imaging equipment. From 2014 to 2017, he also served as President and Chief Executive Officer and a director of CRON-ECRM LLC, a worldwide supplier of laser based imaging equipment. Mr. Black served as a director and Chairman of the audit committee of Alliance Fiber Optics Products, Inc. (Nasdaq: AFOP) from 2002 until its acquisition by Corning in 2016. He serves as a director of TREX Enterprises, Inc., a defense
 
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technology company, a position he has held since 2000. Mr. Black has served as trustee of the Institute for Advanced Study at Princeton since 1990, and became its Vice Chairman in 2006, and Trustee Emeritus since 2012. He has served as a trustee of the American Indian College Fund, Beloit College, and Bard College. At the University of Chicago, he serves on the Dean’s Council for the Physical Sciences Division and on the Board of Governors of the University’s Smart Museum of Art. Mr. Black received a BS degree in Engineering from Texas A&M University, an MBA from Harvard University and an honorary Ph.D. from Beloit College. The Board believes that Mr. Black is qualified to serve as a director based on his extensive business and financial management and leadership experience, and his service on other private company and publicly-held company’s boards of directors as both a chief executive officer and chairman of the audit committee. He brings to the Board expertise in the fields of accounting and internal controls.
Min-Chu (Mike) Chen, Ph.D., has served as a director on our Board since February 2013. Since 2001, he has been a partner and member of the board of directors of EverRich Capital Inc., a financial consulting company. Since 2003, he has served as a director of Seth Nanotechnology Inc., a nanotechnology patent portfolio company owning more than 10 patents in fullerene derivatives and related application technologies. Since May 2010, he has served as executive director of C&C International Services, Inc., a petrochemical equipment services and marketing company. Since November 2011, he has served as the Asia Pacific Director for U.S. Flow Control Group Pte. Ltd., a petroleum equipment manufacturer and services company. Since January 2012, he has served as an executive director of FGel Nanotek, Inc., a food and beverage additive company based on nanotechnology. Since April 2014, he has served as a director of Harbin NeoTek Medical Devices Co., Ltd. Since September 2016, he has served as Vice Chairman of the board of directors of Shandong SicerKline Advanced Material Co., Ltd., a surface-etched silicon carbide and alumina mini-whisker manufacturing plant for ceramic applications. Since 2018, he has served as executive director of EABO Information Technology (Shanghai), Co. Ltd. From September 2008 to April 2010, Dr. Chen served as the Chief Executive Officer of SilverPAC, Inc., a consumer electronics business, and from March 1994 to June 2002, Dr. Chen served as a board member of PCTEL, Inc. (Nasdaq: PCTI). Dr. Chen received a Ph.D. in Ocean Engineering from Oregon State University. The Board believes that Dr. Chen is qualified to serve as a director based on his business management experience, his service on other private company boards of directors and his prior service on the board of a publicly-held company.
Directors Continuing in Office until the 2023 Annual Meeting of Stockholders
Che-Wei Lin has served as a director on our Board since January 2014, and previously served as a director on our Board from December 2006 to October 2009. Since November 2007, Mr. Lin has served as the President of ASMedia Technology Inc., a chipset manufacturer. Since November 2009, Mr. Lin has also served as the Corporate Vice President of the Motherboard Business Unit of the Open Platform Business Group of ASUSTek Computer Inc., a computer hardware and electronics company. Mr. Lin was employed at VIA Technologies, Inc., a manufacturer of integrated circuits and motherboard chipsets, from 1993 to 2007 in various positions, including President of the Desktop Platform Business Unit, Vice President of the System Platform Division and Vice President of OEM and Chipset Product Marketing. Mr. Lin received a BS in Electrical Engineering from Fu Jen University in Taiwan and a MS in Electrical Engineering from the University of Missouri. The Board believes that Mr. Lin is qualified to serve as a director based on his business and financial management and leadership experience and his years of service on our Board.
Elizabeth Loboa, Ph.D., has served on our Board since June 2020. Since 2020, Dr. Loboa has served as the Provost and Vice President for Academic Affairs at Southern Methodist University. From 2018 to 2020, Dr. Loboa served the University of Missouri System and the University of Missouri as Vice Chancellor for Strategic Partnerships, Dean and Ketcham Professor of the College of Engineering, University of Missouri System Review Committee for Excellence in Research and Creative Works, Council of Leaders, MU Engagement Council, Translational Precision Medicine Complex (TPMC, now called Next Gen Precision Health Institute) Academic and Research Programming Group, University of Missouri System Taskforce for Innovation, and served on the Board of Directors for the Missouri Innovation Center. She also held various leadership and service roles related to her profession. In 2018, she served as Coordinator of the Precision Medicine Summit for the University of Missouri System. In 2017, she served as Co-Chair of the University of Missouri Chancellor Search Committee. Since 2015, Dr. Loboa has also served as adjunct professor in the Department of Biomedical Engineering at University of North Carolina-Chapel Hill and North Carolina State University. From 2003 to 2015, she served as Director of the Cell Mechanics Laboratory, Joint
 
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Department of Biomedical Engineering at University of North Carolina-Chapel Hill and North Carolina State University. From 2014 to 2015, she served as adjunct professor in the Departments of Biotechnology, Physiology and Fiber and Polymer Science at North Carolina State University and in the Department of Orthopaedics and Curriculum in Oral Biology at University of North Carolina-Chapel Hill. From 2014 to 2015, she served as Professor of the Joint Department of Biomedical Engineering at University of North Carolina-Chapel Hill and North Carolina State University and the Department of Materials Science and Engineering at North Carolina State University. She also served as Associate Chair of the Joint Department of Biomedical Engineering at University of North Carolina-Chapel Hill and North Carolina State University from 2013 to 2015. Dr. Loboa received a B.S. in Mechanical Engineering from the University of California, Davis, an M.S.E in Biomechanical Engineering from Stanford University, and a Ph.D. in Mechanical Engineering from Stanford University. The Board believes Dr. Loboa is qualified to serve as a director based on her leadership experience, extensive experience in academia and broad knowledge in biomedical engineering.
 
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CORPORATE GOVERNANCE
Director Independence
In February 2021, the Board determined that, other than Dr. Chih-Hsiang (Thompson) Lin, our President and Chief Executive Officer, each of the current members of the Board and the nominee for election to the Board is an “independent director” for purposes of the Nasdaq Listing Rules and Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as the term relates to membership on the Board. The definition of independence under the Nasdaq Listing Rules includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director, nor any of his or her family members, has engaged in various types of business dealings with us. In addition, as further required by the Nasdaq Listing Rules, our Board has made a subjective determination as to each independent director that no material relationships exist that, in the opinion of our Board, would interfere with his exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, our Board reviewed and discussed information provided by the directors in questionnaires with questions tailored to the Nasdaq Listing Rules with regard to each director’s business and personal activities as they may relate to us and our management.
Board Leadership Structure
Our Board is currently chaired by our President and Chief Executive Officer, Dr. Chih-Hsiang (Thompson) Lin. The Board believes that combining the positions of Chief Executive Officer and Chairman of the Board, or Chairman, helps to ensure that the Board and management act with a common purpose, providing a single, clear chain of command to execute our strategic initiatives and business plans. In addition, the Board believes that a combined Chief Executive Officer and Chairman is better positioned to act as a bridge between management and the Board, facilitating the regular flow of information. In light of our Chief Executive Officer’s extensive history with and knowledge of our Company, the Board believes that it is advantageous for the Company to combine the positions of Chief Executive Officer and Chairman.
Our Board appointed William H. Yeh as lead independent director of our Board in April 2018. As our lead independent director, Mr. Yeh (i) serves as chair of executive sessions of the independent members of the Board; (ii) serves as chair of meetings of the Board if the Chairman of the Board is absent; (iii) serves as the designated liaison between the independent members of the Board, the full Board and the management of the Company; (iv) approves information sent to the Board; (v) approves meeting agendas of the Board; (vi) approves meeting schedules to assure there is sufficient time for discussion of all agenda items; (vii) has the authority to call meetings of the independent directors; and (viii) if requested by major stockholders, ensures that he is available for consultation and direct communication.
Risk Management
One of the key functions of the Board is informed oversight of our various processes for managing risk. The Board administers this oversight function directly through the Board as a whole, as well as through the standing committees of the Board that address risks associated with their respective areas of oversight. In particular, our Board is responsible for monitoring and assessing risk exposure in our strategic plans, development programs, corporate goals and operating plans. Our audit committee has the responsibility to consider and discuss our major exposures to financial risk and the steps our management takes to monitor and control these exposures, including guidelines, policies and processes. The audit committee also monitors our compliance with various legal and regulatory requirements, including cybersecurity risks, monitors our whistleblower system, and oversees the performance of our internal audit function. Our nominating and corporate governance committee monitors the effectiveness of our corporate governance guidelines and policies. Our compensation committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking. In addition, the Board meets with certain members of our executive team, including the heads of our different organizational functions, who discuss the risks and exposures involved in their respective areas of responsibility as well as any developments that could impact our risk profile or other aspects of our business. The Board considers the Company’s risk profile and other aspects of our business in assessing the leadership structure of the Board from time to time.
 
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In 2020, the Board also focused on overseeing the risks that the COVID-19 pandemic presented to the Company. The Board received regular updates during meetings regarding steps taken by management to mitigate the impact of the pandemic.
Executive Sessions
Non-management directors generally meet in executive session without management present. The Board’s policy is to hold executive sessions without the presence of management, including the Chief Executive Officer, who is the only non-independent director.
Meetings of the Board of Directors and Committees
The Board held eight meetings during the fiscal year ended December 31, 2020. The Board has three standing committees: an audit committee, a compensation committee and a nominating and corporate governance committee. During the last fiscal year, each of our directors attended at least 75% of the total number of meetings of the Board and all of the committees of the Board on which such director served during that period.
The following table sets forth the standing committees of the Board and the members of each committee as of the date that this Proxy Statement was first made available to our stockholders:
Name of Director
Audit
Compensation
Nominating and
Corporate
Governance
Richard B. Black
Chair
X
Min-Chu (Mike) Chen
X
Chair
Alex Ignatiev
X
William H. Yeh
Chair
X
Che-Wei Lin
X
Elizabeth Loboa
X
Audit Committee
Our audit committee currently consists of Richard B. Black, Alex Ignatiev and Elizabeth Loboa. Our Board has determined that Mr. Black, Dr. Ignatiev and Dr. Loboa each satisfy the independence and financial literacy requirements under the applicable rules and regulations of the SEC and Nasdaq. Mr. Black serves as the chairman of this committee, and our Board has determined that he qualifies as an “audit committee financial expert” as that term is defined in the rules and regulations established by the SEC and has the requisite financial sophistication as defined under the applicable Nasdaq rules. Our audit committee acts pursuant to a written charter that has been adopted by the Board. A copy of the charter is available on the investor relations portion of the Company’s website at www.ao-inc.com. Under its charter, the audit committee’s responsibilities include, but are not limited to:

meeting with our management periodically to consider the adequacy of our internal controls and the objectivity of our financial reporting;

meeting with our independent auditors and with internal financial personnel regarding these matters;

appointing, compensating, retaining and overseeing the work of our independent auditors;

pre-approving audit and non-audit services of our independent auditors;

reviewing our audited financial statements and reports and discussing the statements and reports with our management, including any significant adjustments, management judgments and estimates, new accounting policies and disagreements with management;

establishing procedures for the receipt, retention and treatment of complaints we receive regarding accounting, internal accounting controls or auditing matters, as well as for the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;
 
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reviewing the independence and quality control procedures of the independent auditor and the experience and qualifications of the independent auditor’s senior personnel that are providing us audit services;

reviewing all related-party transactions for approval;

reviewing and reassessing the adequacy of the audit committee’s charter at least annually and recommending any changes to our Board; and

reviewing and evaluating the audit committee’s own performance.
Both our independent auditors and internal financial personnel regularly meet privately with our audit committee and have unrestricted access to this committee.
The audit committee held eight meetings during the fiscal year ended December 31, 2020. Additional information regarding the audit committee is set forth in the Report of the Audit Committee immediately following Proposal No. 2.
Compensation Committee
Our compensation committee currently consists of William H. Yeh, Che-Wei Lin and Min-Chu (Mike) Chen, each of whom is not an employee and is “independent” as that term is defined in the applicable rules of the SEC and Nasdaq. Mr. Yeh serves as the chairman of this committee. Our compensation committee acts pursuant to a written charter that has been adopted by the Board. A copy of the charter is available on the investor relations portion of the Company’s website at www.ao-inc.com. Pursuant to its charter, our compensation committee has responsibility for developing, implementing and overseeing our executive and incentive compensation policies and programs. Under its current charter, the compensation committee’s responsibilities include, but are not limited to:

reviewing and approving all compensation for the Chief Executive Officer, including incentive-based and equity-based compensation;

reviewing and approving annual performance objectives and goals relevant to compensation for the Chief Executive Officer and evaluating the performance of the Chief Executive Officer;

reviewing and approving incentive-based or equity-based compensation plans in which our executive officers participate;

reviewing and approving all compensation for executive officers, including incentive-based and equity-based compensation, and overseeing the evaluation of management;

approving all employment, severance, or change-in-control agreements, special or supplemental benefits, or provisions including the same, applicable to executive officers;

periodically reviewing and advising our Board concerning both regional and industry-wide compensation practices and trends in order to assess the adequacy and competitiveness of our compensation programs for executive officers relative to comparable companies in our industry;

reviewing and reassessing the adequacy of the compensation committee charter and recommending any changes to our Board on an annual basis;

reviewing and evaluating the compensation committee’s own performance; and

reviewing the compensation paid to non-employee directors and make recommendations to the Board for any adjustments.
The compensation committee may delegate its authority to a subcommittee to make grants of compensatory equity awards to executive officers and other employees, provided that these grants are made within established guidelines. In addition, the compensation committee may obtain advice or assistance from compensation consultants, legal counsel or other advisors to perform its duties, provided that the compensation committee shall periodically assess the independence of any such compensation consultant as required by Nasdaq rules and applicable law.
The compensation committee held four meetings during the fiscal year ended December 31, 2020.
 
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Nominating and Corporate Governance Committee
Our nominating and corporate governance committee currently consists of Min-Chu (Mike) Chen, William H. Yeh and Richard B. Black, each of whom is not an employee and is otherwise “independent” as that term is defined in the applicable rules of the SEC and Nasdaq. Dr. Chen serves as the chairman of this committee. Our nominating and corporate governance committee oversees and advises the Board with respect to corporate governance matters, assists the Board in identifying and recommending qualified candidates for nomination to the Board, makes recommendations to the Board with respect to assignments to committees of the Board and oversees the evaluation of the Board. The nominating and corporate governance committee acts pursuant to a written charter that has been adopted by the Board. A copy of the charter is available on the investor relations portion of the Company’s website at www.ao-inc.com. Under its current charter, the nominating and corporate governance committee’s responsibilities include, but are not limited to:

Identify, evaluate and recruit individuals to become Board members and review with the Board from time to time the appropriate skills and characteristics required of Board members in the context of the company's business and strategy at the time and the current make-up of the Board; this assessment of Board skills, experience, and background includes, among numerous diverse factors, such as independence; understanding of and experience in manufacturing, technology, finance, and marketing; senior leadership experience; international experience; age; and diversity with respect to race, ethnicity, gender, and geography, which includes its commitment to actively seek women and minority candidates for the pool from which board candidates are chosen;

considering director candidates submitted by stockholders and determining the procedure to be followed by stockholders in submitting such recommendations;

recommending Board committee structure and responsibilities to be included in the charter of each committee of the Board to be submitted to the full Board for consideration;

recommending directors to serve on each Board committee and suggesting rotations for chairpersons of the Board committees as the nominating and corporate governance committee deems appropriate;

recommending corporate governance standards to the Board;

evaluating and recommending any revisions to Board and Board committee meeting policies;

reviewing the effectiveness of the operation of the Board and Board committees, including the corporate governance and operating practices;

reviewing and reassessing the adequacy of the nominating and corporate governance committee charter and recommending any changes to the Board; and

reviewing and evaluating the nominating and corporate governance committee’s own performance.
The nominating and corporate governance committee held one meeting during the fiscal year ended December 31, 2020.
Director Nominations
Our nominating and corporate governance committee is responsible for, among other things, assisting our Board in identifying qualified director nominees and recommending nominees for each annual meeting of stockholders. The nominating and corporate governance committee’s goal is to assemble a Board that brings to our Company a diversity of experience in areas that are relevant to our business and that complies with the Nasdaq Listing Rules and applicable SEC rules and regulations. While we do not have a formal diversity policy for board membership, the nominating and corporate governance committee generally considers the diversity of nominees in terms of knowledge, experience, background, skills, expertise and other demographic factors, as well as with respect to gender, racial and ethnic diversity. When considering nominees for election as directors, the nominating and corporate governance committee reviews the needs of the Board for various skills, background, experience and expected contributions and the qualification standards established from time to time by the nominating and corporate governance committee. The nominating and corporate governance committee believes that directors must also have an inquisitive and objective outlook and mature judgment. Director candidates must have sufficient time available in the judgment of the nominating and
 
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corporate governance committee to perform all board and committee responsibilities. Members of the Board are expected to rigorously prepare for, attend and participate in all meetings of the Board and applicable committee meetings. Other than the foregoing and the applicable rules regarding director qualification, there are no stated minimum criteria for director nominees.
The nominating and corporate governance committee evaluates annually the current members of the Board whose terms are expiring and who are willing to continue in service against the criteria set forth above in determining whether to recommend these directors for election. The nominating and corporate governance committee assesses regularly the optimum size of the Board and its committees and the needs of the Board for various skills, background and business experience in determining if the Board requires additional candidates for nomination.
Candidates for director nominations come to our attention from time to time through incumbent directors, management, stockholders or third parties. These candidates may be considered at meetings of the nominating and corporate governance committee at any point during the year. Such candidates are to be evaluated against the criteria set forth above. If the nominating and corporate governance committee believes at any time that it is desirable that the Board consider additional candidates for nomination, the committee may poll directors and management for suggestions or conduct research to identify possible candidates and may engage, if the nominating and corporate governance committee believes it is appropriate, a third party search firm to assist in identifying qualified candidates.
Our bylaws permit stockholders to nominate directors for consideration at an annual meeting. The nominating and corporate governance committee will consider director candidates validly recommended by stockholders. The process for evaluating stockholder-recommended nominees is no different than the process for evaluating nominees identified by the nominating and corporate governance committee. For more information regarding the requirements for stockholders to validly submit a nomination for director, see “Stockholder Proposals or Nominations to Be Presented at Next Annual Meeting” elsewhere in this Proxy Statement. In addition, our “Procedure for Submitting Stockholder Nominations to the Board of Directors” is available on the investor relations section of our website at www.ao-inc.com.
Communications with the Board
Any matter intended for the Board, or for any individual member or members of our Board, should be directed to our General Counsel at 13139 Jess Pirtle Blvd., Sugar Land, TX 77478, with a request to forward the communication to the intended recipient or recipients. In general, any stockholder communication delivered to our General Counsel for forwarding to our Board or specified Board member or members will be forwarded in accordance with the stockholder’s instructions. However, our General Counsel reserves the right not to forward to Board members any abusive, threatening or otherwise inappropriate materials.
Stockholder Engagement
Historically, our management team has interacted with stockholders primarily in connection with industry conferences, investor updates, and fundraising activity. In light of our continued growth as a company and our commitment to long-term investor value creation, in 2020 we engaged in additional stockholder outreach efforts. In doing so, we intended to seek stockholders’ perspective on our compensation programs, our ongoing efforts to improve diversity on our Board, and our Board structure generally. We reached out to our top stockholders representing approximately 45% of our outstanding shares and engaged with stockholders representing approximately 15% of outstanding shares on these matters.
In 2019 and 2020, our Board identified gender diversity as an area of focus for our nominating and corporate governance committee, in part based on stockholder input. We consider Ms. DeLaney to be a highly qualified candidate for the Board, and the nomination of Ms. DeLaney as a director to be elected at our 2021 Annual Meeting of Stockholders reflects further progress in the area of gender diversity on our Board.
We also heard that some stockholders may be interested in: more disclosure regarding succession planning; reducing the thresholds to propose charter and bylaws amendments; other changes viewed as good governance practices to improve stockholder access.
 
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In addition, our Board recognizes that stockholders may have differing opinions with respect to classified, or staggered, boards of directors. Our Board has maintained its classified structure that was established prior to our initial public offering because a staggered board can enhance stability and continuity by ensuring that each director possesses the experience and background to understand our complex business, including our management’s strategy for growth. A classified board also encourages directors to have a long-term perspective and reduces vulnerability to invasive and coercive takeover tactics that do not benefit stockholders and may divert valuable management resources.
We value our stockholders’ perspective on these matters and others and look forward to the information that we will be able to gather through additional stockholder engagement.
Director Attendance at Annual Meetings
We do not have a formal policy regarding Board members attendance at annual meetings, but all members of our Board are encouraged to attend each annual meeting of stockholders. We attempt to schedule our annual meeting of stockholders at a time and date to accommodate attendance by members of our Board taking into account the directors’ schedules. Two of our directors attended our 2020 Annual Meeting of Stockholders.
Code of Business Conduct and Ethics and Committee Charters
We have adopted a Code of Business Conduct and Ethics (the “Code”), that applies to all of our employees, officers and directors. The Code is available on the investor relations portion of our website at www.ao-inc.com. A printed copy of the Code may also be obtained by any stockholder free of charge upon request to the Corporate Secretary, Applied Optoelectronics, Inc., 13139 Jess Pirtle Blvd., Sugar Land, TX 77478. Any substantive amendment to or waiver of any provision of the Code may be made only by the Board, and will be disclosed on our website to the extent required.
Our Board has also adopted a written charter for each of the audit committee, the compensation committee and the nominating and corporate governance committee. Each charter is available on the investor relations portion of our website at www.ao-inc.com.
Compensation Committee Interlocks and Insider Participation
None of our employees, executive officers, or former executive officers serve as a member of our compensation committee, and none of our executive officers serve on any other committee serving an equivalent function for any other entity that has one or more of its executive officers serving as a member of our Board or compensation committee.
Risk Assessment of Compensation Programs
We do not believe that our compensation programs create risks that are reasonably likely to have a material adverse effect on our Company. We believe that the combination of different types of compensation as well as the structure and overall amount of compensation, together with our internal controls and oversight by the Board, mitigates potential risks. For example, our cash and equity incentive plans provide a minimum, target and maximum payout with corresponding performance goals, so that these compensation elements are not all-or-nothing. We also provide a base level of equity compensation through our equity incentive program, helping to smooth out the impact of unexpected challenges to our operating plan, as occurred in 2018.
 
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DELINQUENT SECTION 16(a) REPORTS
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers, and persons who own more than 10% of our common stock to file reports of their ownership and changes in ownership of our common stock with the SEC. Based solely on our review of the reports filed during 2020 and questionnaires from our directors and executive officers, we determined that no director, executive officer, or beneficial owner of more than 10% of our common stock failed to file a report on a timely basis during 2020, except for one late Form 4 filing for Dr. Chih-Hsiang (Thompson) Lin to report one transaction.
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The audit committee of our Board has selected Grant Thornton LLP (“Grant Thornton”) to serve as our independent registered public accounting firm to audit our consolidated financial statements for the fiscal year ending December 31, 2021. Grant Thornton has served as our auditor since 2008. A representative of Grant Thornton is expected to be present at the Annual Meeting to be available to provide a statement if they desire to do so and respond to appropriate questions.
Fees Billed by Grant Thornton
The following table sets forth the aggregate fees billed by Grant Thornton for services provided in the fiscal years ended December 31, 2020 and 2019:
Fiscal 2020
Fiscal 2019
Audit fees(1)
$ 1,150,725 $ 1,134,143
Audit-related fees(2)
$ $
Tax fees(3)
$ 53,012 $ 9,526
All other fees(4)
$ 6,350 $ 7,706
Total
$ 1,210,087 $ 1,151,375
(1)
Audit fees consist of fees billed for professional services rendered in connection with the audit of our consolidated annual financial statements, audit of internal control over financial reporting, and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by the independent auditor in connection with statutory and regulatory filings or engagements, consultations concerning financial reporting in connection with acquisitions and issuances of auditor consents and comfort letters in connection with SEC registration statements and related SEC registered securities offerings.
(2)
No audit-related fees were billed for services provided in the fiscal years ended December 31, 2020 and 2019.
(3)
All tax fees billed for services provided in the fiscal years ended December 31, 2020 and 2019 relate to the Texas Enterprise Credit program.
(4)
All other fees consist of fees for access to the auditor’s accounting research portal.
Policy on Audit Committee Pre-approval of Audit and Non-audit Services Performed by Independent Registered Public Accounting Firm
The audit committee has determined that all services performed by Grant Thornton for the fiscal years ended December 31, 2020 and 2019 were compatible with maintaining the independence of Grant Thornton. While the audit committee does not have a written policy with respect to the pre-approval of audit and non-audit services, in practice, it is the consistent policy of the audit committee to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm. These services
 
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may include audit services, audit-related services, tax services and other services. Unless the specific service has been pre-approved with respect to that year, the audit committee must approve the permitted service before the independent registered public accounting firm is engaged to perform it. The independent registered public accounting firm and management are required to periodically report to the audit committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval process.
Vote Required and Board of Directors Recommendation
The affirmative vote of a majority of the votes cast on the proposal at the Annual Meeting is required for approval of this proposal. Abstentions and broker non-votes are not treated as votes cast, and therefore will have no effect on the advisory vote. Because your vote is advisory, it will not be binding on the Board or the Company. Your bank or broker will have discretion to vote any uninstructed shares on this proposal. If the stockholders do not approve the ratification of Grant Thornton as our independent registered public accounting firm, the audit committee will review its future selection in light of the vote result, but may still appoint Grant Thornton in the future. Even if the selection is ratified, the audit committee in its discretion may appoint a different registered public accounting firm at any time during the year if the committee determines that such change would be appropriate.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2021.
 
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REPORT OF THE AUDIT COMMITTEE
The audit committee oversees the Company’s financial reporting process on behalf of the Board. The audit committee is responsible for retaining the Company’s independent registered public accounting firm, evaluating its independence, qualifications and performance, and approving in advance the engagement of the independent registered public accounting firm for all audit and non-audit services. The audit committee’s specific responsibilities are set forth in its charter. The audit committee reviews its charter at least annually.
Management has the primary responsibility for the financial statements and the financial reporting process, including internal control systems, and procedures designed to ensure compliance with applicable laws and regulations. The Company’s independent registered public accounting firm, Grant Thornton, is responsible for expressing an opinion as to the conformity of our audited financial statements with generally accepted accounting principles.
The audit committee has reviewed and discussed with management the Company’s audited financial statements. The audit committee has discussed with the independent registered public accounting firm the matters required to be discussed under the rules adopted by the Public Company Accounting Oversight Board (“PCAOB”) and the SEC. In addition, the audit committee has met with the independent registered public accounting firm, with and without management present, to discuss the overall scope of the independent registered public accounting firm’s audit, the results of its examinations, its evaluations of the Company’s internal controls and the overall quality of the Company’s financial reporting.
The audit committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the audit committee concerning independence and has discussed with the independent registered public accounting firm its independence.
Based on the review and discussions referred to above, the audit committee recommended to the Company’s Board that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Respectfully submitted,
AUDIT COMMITTEE
Richard B. Black, Chairman
Alex Ignatiev
Elizabeth Loboa
COMPENSATION COMMITTEE REPORT
The compensation committee has reviewed and discussed the below section titled “Compensation Discussion and Analysis” with management. Based on such review and discussion, the compensation committee has recommended to the Board that the section titled “Compensation Discussion and Analysis” be included in this Proxy Statement and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Respectfully submitted,
COMPENSATION COMMITTEE
William H. Yeh, Chairman
Min-Chu (Mike) Chen
Che-Wei Lin
 
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PROPOSAL NO. 3
ADVISORY VOTE ON OUR EXECUTIVE COMPENSATION
In accordance with Section 14A of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, and related rules of the SEC, we are providing stockholders an advisory vote, or say-on-pay vote, on the compensation of our named executive officers as described in this Proxy Statement.
At our 2020 annual meeting of stockholders, 45% of votes cast voted in favor of our executive compensation program, and as described in our Compensation Discussion and Analysis, our compensation committee made significant changes to our cash and equity incentive programs in response to this vote. We plan to hold annual say-on-pay votes until our next say-on-frequency vote at our 2024 annual meeting of stockholders.
The say-on-pay vote is a non-binding vote on the compensation of our named executive officers as described in this Proxy Statement in the Compensation Discussion and Analysis section, the tabular disclosure regarding such compensation and accompanying narrative disclosure. The say-on-pay vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this Proxy Statement.
In connection with this proposal, you are encouraged to carefully review the Compensation Discussion and Analysis section as well as the information contained in the compensation tables and accompanying narrative disclosure contained in this Proxy Statement. As described more fully in the Compensation Discussion and Analysis section, our compensation philosophy, policies and practices seek to pay for performance and align stockholder and executive interests. Consistent with that philosophy, the compensation committee of the Board believes our executive compensation program is reasonable and aligned with stockholder interests.
The Board recommends that you vote in favor of the following advisory resolution:
“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in the Proxy Statement for this Annual Meeting pursuant to Rule 402 of Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables and accompanying narrative disclosure, is hereby approved.”
The vote on this proposal is advisory and nonbinding on the Company. However, the Board and the compensation committee will consider the outcome of the vote when making future compensation decisions regarding our named executive officers.
Vote Required and Board of Directors Recommendation
The affirmative vote of a majority of the votes cast on the proposal at the Annual Meeting is required to approve this Proposal No. 3.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF OUR EXECUTIVE COMPENSATION AS DESCRIBED IN THIS PROXY STATEMENT.
 
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EXECUTIVE OFFICERS
The following table sets forth certain information regarding our executive officers.
Name
Age
Position(s)
Chih-Hsiang (Thompson) Lin
58
President, Chief Executive Officer and Chairman of the Board of Directors
Stefan J. Murry
48
Chief Financial Officer and Chief Strategy Officer
Hung-Lun (Fred) Chang
57
Senior Vice President and North America General Manager
Shu-Hua (Joshua) Yeh
55
Senior Vice President and Asia General Manager
David C. Kuo
38
Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary
Dr. Chih-Hsiang (Thompson) Lin’s biography can be found on page 5 of this Proxy Statement with the biographies of the other members of the Board. Biographies for our other executive officers, including our other named executive officers, are below.
Stefan J. Murry, Ph.D., has served as our Chief Financial Officer since August 2014. Previously, Dr. Murry served as our Chief Strategy Officer from December 2012, our Vice President of Sales and Marketing from June 2004 until December 2012, our Director of Sales and Marketing from January 2000 to June 2004 and as a Senior Engineer of Device Packaging from February 1997 to January 2000. He also previously served as Research Associate from 1991 to 1999 and Mission Control Specialist from 1992 to 1997 with the Space Vacuum Epitaxy Center in Houston, Texas. Dr. Murry has been issued multiple patents in the optoelectronics industry, as well as in various related and complimentary industries. Dr. Murry received BS and MS degrees in Physics and a Ph.D. in Electrical Engineering from the University of Houston.
Hung-Lun (Fred) Chang, Ph.D., has served as our North America General Manager and Senior Vice President of Optical Component Business Unit since October 2012. Previously, Dr. Chang served as Vice President of our Optical Module Division from March 2005 until October 2012, our Director of Manufacturing from June 2002 to March 2004, and as our Deputy Packaging Manager from April 2001 to May 2002. Dr. Chang has held numerous positions in the optoelectronics industry throughout his career. His most recent position prior to joining us was Deputy Manager from 2000 to 2001 of the Optical Active Component Group at Hon-Hai Precision Industry Co., Ltd., which is based in Taiwan. He was also a researcher and project manager of the Optoelectronic Module Technology group at Chunghwa Telecom Co., Ltd. from 1996 to 2000. Dr. Chang received a BS degree in Electrophysics and a Ph.D. in Electro-Optical Engineering from National Chiao Tung University in Taiwan.
Shu-Hua (Joshua) Yeh has served as our Asia General Manager since February 2015 and as Senior Vice President of our Network Equipment Module Business Unit since November 2012. Previously, Mr. Yeh served as our General Manager of our Video Equipment Division of Global Technology Inc., our China subsidiary, since its acquisition by us in March 2006 and had served as its President and Chief Executive Officer from April 2002 until the acquisition. From May 1995 to April 2002, Mr. Yeh served as a Vice President of Sales and Marketing of Twoway CATV Technology Inc. Mr. Yeh received a BS degree in Mechanical Engineering and an MS in Automatic Control Science from National Chung Shing University in Taiwan.
David C. Kuo has served as our Vice President, General Counsel and Chief Compliance Officer since August 2013 and as our Corporate Secretary since November 2012. Previously, Mr. Kuo served as our Assistant General Counsel from May 2009 until August 2013, and as our Asia Legal Manager from January 2011 until August 2013. Mr. Kuo holds a JD from South Texas College of Law and a BBA degree in Real Estate from Baylor University.
Our executive officers are elected by, and serve, at the discretion of our Board. There are no family relationships among any of our directors or executive officers.
 
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COMPENSATION OF NAMED EXECUTIVE OFFICERS AND DIRECTORS
Compensation Discussion and Analysis
This Compensation Discussion and Analysis describes the compensation program for our named executive officers. For 2020, these individuals were:

Chih-Hsiang (Thompson) Lin, our President and Chief Executive Officer (our “CEO”);

Stefan J. Murry, our Chief Financial Officer and Chief Strategy Officer (our “CFO”);

Hung-Lun (Fred) Chang, our Senior Vice President and North America General Manager;

Shu-Hua (Joshua) Yeh, our Senior Vice President and Asia General Manager; and

David C. Kuo, our Vice President, General Counsel, Chief Compliance Officer and Secretary.
This Compensation Discussion and Analysis provides an overview of our executive compensation philosophy and objectives and describes the decisions made regarding the material elements of our executive compensation program during 2020.
Executive Summary
Background on Our 2020
We are a leading, vertically integrated provider of fiber optic networking products, primarily for four networking end markets: internet data center, cable television, telecommunications, and fiber to the home. We design and manufacture a range of optical communications products at varying levels of integration, from components, subassemblies and modules to complete turn key equipment.
For us, along with many businesses around the world, 2020 was a year dominated by uncertainty surrounding the effects of COVID-19. While the year brought unprecedented challenges, total revenue increased by 23%, with the largest increases coming from our datacenter (21.1% annual increase) and telecom (150.2% annual increase) markets.
At this time last year, we identified three key business goals:
1.
Resumption of year over year revenue growth
2.
Diversification of the customer base that generates our revenue, and
3.
Retention of our key leadership team
Despite the unexpected challenges presented by COVID-19, we made significant progress on all of these goals. As noted above, revenue increased 23% in 2020. Revenue generated by customers not in our top 10 customer list increased from approximately 12% in 2019 to nearly 16% in 2020. We consider the revenue contribution from non-top-10 customers to be an important metric since many of these non-top-10 customers represent newer or smaller customers with the potential for long-term growth. Finally, we did not experience a loss of any of our top leadership team.
2020 Executive Compensation Highlights
The compensation committee took the following key actions with respect to the compensation of our named executive officers for 2020, mindful of the need to balance rigorous pay-for-performance and cash conservation with the need to retain our critical talent:

Base Salary—Limited increase to just a 3% cost of living adjustment.

Annual Cash Bonuses—Continued the four-tier performance goal structure implemented in 2019, with performance goals based on the Company’s operating plan for the year.

Long-Term Incentive Compensation—Established threshold, target and maximum award sizes for each of our executive officers based on a dollar value with performance goals based on the Company’s operating plan for the year and additional time-based vesting to clarify the link between pay and performance.
 
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The compensation committee set the total target pay mix set for our CEO and our other named executive officers as follows:
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Say-on-Pay Vote and Stockholder Engagement on Compensation
Say-on-Pay Vote
Our say-on-pay resolution received 45% approval at our 2020 annual meeting of stockholders. As a result, following the 2020 annual meeting of stockholders we implemented a stockholder outreach program in the third quarter of 2020 with a focus on understanding stockholder concerns regarding our executive compensation. We reached out in the fourth quarter of 2020 expressly on compensation matters to our top stockholders representing approximately 45% of our outstanding shares and engaged with stockholders representing approximately 15% of outstanding shares on compensation matters in the fourth quarter of 2020 and first quarter of 2021.
Through these engagements, which included our chief financial officer, general counsel, and human resources manager and a member of our compensation committee, we received important feedback that led our compensation committee to adopt several changes to our executive compensation program for 2021. These changes are responsive to what we heard from stockholder, as summarized in the chart below. For more details on our 2020 stockholder engagement program see the “Stockholder Engagement” section above.
What We Heard
How We Responded
Stockholders want to see clear explanation of how compensation committee looks at goals, targets, plans to see why the metric and target was set and how those translate to payouts. We enhanced our explanation included in these materials for how the compensation committee determined metrics and targets for 2020 performance and how actual performance translated to payouts.
Long-term incentive should be 50% performance based. Starting in 2021, the compensation committee intends that all our long-term incentives will be awarded in the form of restricted stock units based on a fixed value that is split with 50% vesting based solely on continued service over time and 50% vesting based on achievement of pre-determined performance goals for a three-year period that involve a combination of total shareholder return, or TSR, and stock price appreciation metrics.
Performance goals should not just automatically be tied to stock price; need to clearly explain priorities and how measuring success. The compensation committee is working with its new compensation consultant to determine appropriate performance goals for 2021 and future years, which may include stock price, relative TSR and/or financial metrics tied to the Company’s operating plan.
 
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What We Heard
How We Responded
Stockholders want to see clear disclosure and explanation of any discretion taken by the compensation committee.
The compensation committee significantly reduced the amount of discretion it may exercise under cash and equity incentive compensation programs starting in 2019. The compensation committee exercised discretion only in a very limited fashion for 2020 compensation. In recognition of the extraordinary contributions by three of the named executive officers in 2020, the committee:

Paid modest additional cash bonuses (representing ~3% of the target cash incentive bonus opportunity).

Approved additional restricted stock unit awards to be granted (representing ~3% to 6% of the target amount approved in 2020 to be granted in 2021 based on achievement of preset 2020 performance goals).
This discretionary compensation is described in more detail below under the caption “2020 Actual Performance and Resulting Payments.”
Stockholders want to see 3-year time frame for performance metrics. Starting in 2021 the compensation committee intends to implement a 3-year time frame for its performance-vesting restricted stock units.
Stockholders want to see high level explanation of shareholder engagement and what actions were taken after the engagement. This section and the “Shareholder Engagement” section above outline our shareholder engagement activities during 2020 and the actions we are taking in response.
Executive Compensation Policies and Practices
At the start of 2020, we were just six years out from our initial public offering and continued our transition toward the compensation governance practices adopted by our more established peers. The following summarizes our current policies and practices:
What We Do
What We Don’t Do

Maintain an Independent Compensation Committee. The compensation committee consists solely of independent directors.

No Generous Perquisites. We provide only limited perquisites or personal benefits to our executive officers.

Retain an Independent Compensation Advisor. The compensation committee engages its own compensation advisor to provide information and analysis regarding our executive and equity incentive compensation programs.

No Exclusive Executive Retirement Plans. We do not offer defined benefit pension arrangements and we do not provide retirement plans to our executive officers that are different from or in addition to those offered to our other employees.

Annual Executive Compensation Review. The compensation committee annually reviews our compensation programs and compensation-related risks to ensure that our compensation programs do not encourage excessive or inappropriate risk-taking and that the level of risk that they do encourage is not reasonably likely to have a material adverse effect on us.

No Special Health or Welfare Benefits. Our executive officers participate in broad-based Company-sponsored health and welfare benefits programs on the same basis as our other full-time, salaried employees.
 
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What We Do
What We Don’t Do

Compensation At-Risk. Our executive compensation program is designed so that a significant portion of compensation is “at risk” based on our performance to align the interests of our executive officers and stockholders.

No Hedging or Pledging of our Equity Securities. Our insider trading policy prohibits our executive officers, members of the Board and other employees from hedging or pledging our equity securities.

Succession Planning. We review the risks associated with our key executive officer position to ensure adequate succession plans are in place.

No Dividends or Dividend Equivalents Payable on Unvested Equity Awards. We do not pay dividends or dividend equivalents on unvested restricted stock unit awards.
Executive Compensation Philosophy
We have designed our executive compensation program to achieve the following primary objectives:

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

Establish a direct link between our financial and operational results and strategic objectives and the compensation of our executive officers; and

Align the interests and objectives of our executive officers with those of our stockholders by linking the long-term incentive compensation opportunities to stockholder value creation and their cash incentives to our annual performance.
Primary Program Elements
We structure the annual compensation of our executive officers, including the named executive officers, using three principal elements: base salary, annual performance-based cash bonus opportunities, and equity incentive compensation opportunities that are earned in part based on corporate performance. The compensation committee retains the flexibility to change the proportions as between these elements each year, to allow us to take into account the varying importance of our primary compensation objectives based on facts and circumstances each year.
Governance of Executive Compensation Program
Role of the Compensation Committee
The compensation committee has the primary responsibility for developing, implementing and overseeing our executive and incentive compensation policies and programs. While the compensation committee reports its decisions to, and takes into account the feedback of, the Board, the compensation committee generally makes the final decisions regarding the compensation of our named executive officers.
Compensation-Setting Process
The compensation committee determines the target total direct compensation opportunities for our executive officers, including our named executive officers. In any given year, the compensation committee considers some or all of the following factors:

the financial and operational objectives established by the Board for the year at issue;

the anticipated role that officer will play in the coming year in achieving those objectives and the cost and difficulty of replacing that individual;

internal pay equity among our executive officers;

each individual executive officer’s skills, experience, qualifications and role relative to other similarly-situated executives at the companies in our compensation peer group;
 
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the annual performance review for each executive officer, including contributions to our overall performance, demonstrated leadership and significant individual achievements;

our financial performance relative to our peers;

the compensation practices of our compensation peer group and the positioning of each executive officer’s compensation as compared to our peer group; and

the recommendations provided by our CEO with respect to the compensation of our other executive officers.
These factors provide a framework, with no single factor being determinative in setting pay levels.
Role of Our Officers
The compensation committee relies on the observations and information provided by our executive officers. Our Chief Executive Officer provides evaluations of the performance of the other executive officers and makes recommendations regarding changes to executive officer compensation (other than for himself), the broader Company-wide cash incentive plan, and budgets for equity awards. Our Chief Financial Officer provides information and recommendations regarding our annual corporate operating budget and the related performance goals for our equity and cash incentive programs. Our in-house legal team, including our General Counsel, provides additional guidance as requested by the compensation committee. Finally, the benefits committee, consisting of members of our human resources, legal, and accounting departments, provides guidance to the compensation committee on broad-based health, welfare and retirement benefit plans and proposed changes to those plans. Our officers recuse themselves from discussions and recommendations regarding their own compensation.
Role of Compensation Consultant
The compensation committee previously engaged Compensia, Inc., a national compensation consulting firm (“Compensia”), to provide information, analysis and other advice relating to our executive compensation program. In 2018, Compensia provided a review and analysis of market pay practices for executive officer compensation and assisted in the selection of the compensation peer group used by our compensation committee in determining 2018 and 2019 compensation for our named executive officers.
In the third quarter of 2020, the compensation committee retained Radford, which is part of the Reward Solutions practice at Aon plc, as its compensation consultant to assist with establishing an updated peer group for 2021 and to perform benchmarking for executive officer and director compensation for 2021. Radford reports directly to the compensation committee and to the compensation committee chair. While Radford coordinates with our management for data collection, including for obtaining the job descriptions for our executive officers, Radford does not provide any other services to us. The compensation committee has evaluated Radford’s independence pursuant to the listing standards of Nasdaq and the relevant SEC rules and has determined that no conflict of interest has arisen as a result of the work performed by Radford.
2020 Compensation Decisions
2020 Base Salary
Base salary represents the fixed portion of the target direct compensation for our executive officers and serves to attract and retain highly-talented individuals. The compensation committee determines adjustments to base salaries on an annual basis as well as in the event of a promotion or significant change in responsibilities.
In February 2020, in considering base salary adjustments, the compensation committee focused on the need to control cash costs given 2019 revenue performance as well as the need to retain our leadership to continue steering the Company through the unexpected operational challenges. The compensation committee believes that, under normal performance situations, targeting base salary at the median as compared to our peer group companies is appropriate and has historically provided for base salary adjustments that ranged from 3%-10%. However, given the need to conserve cash, the compensation committee felt that engaging a
 
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compensation consultant to update our benchmarking for executive compensation was inappropriate for 2020 and limited base salary increases to 3% to account for cost of living increases and the critical need to retain our leadership for 2020.
The following table shows the base salary changes that went into effect on March 1, 2020. Amounts for Mr. Yeh are paid in NTD (New Taiwan dollar) and RMB (Chinese Yuan Renminbi) but are reported in USD (United States dollar). The actual base salary amounts paid to our named executive officers in 2020 are set forth in the “2020 Summary Compensation Table” below.
Named Executive Officer
2019 Base Salary
2020 Base Salary
% Change
Chih-Hsiang (Thompson) Lin $ 523,552 $ 539,259 3%
Stefan J. Murry $ 345,040 $ 355,391 3%
Hung-Lun (Fred) Chang $ 316,522 $ 326,017 3%
Shu-Hua (Joshua) Yeh $ 314,234 $ 338,582 3%
David C. Kuo $ 215,938 $ 222,416 3%
2020 Annual Cash Bonuses
We use annual cash incentive opportunities to attract and retain our executive officers consistent with market practice, to reward our executive officers for achievement of our corporate objectives, and to recognize outstanding individual contributions.
2020 Target Annual Cash Bonus Opportunities
In considering the target annual cash bonus opportunities for 2020, the compensation committee considered the need to control cash costs, the potential for continued volatility in production in 2020, and the need to retain our leadership to continue steering the Company through the unexpected operational challenges. While the compensation committee believes that, under normal performance situations, targeting the annual cash incentive at the median as compared to our peer group companies is appropriate, given the need to conserve cash, the compensation committee felt that engaging a compensation consultant to update our benchmarking for executive compensation was inappropriate for 2020. Instead, the compensation committee determined that providing awards that represent a 30% decrease in the target award amounts as compared to the prior year would allow the Company to conserve cash while still providing an adequate incentive to retain our critical leadership.
Named Executive Officer
2019 Target
(% of base salary)
2020 Target
(% of base salary)
% Change
Chih-Hsiang (Thompson) Lin 73.33% 51.33% -30%
Stefan J. Murry 40.0% 28.0% -30%
Hung-Lun (Fred) Chang 40.0% 28.0% -30%
Shu-Hua (Joshua) Yeh 40.0% 28.0% -30%
David C. Kuo 33.33% 23.33% -30%
The compensation committee continued the four-tier performance structure introduced in 2018, where the bonus opportunity would be determined via linear interpolation, based on corporate performance, between the following pre-established amounts (expressed as a percentage of base salary):
Named Executive Officer
Performance Below
Minimum Level
Reduced
Performance
Target
Performance
Performance At or
Above Maximum Level
Chih-Hsiang (Thompson) Lin 0 25.67% 51.33% 64.17%
Stefan J. Murry 0 14.0% 28.0% 35.0%
Hung-Lun (Fred) Chang 0 14.0% 28.0% 35.0%
Shu-Hua (Joshua) Yeh 0 14.0% 28.0% 35.0%
David C. Kuo 0 11.67% 23.33% 29.17%
 
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2020 Corporate Performance Objectives
Starting in 2019, the compensation committee has focused solely on quantitative performance metrics for the annual cash bonus. Consistent with recent years, for 2020 the compensation committee decided to use GAAP revenue and non-GAAP operating income (loss), weighted equally, as the principal measures for the annual cash incentive program and the long-term incentive program for our named executive officers. These metrics are the primary metrics the Company uses for our annual operating plan. For this purpose, non-GAAP operating income (loss) means operating loss as defined under generally accepted accounting principles, excluding amortization of intangible assets, stock-based compensation expense, non-recurring expenses, unrealized foreign exchange gain (loss), losses from the disposal of idle assets, if any, non-recurring tax expenses (benefits), and expenses associated with discontinued products, if any, from our GAAP net income (loss), plus the amount accrued for cash bonuses. The compensation committee set the performance goals for 2020 based on increasing revenue year-over-year and reducing non-GAAP loss to align the incentive compensation with the key performance needed for the Company to achieve its annual operating plan. The compensation committee set the minimum, reduced, target, and maximum performance levels for the corporate performance measures at levels that are more rigorous as compared to 2019, and that are consistent with the goals for projected performance for the Company for the year under our annual operating plan as follows:
Performance Measure
Minimum
Performance Level
Reduced
Performance Level
Target
Performance Level
Maximum
Performance Level
Revenue ≤$ 186,600,000 $ 210,000,000 $ 233,300,000 ≥$ 245,000,000
Non-GAAP Operating Income (Loss)
≥$ (31,800,000) $ (25,900,000) $ (20,100,000) ≤$ (17,200,000)
The compensation committee determined that no annual cash incentive would be earned with respect to a metric for performance below the minimum level set forth above. Performance between these points would be determined using straight-line interpolation. The compensation committee would then take the average performance level (given the equal weighting) and multiply the result by the target opportunity to determine the amount actually earned.
2020 Actual Performance and Resulting Payments
In February 2021, the compensation committee determined that, for 2020, we generated GAAP revenue of $234.6 million and non-GAAP operating loss of $20.0 million, resulting in payments at 102% of the target awards.
The compensation committee reserves the right to make discretionary bonus payouts to take into account the executive’s contributions to the Company. The compensation committee recognized that Dr. Chang played an integral role in managing our manufacturing operations during the COVID-19 pandemic and expanding into the laser market in China and awarded him an additional 3% bonus for 2020. The compensation committee recognized that Mr. Yeh played an integral role in managing our manufacturing operations during the COVID-19 pandemic and diversifying our customer base, and awarded him an additional 6% bonus for 2020. Amounts for Mr. Yeh are paid in NTD (New Taiwan dollar) and RMB (Chinese Yuan Renminbi) but are reported in USD (United States dollar). The compensation committee recognized that Mr. Kuo played an integral role in managing unexpected litigation and awarded him an additional 3% bonus for 2020.
The dollar amounts approved by the compensation committee for the target opportunity as compared to the amounts earned and the amounts of the discretionary cash bonuses are as follows:
Named Executive Officer
Target Cash Bonus
Opportunity
Actual Cash Bonus
Earned (102%)
Additional
Discretionary
Cash Bonus
Chih-Hsiang (Thompson) Lin $ 276,819 $ 282,356 0
Stefan J. Murry $ 99,509 $ 101,494 0
Hung-Lun (Fred) Chang $ 91,285 $ 93,110 $ 2,793
Shu-Hua (Joshua) Yeh $ 91,431 $ 98,178 $ 5,891
David C. Kuo $ 51,897 $ 52,941 $ 1,588
 
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Equity Incentive Compensation
We use equity compensation to attract and retain our talent, to motivate them to achieve our corporate goals and to align their financial incentives with stockholder returns. Starting in 2019, the compensation committee approved preset GAAP revenue and non-GAAP operating income (loss) goals for the year and approved a specific amount of value for each named executive officer to be granted in the form of restricted stock units, with vesting over time based on continued service, based on the compensation committee’s determination of achievement of the performance goals following the conclusion of the year.
Restricted Stock Unit Awards for 2020 Performance
In June 2020, the compensation committee approved the specific amount of value for each named executive officer to be granted as restricted stock units following the end of 2020 based on the achievement of preset performance goals as follows:
Named Executive Officer
Minimum
Performance Award
Target
Performance Award
Maximum
Performance Award
Chih-Hsiang (Thompson) Lin $ 1,000,000 $ 2,000,000 $ 2,500,000
Stefan J. Murry $ 330,000 $ 660,000 $ 825,000
Hung-Lun (Fred) Chang $ 320,000 $ 640,000 $ 800,000
Shu-Hua (Joshua) Yeh $ 320,000 $ 640,000 $ 800,000
David C. Kuo $ 200,000 $ 400,000 $ 500,000
The compensation committee decided to continue to use GAAP revenue and non-GAAP operating income (loss) tied to our annual operating plan, weighted equally, as the performance measures, given the critical importance of these measures to the Company’s financial performance.
The compensation committee approved the following performance goals for 2020, with linear interpolation between points:
Performance Measure
Minimum
Performance Level
Target
Performance Level
Maximum
Performance Level
GAAP Revenue ≤$ 210,000,000 $ 233,300,000 ≥$ 245,000,000
Non-GAAP Operating Income (Loss) ≥$ (25,900,000) $ (20,100,000) ≤$ (17,200,000)
Because the compensation committee did not include any time-vesting restricted stock units in its equity incentive program for 2020, the committee determined that to improve the retention value of these awards, these awards would be considered earned at the threshold level irrespective of actual performance, so that the value represented by the portion of the award specified for the minimum performance level would be earned based solely on continued service through the grant date. That is, for performance below the threshold level, the compensation committee would still grant the threshold number of restricted stock units, which would be subject to time-based vesting over the 4 years after the conclusion of the performance period.
In February 2021, the compensation committee determined that, for 2020, we generated GAAP revenue of $234.6 million and non-GAAP operating loss of $20.0 million, resulting in achievement of 102% of the target award for each officer. However, the compensation committee reserves the right to adjust the payouts under the objective formula to take into account the executive’s contributions to the Company. The compensation committee recognized that Dr. Chang played an integral role in managing our manufacturing operations during the COVID-19 pandemic and expanding into the laser market in China, and awarded him an additional 3% premium for 2020. The compensation committee recognized that Mr. Yeh played an integral role in managing our manufacturing operations during the COVID-19 pandemic and diversifying our customer base, and awarded him an additional 6% premium for 2020. The compensation committee recognized that Mr. Kuo played an integral role in managing unexpected litigation and awarded him an additional 3% premium for 2020. As a result, the amounts earned for performance in 2020 are as follows:
 
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Named Executive Officer
Restricted Stock Units
(Number of Shares)*
Restricted Stock Units
(Value)
Chih-Hsiang (Thompson) Lin 181,494 $ 2,039,993
Stefan J. Murry 59,893 $ 673,197
Hung-Lun (Fred) Chang 59,820 $ 672,377
Shu-Hua (Joshua) Yeh 61,562 $ 691,957
David C. Kuo 37,387 $ 420,230
*
Value converted to number of shares based on average closing price for prior 30 trading-days.
Following the compensation committee’s February 2021 meeting, the compensation committee determined that sufficient shares were not available for grant under the Company’s 2013 Equity Incentive Plan and rescinded its approval of the restricted stock unit awards for the named executive officers. If the Company’s stockholders approve the new 2021 Equity Incentive Plan pursuant to Proposal No. 4 included in the proxy statement, the compensation committee plans to grant these restricted stock unit awards to the named executive officers under the new 2021 Equity Incentive Plan immediately following such approval.
Awards for 2021 Performance
In the third quarter of 2020, the compensation committee retained Radford as its compensation consultant to assist with establishing an updated peer group for 2021 and to perform benchmarking for executive officer and director compensation. As a result, the compensation committee determined to revise its approach to equity incentive awards.
Starting in 2021, the compensation committee plans to grant awards of restricted stock units to the named executive officers each year, 50% of which will vest based on continued service and the remaining 50% will be earned with respect to a variable number of shares based on the Company’s achievement of preset performance goals based on a combination of total stockholder return, or TSR, and stock price appreciation for a three-year period.
In April 2021, the compensation committee approved in concept the amounts for awards of restricted stock units to be granted to the named executive officers pursuant to this new approach as follows:
Named Executive Officer
Time-Vesting
Restricted Stock Units*
Target Amount
Performance-Vesting
Restricted Stock Units*
Total Value
Chih-Hsiang (Thompson) Lin $ 1,000,000 $ 1,000,000 $ 2,000,000
Stefan J. Murry $ 350,000 $ 350,000 $ 700,000
Hung-Lun (Fred) Chang $ 320,000 $ 320,000 $ 640,000
Shu-Hua (Joshua) Yeh $ 320,000 $ 320,000 $ 640,000
David C. Kuo $ 200,000 $ 200,000 $ 400,000
*
Value will be converted to number of shares based on average closing price for prior 30 trading-days.
If the Company’s stockholders approve the new 2021 Equity Incentive Plan pursuant to Proposal No. 4 included in the proxy statement, the compensation committee plans to grant these restricted stock units to the named executive officers under the new 2021 Equity Incentive Plan immediately following such approval.
Welfare and Health Benefits
Our named executive officers are eligible to participate in our broad based health and welfare programs on the same terms as our non-executive employees. These benefits include medical, vision and dental benefits, life insurance benefits, and short-term and long-term disability insurance. Our executive officers are eligible to participate in the same life insurance program as is offered to our employees at or above the level of deputy director. In addition, we maintain a Section 401(k) savings plan that permits our employees, including our executive officers, with the opportunity to save for retirement on a tax-advantaged basis. All participant interests in their contributions are fully vested when contributed. In structuring these benefit programs, we seek to provide an aggregate level of benefits that are comparable to those provided by similar companies.
 
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Perquisites and Other Personal Benefits
We generally do not provide perquisites to our executive officers, except where we believe it is appropriate to assist an individual in the performance of his or her duties, to make our executive officers more efficient and effective and for recruitment and retention purposes. During 2020, we provided our CEO, Dr. Lin, with the use of a company-leased automobile and we provided Mr. Yeh with a housing allowance for an apartment in Ningbo, China, given his responsibilities for managing operations in both China and Taiwan.
Employment Agreements & Post-Employment Compensation
We have entered into written agreements providing for at will employment with our CEO and each of our other named executive officers. These employment agreements provided for their initial base salary and target bonus opportunity, as well as severance eligibility in the event of qualifying terminations of employment, including a termination of employment following a change in control of the Company (a so-called “double-trigger” arrangement). In the case of the acceleration of vesting of outstanding equity awards, we use this double-trigger arrangement to protect against the loss of retention value following a change in control of the Company and to avoid windfalls, both of which could occur if vesting of either equity or cash-based awards accelerated automatically as a result of the transaction.
We believe that having in place reasonable severance rights, particularly for terminations in connection with a change of control, allow us to attract and retain highly-qualified executive officers, permit those officers to focus on the best interests of the Company without undue concern for their own financial position in a change of control, and reduce conflict at the time of a termination through a pre-negotiated package conditioned on signing a release of claims.
For detailed descriptions of the post-employment compensation arrangements we maintained with our named executive officers for 2020, as well as an estimate of the potential payments and benefits payable under these arrangements, see “Potential Payments Upon Termination or Change in Control” below.
Other Compensation Policies and Practices
Policies on Hedging and Pledging
Our insider trading policy prohibits hedging and pledging of our equity securities by our employees, including our executive officer, and the non-employee members of the Board, including specifically as follows:

Short-sales of our equity securities, as well as transactions in puts, calls, or other derivative securities involving our common stock, on an exchange or in any other organized market, by our employees, including our executive officers, and the non-employee members of the Board are prohibited;

Hedging or monetization transactions involving our equity securities, such as zero-cost collars and forward sale contracts, by our employees, including our executive officers, and the non-employee members of the Board are prohibited; and

Holding our equity securities in a margin account or pledging our securities as collateral for a loan by our employees, including our executive officers, and the non-employee members of the Board are prohibited.
Clawback Policy
We endeavor to make a substantial portion of our executive officers’ compensation dependent on our overall financial performance. We have a clawback policy in which we may seek the recovery or forfeiture of incentive compensation paid by us, including cash, equity or equity-based compensation in the event we restate our financial statements under certain circumstances. The clawback policy applies to our Section 16 officers, any employee who was eligible to receive incentive compensation and whose conduct contributed to the need for a restatement and any other former Section 16 officer or other employee who contributed to the need for a restatement.
 
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Stock Ownership Guidelines
To further align the interests of senior management and stockholders, we adopted stock ownership guidelines in 2019 that require our executive officers and non-employee directors to own minimum amounts of the Company’s common stock. The minimum levels of stock ownership for our executive officers are as follows:
Officer Level
Ownership Guideline
Chief Executive Officer
5x annual base salary
Chief Financial Officer
2x annual base salary
Senior Vice President
2x annual base salary
Vice President
1x annual base salary
Directors who are not also executive officers of the Company are required to hold shares of the Company’s common stock with a value equal to three times the amount of the annual retainer paid to directors. Stock ownership levels must be achieved by each executive officer and director within five years of the adoption of the guidelines or within five years of the individual’s first appointment as an executive officer or director, as applicable, whichever is later. Until the applicable stock ownership guideline is achieved, individuals are encouraged to retain an amount equal to 50% of the net shares obtained through the Company’s stock incentive plans. Stock that counts toward satisfaction of the guidelines includes: (i) shares of common stock owned directly by the executive officer or director; (ii) shares of common stock owned indirectly by the executive officer or director (e.g., by a spouse or other immediate family member residing in the same household or a trust for the benefit of the executive officer or director or his or her family), whether held individually or jointly; (iii) shares of common stock held under the Company’s employee stock purchase plan; (iv) shares granted under the Company’s long-term incentive plans; (v) shares represented by amounts invested in the Company’s 401(k) plan; and (vi) shares purchased in the open market. As of the date of this filing all of our executive officers and directors are still within the five year transition period for the guidelines.
Tax and Accounting Considerations
Deductibility of Executive Compensation.   Section 162(m) of the IR Code places restrictions on the deductibility of executive compensation paid by public companies. In 2020, the tax deductibility of our executive compensation was not a material factor in our compensation committee’s deliberations.
Accounting for Stock-Based Compensation.   We follow the Financial Accounting Standard Board’s Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”) for our stock-based compensation awards. In 2020, the accounting consequences of our executive compensation was not a material factor in our compensation committee’s deliberations.
 
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Summary Compensation Table
The following table presents summary information regarding the total compensation awarded to, earned by, and paid to our named executive officers for services rendered during the fiscal years ended December 31, 2020, 2019 and 2018, as applicable for the years that the individuals were deemed to be named executive officers.
Name and Principal Position
Year
Salary(1)
Bonus(2)
Stock
Awards(3)
Non-Equity
Incentive Plan
Compensation(4)
All Other
Compensation(5)
Total
Chih-Hsiang (Thompson) Lin
President and Chief
Executive Officer
2020 $ 535,986 $ 2,000,000 $ 282,356 $ 27,358 $ 2,845,700
2019 $ 520,375 $ $ 3,172,800 $ 397,376 $ 23,931 $ 4,114,482
2018 $ 498,676 $ 338,869 $ 3,809,880 $ 23,414 $ 4,705,496
Stefan J. Murry
Chief Financial Officer
and Chief Strategy Officer
2020 $ 353,234 $ 660,000 $ 101,494 $ 10,505 $ 1,125,233
2019 $ 341,617 $ 892,551 $ 142,846 $ 13,115 $ 1,390,129
2018 $ 321,825 $ 136,920 $ 732,566 $ 13,075 $ 1,213,922
Hung-Lun (Fred) Chang
Senior Vice President and North America
General Manager
2020 $ 324,039 $ 2,793 $ 640,000 $ 93,111 $ 10,213 $ 1,070,156
2019 $ 314,601 $ 844,437 $ 131,040 $ 12,799 $ 1,302,877
2018 $ 295,758 $ 117,799 $ 766,254 $ 12,735 $ 1,208,894
Shu-Hua (Joshua) Yeh(6)
Senior Vice President and
Asia General Manager
2020 $ 338,582 $ 5,891 $ 640,000 $ 98,178 $ 19,162 $ 1,101,813
2019 $ 314,234 $ 7,792 $ 858,217 $ 129,871 $ 18,850 $ 1,329,619
2018 $ 297,553 $ 125,380 $ 799,406 $ 19,991 $ 1,259,147
David C. Kuo
Vice President, General
Counsel, Chief Compliance
Officer and Secretary
2020 $ 221,067 $ 1,588 $ 400,000 $ 52,935 $ 9,741 $ 685,336
2019 $ 213,391 $ 2,235 $ 524,903 $ 74,499 $ 12,288 $ 827,316
2018 $ 198,833 $ 67,905 $ 426,707 $ 11,733 $ 710,898
(1)
Includes amounts earned but deferred at the election of the named executive officers under our 401(k) plan established under Section 401(k) of the Internal Revenue Code of 1986, as amended.
(2)
Amounts in this column reflect discretionary cash bonuses awarded by the compensation committee following its performance review of each named executive officer, which, for 2019 and 2020, are in addition to the amounts earned pursuant to the annual cash incentive plan.
(3)
Amounts for 2020 consist of the target value of long-term incentive awards approved by the compensation committee in June 2020 that were denominated in dollars and to be settled in restricted stock units following achievement of the annual performance goals (values assuming maximum performance: Dr. Lin—$2,500,000; Dr. Murray—$825,000; Dr. Chang—$800,000; Mr. Yeh—$800,000; and Mr. Kuo—$500,000). Amounts for 2019 have been restated to conform to current year disclosure methodology and include both the target value of dollar-denominated awards approved by the compensation committee in March 2019 that were settled in restricted stock units in February 2020 following achievement of the annual performance goals (value at maximum performance: Dr. Lin—$2,400,000; Dr. Murray—$800,000; Dr. Chang—$760,000; Mr. Yeh—$760,000; and Mr. Kuo—$480,000), and the grant date fair value of the restricted stock units granted by the compensation committee in March 2019 to reward achievement of the annual performance goals that were approved by the compensation committee in March 2018, but without any approval of specific award amounts to the named executive officers. Amounts for 2018 consist of restricted stock units granted by the compensation committee in March 2018 to reward achievement of the annual performance goals that were approved in 2017, but without any approval by the compensation committee of specific award amounts to the named executive officers. The amounts included for restricted stock units granted in 2019 and 2018 represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718, disregarding the estimate of time-based forfeitures. The assumptions used in calculating the grant date fair value of the restricted stock units are reported in Note B to the consolidated financial statements included in our Annual Report for 2020. The amounts reported in this column do not correspond to the actual economic value that may be received by the named executive officers for the restricted stock units. See the “Grants of Plan-Based Awards” table below for additional information.
(4)
Amounts in this column for 2020 and 2019 reflect amounts earned pursuant to our annual cash incentive plan based on the Company’s achievement of performance metrics and targets established by the compensation committee. The performance metrics and targets for these awards are described in the section titled “Compensation Discussion and Analysis” above.
(5)
Includes life insurance premiums paid by us for the benefit of the named executive officers and the Company’s 401(k)
 
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matching contributions and mandatory foreign pension contribution made by the Company on behalf of the executive officers. The 401(k) matching contributions for each executive in the 2020 year were as follows: for each of Dr. Lin, Dr. Murry, Dr. Chang and Mr. Kuo $8,550. The foreign pension contribution made by the Company on behalf of Mr. Yeh was $3,782. In addition, the cost of personal use of a Company provided car is included for Dr. Lin, with the amount determined based on the cost of the lease of the corporate car related to the proportion of mileage the car was driven for non-business trips, which for 2020 was $15,757. Mr. Yeh also received housing in Ningbo, China worth $13,132 during 2020.
(6)
The amounts shown for Mr. Yeh for 2020 have been converted from NTD (New Taiwan dollars) and RMB (Chinese Yuan Renminbi), as applicable, to USD (United States dollars), using the exchange rate on December 31, 2020, which was 28.09 NTD = $1 USD and 6.53 RMB = $1 USD, respectively. The amounts shown for Mr. Yeh for 2019 have been converted from NTD (New Taiwan dollars) and RMB (Chinese Yuan Renminbi), as applicable, to USD (United States dollars), using the exchange rate on December 31, 2019, which was 29.91 NTD = $1 USD and 6.96 RMB = $1 USD, respectively. The amounts shown for Mr. Yeh for 2018 have been converted from NTD (New Taiwan dollars) and RMB (Chinese Yuan Renminbi), as applicable, to USD (United States dollars), using the exchange rate on December 31, 2018, which was 30.58 NTD = $1 USD and 6.88 RMB = $1 USD, respectively.
Grants of Plan-Based Awards
The following table presents information about grants of plan-based awards made to our named executive officers during the year ended December 31, 2020:
Named Executive
Officer
Grant Date
Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards(1)(2)
Estimated Possible Payouts Under
Equity Incentive Plan Awards(3)
Minimum
($)
Reduced
($)
Target
($)
Maximum
($)
Threshold
($)
Target
($)
Maximum
($)
Chih-Hsiang (Thompson) Lin
6/5/2020 0 138,410 276,819 346,024 1,000,000 2,000,000 2,500,000
Stefan J. Murry 6/5/2020 0 49,755 99,509 124,387 330,000 660,000 825,000
Hung-Lun (Fred) Chang
6/5/2020 0 45,642 91,285 114,106 320,000 640,000 800,000
Shu-Hua (Joshua) Yeh
6/5/2020 0 45,716 91,431 114,289 320,000 640,000 800,000
David C. Kuo 6/5/2020 0 25,949 51,897 64,871 200,000 400,000 500,000
(1)
Amounts in these columns reflect cash bonus amounts that each named executive officer could have potentially earned under the 2020 Cash Incentive Plan for performance in 2020, based on the Company’s achievement of corporate performance metrics established by the compensation committee. For a description of the 2020 Cash Incentive Plan, see the section titled “Compensation Discussion and Analysis” above, and for a description of the cash bonus amounts that were earned and awarded under the 2020 Cash Incentive Plan, see the “Summary Compensation Table” above.
(2)
The compensation committee selected GAAP revenue and non-GAAP operating loss as the performance metrics for purposes of the cash incentive plan. See the section titled “Compensation Discussion and Analysis” above for how these metrics are defined.
(3)
Amounts in these columns reflect the long-term incentive awards approved by the compensation committee in June 2020 that were denominated in dollars and to be settled in restricted stock units following achievement of the annual performance goals.
 
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Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
For a more detailed discussion of the amounts set forth in the Summary Compensation Table and the Grants of Plan-Based Awards table, please see the section titled “Compensation Discussion and Analysis” above.
Cash Bonuses
Each named executive officer is eligible to earn an annual performance-based cash incentive based on achievement of Company goals, determined by our compensation committee at the beginning of each year. See the section entitled “Compensation Discussion and Analysis” above for the material terms of the 2020 program.
Equity-based compensation
See the Section entitled “Compensation Discussion and Analysis” above for the material terms of these awards. Restricted stock units vest in substantially equal installments each quarter over a four-year period. Such restricted stock units may be subject to acceleration in the event of our change of control (if not assumed or replaced) or the executive officer’s termination without cause, resignation for good reason, death or disability.
 
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Outstanding Equity Awards at 2020 Fiscal Year-End
The following table sets forth information regarding outstanding equity awards held by our named executive officers as of December 31, 2020.
Name
Grant Year
Option Awards
Stock Awards
Number of Shares
Underlying Unexercised
Options
Option
Exercise
Price
Option
Expiration
Date
Number
of Shares
or Units
of Stock
That Have
Not Vested(3)
Market Value
of Shares or
Units of
Stock That
Have Not
Vested(4)
Exercisable
Unexercisable
Chih-Hsiang (Thompson) Lin
2013 135,348(2) $ 9.96
9/26/2023
2014 30,000(2) $ 13.84
1/28/2024
2017
7,500 $ 63,825
2018
35,625 $ 303,169
2019
45,000 $ 382,950
2020
151,708 $ 1,291,035
Stefan J. Murry
2013 11,000(2) $ 9.96
9/26/2023
2014 5,000(2) $ 13.84
1/28/2024
2017
1,563 $ 13,301
2018
6,850 $ 58,294
2019
8,629 $ 73,433
2020
53,098 $ 451,864
Hung-Lun (Fred) Chang
2013 1,125(2) $ 9.96
9/26/2023
2014 1,100(2) $ 13.84
1/28/2024
2017
1,625 $ 13,829
2018
7,165 $ 60,974
2019
8,100 $ 68,931
2020
48,041 $ 408,829
Shu-Hua (Joshua) Yeh
2013 5,000(1) $ 7.50
1/18/2023
2013 12,000(2) $ 9.96
9/26/2023
2014 5,000(2) $ 13.84
1/28/2024
2017
1,750 $ 14,893
2018
7,475 $ 63,612
2019
8,629 $ 73,433
2020
50,924 $ 433,363
David C. Kuo
2017
938 $ 7,982
2018
3,990 $ 33,955
2019
4,793 $ 40,788
2020
31,252 $ 265,955
(1)
The amounts reported reflect shares of common stock underlying stock options granted in the specified calendar year under our 2006 Incentive Share Plan. The stock options vested over a four-year period.
(2)
The amounts reported reflect shares of common stock underlying stock options granted in the specified calendar year under our 2013 Plan. The stock options vested over a four-year period.
(3)
The amounts reported reflect restricted stock units granted in the specified calendar year under our 2013 Plan, including restricted stock units granted in 2019 and 2020 in settlement of the awards approved by the compensation committee in the prior year that were denominated in dollars and to be settled in restricted stock units following achievement of the annual performance goals. The restricted stock units vest in substantially equal installments each quarter over a four-year period, subject to continued service through each applicable vesting date.
 
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(4)
The market value of the outstanding stock awards was calculated using the closing price of our common stock on December 31, 2020 (the last trading day of 2020) of $8.51.
Option Exercises and Stock Vested
The following table sets forth information regarding stock options that were exercised and stock awards that vested for each of our named executive officers during 2020.
Named Executive Officer
Stock Awards
Number of
Shares
Acquired on
Vesting (#)
Value
Realized on
Vesting ($)(1)
Chih-Hsiang (Thompson) Lin 120,559 $ 1,384,471
Stefan J. Murry 29,568 $ 337,055
Hung-Lun (Fred) Chang 28,168 $ 321,175
Shu-Hua (Joshua) Yeh 30,316 $ 346,102
David C. Kuo 17,034 $ 193,879
(1)
The value realized on vesting of stock awards was calculated using the closing price of our common stock on the applicable vesting date for each award.
Pension Benefits
We do not currently sponsor or maintain any defined benefit plans or supplemental executive retirement plans, for our named executive officers.
Nonqualified Deferred Compensation
We do not currently sponsor or maintain any non-qualified deferred compensation plans for our named executive officers.
Potential Payments Upon Termination and Change of Control
The following discussion reflects the payments and benefits that each of the named executive officers would have been eligible to receive in the event of certain terminations, assuming that each such termination occurred on December 31, 2020.
Employment Agreements
We maintain employment agreements with Dr. Lin, Dr. Murry, Dr. Chang, Mr. Yeh and Mr. Kuo. The employment agreement with Dr. Lin provides that, if our Board terminates his employment for any reason other than Cause or if he resigns for Good Reason outside of the Change of Control Period, each as defined below, he will be entitled to receive (i) a payment equal to one year’s base salary as in effect immediately prior to termination, (ii) a payment equal to his full target bonus as in effect immediately prior to termination and (iii) $15,000, (which may be used for benefit continuation under COBRA or for any other purpose), which amounts will be paid periodically in installments over the 12 months following his separation from service. The employment agreements with Dr. Murry, Dr. Chang, Mr. Yeh and Mr. Kuo, each provide that, if our Board terminates his employment for any reason other than Cause or if he resigns for Good Reason outside of the Change of Control Period (as defined below), he will be entitled to receive (i) a payment equal fifty percent (50%) of base salary as in effect immediately prior to termination, (ii) a payment equal to fifty percent (50%) of his full target bonus as in effect immediately prior to termination and (iii) $15,000, (which may be used for benefit continuation under COBRA or for any other purpose). The severance benefits that may arise as a result of a termination prior to a Change of Control will be paid in a lump sum.
Dr. Lin, Dr. Murry, Dr. Chang, Mr. Yeh and Mr. Kuo, each have provisions in their employment agreements that provide for “double-trigger” severance. Specifically, if, within the Change of Control Period, the executive’s employment is terminated by the executive for Good Reason or by our Company other than for
 
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Cause, then in lieu of the severance benefits described in the preceding paragraph, the executive will be entitled to receive the following: (i) a lump sum payment equal to one year’s base salary as in effect immediately prior to termination; (ii) a lump sum payment equal to his full target bonus as in effect immediately prior to termination; (iii) $10,000 ($15,000 for Dr. Murry, Dr. Chang, Mr. Yeh and Mr. Kuo) which may be used for benefit continuation under COBRA or for any other purpose and (iv) accelerated vesting of the executive’s awards granted under any incentive share plan or equity incentive plan of the Company, with all vested options becoming exercisable for an extended period following termination of employment. For Dr. Murry, Dr. Chang, Mr. Yeh and Mr. Kuo, the severance benefits that may arise as a result of termination during the Change of Control Period will be paid in a lump sum. For Dr. Lin, the severance benefits that may arise as a result of termination within one year following a Change of Control will be paid in a lump sum. Additionally, Dr. Lin’s employment agreement provides him with a potential tax gross-up payment to make him whole for any excise taxes that he would owe resulting from the application of the excise tax provisions under Section 280G of the Internal Revenue Code of 1986. None of the other employment agreements with our executive officers provide any right to a tax gross-up.
To receive the severance benefits described above, each executive must execute a release agreement in favor of the Company and its affiliates, which will include a reasonable agreement to cooperate for a period of six months following the employment termination date and a mutual non-disparagement clause. In consideration of the severance benefits described above, each executive has also agreed to be subject to a non-compete provision for a period of 12 months following his separation from service and to maintain the confidentiality of Company information.
Each employment agreement generally defines “Cause” as, following written notice to the executive and the executive’s failure to cure such occurrence(s): (i) conviction or plea of nolo contendre to any felony offense or to a crime of moral turpitude; (ii) commission of willful misconduct or violation of law in connection with the performance of his duties, including (a) misappropriation of funds or property, (b) attempting to secure personally any profit in connection with any transaction entered into on behalf of our Company, or (c) making any material misrepresentation to our Board, our Company or its affiliates; (iii) material violation or failure to comply with our Company policy; (iv) material breach of the employment agreement; or (v) the willful and continued failure or neglect to substantially perform his duties with our Company. “Good Reason” is defined to include: (i) the executive’s assignment to duties inconsistent with his position or title; (ii) reduction in his base compensation, except as part of an overall cost reduction program that affects all senior executives and does not disproportionately affect the executive; (iii) any purported termination of the executive by our Company other than for disability or Cause or a voluntary resignation initiated by the executive, except for a voluntary termination for Good Reason; (iv) failure of any successor entity to our Company to expressly assume the employment agreement; and (v) material breach by our Company of the agreement.
Each employment agreement generally provides that a “Change of Control” is deemed to occur if: (i) individuals who constitute the Board of our Company on the date of the employment agreement (“Incumbent Directors”) cease to constitute at least a majority of our Board; provided, that any individual whose election or nomination for election by the stockholders was approved by a majority of the then Incumbent Directors shall be considered an Incumbent Director, with certain exceptions; or (ii) the stockholders of our Company approve (1) any merger, consolidation or recapitalization of our Company or any sale of substantially all of its assets where (a) the stockholders of our Company prior to the transaction do not, immediately thereafter, own at least 51% of both the equity and voting power of the surviving entity or (b) the Incumbent Directors at the time of the approval of the transaction would not immediately thereafter constitute a majority of the Board of the surviving entity, or (2) any plan of liquidation or dissolution of our Company.
Under the employment agreements, the “Change of Control Period” means: with respect to Dr. Lin, one year after a Change of Control and with respect to Dr. Murry, Dr. Chang, Mr. Yeh and Mr. Kuo, within six months prior to a Change of Control or within one year after a Change of Control.
Restricted Stock and Restricted Stock Unit Awards
The restricted stock and restricted stock unit awards we have granted to our named executive officers provide for full acceleration upon a named executive officer’s termination of employment due to death or disability, as well as on a termination without cause or resignation for good cause during the Change of
 
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Control Period. In addition, if the acquiring entity in a Change in Control refuses to assume or replace outstanding awards of any plan participant, that participant’s awards will become fully vested.
The following table reflects the payments and benefits that each of the named executive officers would have been eligible to receive in the event of certain terminations or a Change of Control, assuming that each such event occurred on December 31, 2020. The acceleration of equity awards was calculated using the closing price of our common stock on December 31, 2020 (the last trading day of 2020) of $8.51. Amounts that could actually become due upon any termination cannot be known with certainty until the event occurs.
Name and Principal Position
Termination Without
Cause or Resignation
For Good Reason,
Outside of the Change
of Control Period
($)(1)
Termination Without
Cause or Resignation
For Good Reason,
Within the Change
of Control Period
($)(2)
Termination Due to Death
or Disability ($)(3)
Change in
Control -
Awards Not
Assumed
($)(4)
Chih-Hsiang (Thompson) Lin
Salary and Bonus
$ 818,342 $ 818,342
Other Cash Payments
$ 15,000 $ 10,000
Accelerated Equity
$ 3,448,090 $ 3,448,090 $ 3,448,090
Tax Gross-Up
$ 855,886
Total
$ 833,342 $ 5,135,319 $ 3,448,090 $ 3,448,090
Stefan J. Murry
Salary and Bonus
$ 227,364 $ 454,728
Other Cash Payments
$ 15,000 $ 15,000
Accelerated Equity
$ 733,051 $ 733,051 $ 733,051
Total
$ 242,364 $ 1,202,779 $ 733,051 $ 733,051
Hung-Lun (Fred) Chang
Salary and Bonus
$ 209,971 $ 419,942
Other Cash Payments
$ 15,000 $ 15,000
Accelerated Equity
$ 571,498 $ 571,498 $ 571,498
Total
$ 224,971 $ 1,006,440 $ 571,498 $ 571,498
Shu-Hua (Joshua) Yeh
Salary and Bonus
$ 221,325 $ 442,651
Other Cash Payments
$ 15,000 $ 15,000
Accelerated Equity
$ 772,521 $ 772,521 $ 772,521
Total
$ 236,326 $ 1,230,172 $ 772,521 $ 772,521
David C. Kuo
Salary and Bonus
$ 137,798 $ 275,596
Other Cash Payments
$ 15,000 $ 15,000
Accelerated Equity
$ 347,914 $ 347,914 $ 347,914
Total
$ 152,798 $ 638,510 $ 347,914 $ 347,914
(1)
Amounts shown in this column reflect the payments and benefits that the named executive officers would have been eligible to receive in the event of a termination without Cause or resignation for Good Reason on December 31, 2020 assuming that such date was not during the Change of Control Period.
(2)
Amounts shown in this column reflect the payments and benefits that the named executive officers would have been eligible to receive in the event of a termination without Cause or resignation for Good Reason on December 31, 2020 assuming that such date was during the Change of Control Period, which (1) with respect to Dr. Lin, means one year after a Change of Control and (2) with respect to Dr. Murry, Dr. Chang, Mr. Yeh and Mr. Kuo, means within six months prior to a Change of Control or within one year after a Change of Control.
(3)
Amounts shown in this column reflect the payments and benefits that the named executive officers would have been eligible to receive in the event of a termination due to death or disability on December 31, 2020.
(4)
Under the 2013 Equity Incentive Plan, if the acquirer refuses to assume or replace an outstanding award, it will become fully vested.
 
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CEO Pay-Ratio Disclosure
Pursuant to the Exchange Act, we are required to disclose in this proxy statement the ratio of the total annual compensation of our CEO to the total compensation for the median employee of all of our employees (excluding our CEO). Based on SEC rules for this disclosure and applying the methodology described below, we have determined that our CEO’s total compensation for fiscal 2020 was $3,050,591, and the total compensation for the median employee of all of our employees (excluding our CEO) for fiscal 2020 was $18,779.
Based on these amounts, we estimate the ratio of our CEO’s total compensation for fiscal 2020 to the total compensation for the median employee of all of our employees (excluding our CEO) for fiscal 2020 to be 162 to 1.
We selected December 31, 2020, which is the last day of the Company’s 2020 fiscal year, as the date we would use to identify our median employee. To find the median employee of all our employees (excluding our CEO), we used the employee’s compensation from our payroll records; compensation includes base salary, bonus and restricted stock unit grants. In making our determination, we did not annualize the base compensation for those employees who did not work for the Company for the entire fiscal year and did not annualize the base compensation of seasonal or temporary employees. We also did not make any cost-of-living adjustments in identifying the median employee. We used the December 31, 2020 exchange rates of 6.53 RMB to 1 USD and 28.09 NTD to 1 USD for our calculations.
In evaluating our CEO pay-ratio for fiscal 2020, we believe stockholders should take into account that approximately 82% of our employees as of December 31, 2020 were employed by us in our facilities in China and Taiwan (including the median employee whose compensation was used to calculate the CEO pay-ratio as described above). If we included only our employees based in the U.S. in this analysis, we estimate the total compensation for the median employee of all our U.S. employees for fiscal 2020 would be $47,762 and the ratio of our CEO’s total compensation for fiscal 2020 to the total compensation for the median employee of all our U.S. employees (excluding our CEO) for fiscal 2020 would be 64 to 1.
This pay ratio is an estimate calculated in a manner consistent with SEC rules based on the methodology described above. The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions. As such, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
Compensation of Directors
For the year ended December 31, 2020, each of our non-employee directors received an annual retainer equal to $45,000. Non-employee directors who served as members of our audit committee, our compensation committee or our nominating and corporate governance committee received an additional $10,000, $7,000 or $8,000 prorated annual retainer, respectively. Non-employee directors who served as the chairman of our audit committee, chairman of our compensation committee, and chairman of our nominating and corporate governance committee, received an additional $10,000, $7,000 and $5,000 prorated annual retainer, respectively, in addition to the annual retainer for committee membership described in the preceding sentence. The cash retainers were paid quarterly.
In addition, for 2020 each of our non-employee directors was awarded with a number of restricted stock units under the 2013 Plan equal to $115,000, divided by the market closing price of our common stock on the date of grant. All restricted stock unit awards granted to our non-employee directors vest in equal monthly amounts over the first twelve months following the date of grant, subject to early termination in accordance with their terms. The stock grant was made following the election of directors at the annual meeting on June 4, 2020.
Directors were also reimbursed for out-of-pocket expenses incurred in the course of their service on the Board or its committees. Dr. Lin did not receive any compensation from the Company other than compensation received for serving as an executive officer of the Company.
 
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Director Compensation
The table below sets forth, for each person who served as a non-employee director during 2020, information regarding compensation for service on our Board during 2020.
Name
Fees Earned or
Paid in Cash
($)(1)
Stock Awards
($)(2)
Total
($)
William H. Yeh
$ 65,000 $ 114,997 $ 179,997
Richard B. Black
$ 70,000 $ 114,997 $ 184,997
Min-Chu (Mike) Chen
$ 62,000 $ 114,997 $ 176,997
Alex Ignatiev
$ 55,000 $ 114,997 $ 169,997
Alan Moore
$ 23,375 $ 23,375
Che-Wei Lin
$ 52,000 $ 114,997 $ 166,997
Elizabeth Loboa
$ 31,625 $ 114,997 $ 146,622
(1)
Reflects the aggregate dollar amount of fees earned or paid in cash for services as a non-employee director, including committee membership fees, fees for serving as a committee chairperson, and board and committee meeting fees.
(2)
Represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 of restricted stock unit awards granted in 2020. The assumptions used in calculating the grant date fair value of the restricted stock units are reported in Note B to the consolidated financial statements included in our Annual Report. The amounts reported in this column reflect the accounting cost for these restricted stock units and do not correspond to the actual economic value that may be received by the non-employee directors for the restricted stock units. Mr. Moore did not stand for re-election in 2020. As of December 31, 2020, each of the current non-employee directors held the following number of outstanding restricted stock units: Mr. Yeh, 13,053; Mr. Black, 13,053; Dr. Chen, 13,053; Dr. Ignatiev, 13,053; Mr. Lin, 13,053 and Dr. Loboa, 13,053.
 
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PROPOSAL NO. 4
APPROVE THE 2021 EQUITY INCENTIVE PLAN
The Board, upon the recommendation of the compensation committee, has adopted, and is asking our stockholders to approve, the 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan is intended to replace our 2013 Equity Incentive Plan (the “2013 Plan”). If our stockholders approve the 2021 Plan, it will become effective as of the date of the Annual Meeting and will replace the 2013 Plan, otherwise the 2013 Plan will remain in effect with its current terms and conditions.
Why Stockholders Should Vote to Approve the 2021 Plan
The use of broad-based equity incentive programs such as those made available through the 2021 Plan forms an important component of the Company’s compensation and incentive philosophy. This philosophy emphasizes the alignment of compensation and incentives with stockholder interests, and using long-term equity incentives to make a greater portion of each individual’s compensation dependent upon Company performance as the level of individual employee responsibility increases. We believe that the proposed adoption of the 2021 Plan is necessary to enable the Company to continue to provide these incentives in amounts determined to be appropriate by our compensation committee. If our stockholders do not approve the 2021 Plan, we believe we would be at a significant disadvantage for recruiting, retaining and motivating those individuals who are critical to our success.
We are asking our stockholders to approve an additional 2,100,000 shares of common stock for issuance under the 2021 Plan. In addition to these newly authorized shares, any shares previously reserved and available for issuance, but not issued or subject to outstanding awards, under the 2013 Plan as of the effective date of the 2021 Plan will become available for issuance under the 2021 Plan, as will any shares that are subject to outstanding awards under the 2013 Plan as of the effective date of the 2021 Plan to the extent such shares are not issued and cease to be subject to such awards following the effective date of the 2021 Plan. No new awards will be granted under the 2013 Plan if stockholders approve the 2021 Plan.
The following table sets forth certain information about the 2021 Plan and the 2013 Plan as of March 31, 2021:
Number of new shares authorized under the 2021 Plan
2,100,000
Number of shares available for future awards under the 2013 Plan
0
Number of shares subject to outstanding awards of restricted stock units
1,339,978
Number of shares relating to outstanding stock options
273,784
Maximum option term
10 Years
Minimum exercise price (relative to the market value on date of grant)
100%
Weighted average remaining term of outstanding options
2.44 Years
Weighted average exercise price of outstanding options
$ 10.32
Total number of new shares available for future awards if this proposal is approved
2,100,000
Our Board and compensation committee considered a number of factors in determining the number of additional shares to reserve for the 2021 Plan, including the number of shares remaining available under the 2013 Plan, our past share usage, our estimate of the number of shares needed for future awards, a dilution analysis and competitive data from relevant peer companies.
If the 2021 Plan is approved, the Company’s total potential dilution from the shares available for issuance under its equity incentive plans would increase from 5.7% as of March 31, 2021 to 12.2%. The compensation committee has considered this potential dilution level in the context of competitive data from its peer group, and believes that the resulting dilution levels would be within normal competitive ranges.
In addition to overall dilution, the compensation committee considered annual dilution from the Company’s equity incentive plans in approving the 2021 Plan. The Company measures annual dilution as the total number of shares subject to equity awards granted during the year less cancellations and other shares
 
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returned to the reserve, divided by total common shares outstanding at the end of the year. The Company’s annual dilution under the 2013 Plan for 2020 was 66.47%.
The 2021 Plan also includes provisions aligned with equity plan governance best practices, including, among other provisions:

a prohibition on repricing of stock options or stock appreciation rights without stockholder approval;

limitations on the number of shares and value of awards that may be granted to participants in any fiscal year; and

a limitation on the value of compensation that may be awarded or granted to non-employee directors during any calendar-year.
As of March 31, 2021, 26,787,041 shares of our common stock were outstanding. On March 31, 2021, the closing price of our common stock on the Nasdaq Stock Exchange was $8.36.
Summary of the 2021 Plan
The principal features of the 2021 Plan are summarized below. This summary does not contain all information about the 2021 Plan and does not purport to be a complete description. A copy of the complete text of the 2021 Plan is attached to this Proxy Statement as Appendix A, and the following description is qualified in its entirety by reference to Appendix A.
Purpose.   The purpose of the 2021 Plan is to attract, retain and motivate our employees, officers, directors and other individuals providing services to the Company and its affiliates by providing them the opportunity to acquire an equity interest in the Company and to align their interests and efforts with the long-term interests of the Company’s stockholders.
Administration.   The Board or the compensation committee is authorized to administer the 2021 Plan. The Board or the compensation committee may delegate concurrent administration of the 2021 Plan to other committees consisting of one or more members of our Board or to one or more officers in accordance with the 2021 Plan’s terms and any conditions established by our Board or compensation committee. The administrator is authorized to select the individuals to be granted awards and, subject to the terms of the 2021 Plan, to determine the types of awards to be granted, the number of shares subject to awards and the other terms, conditions and provisions of such awards. References to the administrator below are, as applicable, to our Board, the compensation committee, or any other committee or officers to whom authority to administer the 2021 Plan is delegated.
Eligibility.   Awards may be granted under the 2021 Plan to our employees, officers, directors and other independent contractors providing services to the Company or our affiliates. As of March 31, 2021, we had approximately 2,265 employees, including 5 executive officers, and 6 non-employee directors, all of whom would be eligible to participate in the 2021 Plan. However, consistent with our prior practice, we do not intend to make grants to all such individuals.
Share Reserve.   The 2021 Plan authorizes the issuance of up to 2,100,000 shares of common stock. In addition, up to 1,613,762 of the following shares also are available for issuance under the 2021 Plan (collectively, the “2013 Plan Reserve Shares”):

authorized shares reserved and available for issuance, and not issued or subject to outstanding awards, under the 2013 Plan as of the effective date of the 2021 Plan; as of March 31, 2021, no shares remained available for new grants under the 2013 Plan; and

shares subject to outstanding awards under the 2013 Plan as of the effective date of the 2021 Plan that cease to be subject to such awards following such date (other than by reason of exercise or settlement of the awards in vested or nonforfeitable shares); as of March 31, 2021, 1,613,762 shares were subject to outstanding awards. To the extent shares are issued upon exercise or settlement of outstanding awards under the 2013 Plan, those shares will not become available for grant under the 2021 Plan.
The following shares will be available again for issuance under the 2021 Plan:

shares subject to awards granted under the 2021 Plan that lapse, expire, terminate or are canceled prior to the issuance of the underlying shares, that are settled in cash in lieu of shares or that are subsequently forfeited to or repurchased by the Company at their original exercise or purchase price; and
 
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shares subject to an award that is settled in cash or in another manner where some or all of the shares covered by the award are not issued.
The following shares will not be available again for issuance under the 2021 Plan:

shares tendered to or withheld by the Company to pay the exercise or purchase price of an Award or to satisfy any tax withholding obligation in connection with the exercise or settlement of an Award;

vested shares that have been issued under an Award and subsequently forfeited or reacquired by the Company; or

any shares of Common Stock repurchased by the Company on the open market with the proceeds of the exercise or purchase price of an Award.
Awards granted in assumption of or in substitution for awards previously granted by a company we acquire will not reduce the number of shares authorized for issuance under the 2021 Plan. The maximum number of shares that may be issued under the 2021 Plan upon the exercise of incentive stock options is equal to the sum of 2,100,000 shares and the 2013 Plan Reserve Shares.
Adjustments.   If any change to our common stock occurs by reason of a stock dividend, stock split, spin-off, combination or exchange of shares, recapitalization, merger, consolidation, distribution to stockholders other than a normal cash dividend, or other change in the Company’s corporate or capital structure that constitutes an equity restructuring transaction under applicable financial accounting rules and that results in the outstanding shares of common stock, or any securities exchanged therefor or received in their place, being exchanged for a different number or kind of securities of the Company or any other company or new, different or additional securities of the Company or any other company being received by the holders of shares of common stock, the administrator will make proportional adjustments as it, in its sole discretion, deems appropriate, to the maximum number and kind of securities (a) available for issuance under the 2021 Plan, (b) issuable as incentive stock options, (c) issuable pursuant to the annual per-person limitations on awards (d) issuable to plan participants and non-employee directors and (e) subject to any outstanding award, including the per share price of such securities.
Types of Awards.   The 2021 Plan authorizes the grant of the following types of awards:

Restricted Stock, Restricted Stock Units and Other Stock Based Awards.   The administrator may grant awards of shares of stock, or awards denominated in units of stock. These awards may be made subject to repurchase or forfeiture restrictions at the administrator’s discretion. The restrictions may be based on continuous employment or service for a prescribed time period or the achievement of specified performance criteria, as determined by the administrator. Restricted stock units represents an unfunded, unsecured right to receive the value of one share of common stock for each unit subject to the award in cash, common stock or other securities on the date of vesting or settlement.

Performance Based Awards.   The administrator may grant awards subject to performance-based conditions. Performance awards may be payable in stock, cash or other property, or a combination, upon the attainment of performance criteria and other terms and conditions as established by the administrator.

Stock Options and Stock Appreciation Rights (“SARs”).   The administrator may grant either incentive stock options, which must comply with Code Section 422, or nonqualified stock options. Upon exercise, SARs are the right to receive payment per share in stock or cash, or in a combination of stock and cash, equal to the excess of the share’s fair market value on the date of exercise over its fair market value on the date the SAR was granted. Stock options and SARs are subject to the vesting terms prescribed by the administrator. The exercise price of stock options or SARs granted under the 2021 Plan must be at least equal to 100% of the fair market value of the underlying stock on the grant date, except in the case of options assumed or substituted for in acquisition transactions. Unless the administrator determines otherwise, fair market value means, as of a given date, the closing price of our stock. Stock options and SARs have a maximum term of 10 years from the grant date, subject to potential earlier termination following a participant’s termination of employment or service relationship with us.
 
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Other Stock or Cash-Based Awards.   The administrator may grant other incentives payable in cash or in shares, subject to any other terms and conditions determined by the administrator and the 2021 Plan.
Performance Criteria.   Any awards granted under the 2021 Plan may be subject to the achievement of performance objectives determined based on Company-wide, divisional, business unit or individual basis and may include performance objectives measuring achievement in: earnings (including earnings per share or net earnings); earnings before interest, taxes and depreciation; earnings before interest, taxes, depreciation and amortization; total stockholder return; return on equity or average stockholder’s equity; return on assets, investment, or capital employed; stock price; margin (including gross margin); income (before or after taxes); operating income; operating income after taxes; pre-tax profit; operating cash flow; sales or revenue targets; increases in revenue or product revenue; expenses and cost reduction goals; improvement in or attainment of working capital levels; economic value added (or an equivalent metric); market share; cash flow; cash flow per share; share price performance; debt reduction; customer satisfaction; stockholders’ equity; capital expenditures; debt levels; operating profit or net operating profit; workforce diversity; growth of net income or operating income; billings; financing; regulatory milestones; stockholder liquidity; corporate governance and compliance; environmental or climate impact; social good impact; intellectual property; personnel matters; progress of internal research; progress of partnered programs; partner satisfaction; budget management; partner or collaborator achievements; internal controls, including those related to the Sarbanes-Oxley Act of 2002; investor relations, analysts and communication; implementation or completion of projects or processes; employee retention; strategic partnerships or transactions (including in-licensing and out-licensing of intellectual property); establishing relationships with respect to the marketing, distribution and sale of the Company’s products; supply chain achievements; co-development, co-marketing, profit sharing, joint venture or other similar arrangements; individual performance goals; corporate development and planning goals; and other measures of performance selected by the administrator. Performance goals may be established on an absolute basis or relative to the performance of other companies.
Limited Transferability.   Awards generally may not be transferred, except by will or the laws of descent and distribution, unless the instrument evidencing the award permits the participant to designate one or more beneficiaries or the administrator otherwise approves a transfer.
Limitations on Awards to Participants.   Under the 2021 Plan, no participant (excluding non-employee directors) may be granted (a) stock-settled awards with an aggregate grant date fair value (as calculated for the Company’s financial reporting purposes) of greater than $3,000,000 or (b) cash-settled Awards with an aggregate grant date fair value (as calculated for the Company’s financial reporting purposes) of greater than $3,000,000, in each case, increased to $4,000,000 in the calendar year in which the Participant first becomes an employee or independent contractor of the Company or a related company.
Limitations on Awards to Non-Employee Directors.   Under the 2021 Plan, each non-employee director may be (a) granted stock-settled awards with an aggregate grant date fair value (as calculated for the Company’s financial reporting purposes) up to $300,000, (b) granted cash-settled Awards with an aggregate grant date fair value (as calculated for the Company’s financial reporting purposes) of up to $300,000, in each case, increased to $400,000 in the calendar year in which the non-employee director is first appointed or elected to the Board, and (c) paid annual cash retainer fees of up to $150,000.
Prohibition on Repricing Stock Options and SARs.   The 2021 Plan provides that the Board or administrator will not have the right, without stockholder approval, to engage in a transaction that is commonly referred to as a “repricing” of outstanding stock options or SARs, including (a) reducing the exercise price of outstanding stock options or SARs with an exercise price greater than the then-current fair market value of the common stock (an “underwater award”), (b) cancelling an underwater award and granting in substitution an award with a lower exercise price, cash, and/or other consideration determined, or (c) take any other action that is treated as a “repricing” under generally accepted accounting principles.
Change of Control or Liquidation.   Under the 2021 Plan, unless otherwise provided in the instrument evidencing an award or in a written employment, services or other agreement between a participant and us, upon the closing or completion consummation of the change of control:

Upon a change in control that qualifies as a company transaction in which outstanding awards could be converted, assumed, substituted for or replaced by a successor company, outstanding awards that
 
42

 
vest based on continued employment or service will become vested and exercisable or payable, all applicable restrictions or forfeiture provisions will lapse, and such awards will terminate at the effective time of the change in control, only if and to the extent the awards are not converted, assumed, substituted for or replaced by a successor company.

In the event of a change in control that does not qualify as a company transaction or if outstanding time-based awards are not converted, assumed, substituted for or replaced by a successor company in a company transaction, the awards will become fully and immediately vested and exercisable or payable, and all applicable restrictions or forfeiture provisions, will lapse immediately prior to the change in control and the awards will terminate at the effective time of the change in control.

All performance-based awards will be prorated based on targeted performance being attained as of the effective date of the change in control and will be paid in accordance with the payout schedule for the award. With respect to a change in control that is a company transaction in which the awards could be converted, assumed, substituted for or replaced by the successor company, such awards will terminate at the effective time of the change in control if and to the extent the awards are not converted, assumed, substituted for or replaced by the successor company.

In the event of a company transaction, the administrator, in its discretion, may provide that a participant’s outstanding awards will be cashed out, net of any purchase or exercise prices applicable to such awards.
The 2021 Plan generally defines “change of control” as the occurrence of any of the following events:

an acquisition of 50% or more of the combined voting power of our outstanding voting securities other than by virtue of a merger, consolidation or similar transaction; or

a "corporate transaction".
The 2021 Plan generally defines a “corporate transaction” as the occurrence of any of the following events:

a merger, consolidation or similar transaction directly or indirectly involving the Company and, immediately after the consummation of such transaction, the stockholders of the Company immediately prior to the transaction do not own, directly or indirectly, either outstanding voting securities representing more than 50% of the combined outstanding voting power of the surviving entity in such merger, consolidation or similar transaction, or more than 50% of the combined outstanding voting power of the parent of the surviving entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their ownership of the outstanding voting securities of the Company immediately prior to such transaction;

a sale in one transaction or a series of transactions undertaken with a common purpose of more than 50% of the Company’s outstanding voting securities; or

a sale or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries, other than a sale or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries to a person or entity, more than 50% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the outstanding voting securities of the Company immediately prior to such sale or other disposition.
If we dissolve or liquidate, unless the administrator determines otherwise, outstanding awards will terminate immediately prior to such dissolution or liquidation.
Amendment and Termination.   Our Board or the compensation committee is permitted to amend the 2021 Plan or any outstanding award under the 2021 Plan, except that only our Board is permitted to amend the 2021 Plan if stockholder approval of the amendment is required by applicable law, regulation or stock exchange rule. Amendment of an outstanding award generally may not materially adversely affect a participant’s rights under the award without the participant’s written consent, subject to certain limited exceptions set forth in the 2021 Plan. In addition, the Board will have broad authority to amend the 2021 Plan or any outstanding award without the consent of a participant to the extent the Board deems necessary or
 
43

 
advisable to (a) comply with, or take into account, changes in applicable tax laws, securities laws, accounting rules and other applicable law, rules and regulations or (b) to ensure that an award is not subject to certain additional taxes, interest or penalties.
Our Board or the compensation committee may suspend or terminate all or any portion of the 2021 Plan at any time, but in such event, outstanding awards will remain outstanding in accordance with their existing terms and conditions. The 2021 Plan will expire 10 years after the date the 2021 Plan is approved by the stockholders.
Plan Benefits
All awards to employees, officers and consultants under the 2021 Plan are made at the discretion of the administrator. Therefore, the future benefits and amounts that will be received or allocated to such individuals under the 2021 Plan generally are not determinable at this time. Please refer to the description of equity awards made to our named executive officers in the last fiscal year described in the “Grants of Plan-Based Awards” table and to our 6 non-employee directors as described above under “Director Compensation.”
However, as described in more detail in the “Compensation Discussion and Analysis” section, in February 2021 the compensation committee determined that the applicable performance goals for 2020 had been achieved and initially had approved the following grants of restricted stock units to the named executive officers under the 2013 Plan. The compensation committee rescinded its approval and canceled these restricted stock units immediately upon determining that the 2013 Plan did not have enough shares available, and now intends to make these grants under the 2021 Plan following the Annual Meeting if the stockholders approve the 2021 Plan pursuant to this Proposal No. 4:
Named Executive Officer
Restricted
Stock Units
(Number
of Shares)*
Chih-Hsiang (Thompson) Lin
181,494
Stefan J. Murry
59,893
Hung-Lun (Fred) Chang
59,820
Shu-Hua (Joshua) Yeh
61,562
David C. Kuo
37,387
In addition, the compensation committee has approved in concept the amount of value to be granted to the named executive officers in the form of restricted stock unit awards, which the compensation committee intends to grant under the 2021 Plan following the Annual Meeting if the stockholders approve the 2021 Plan pursuant to this Proposal No. 4:
Named Executive Officer
Time-Vesting
Restricted
Stock Units*
Target Amount
Performance-Vesting
Restricted
Stock Units*
Total
Value*
Chih-Hsiang (Thompson) Lin
$ 1,000,000 $ 1,000,000 $ 2,000,000
Stefan J. Murry
$ 350,000 $ 350,000 $ 700,000
Hung-Lun (Fred) Chang
$ 320,000 $ 320,000 $ 640,000
Shu-Hua (Joshua) Yeh
$ 320,000 $ 320,000 $ 640,000
David C. Kuo
$ 200,000 $ 200,000 $ 400,000
*
Value will be converted to number of shares based on average closing price for prior 30 trading-days.
Federal Income Tax Information
The following is a brief summary of the U.S. federal income tax consequences of the 2021 Plan generally applicable to us and to participants in the 2021 Plan who are subject to U.S. federal taxes. The summary is based on the Code, applicable Treasury Regulations and administrative and judicial interpretations thereof,
 
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each as in effect on the date of this proxy statement and is, therefore, subject to future changes in the law, possibly with retroactive effect. The summary is general in nature and does not purport to be legal or tax advice. Furthermore, the summary does not address issues relating to any U.S. gift or estate tax consequences or the consequences of any state, local or foreign tax laws.
Stock Options.
Nonqualified Stock Options.   A participant generally will not recognize taxable income upon the grant or vesting of a nonqualified stock option with an exercise price at least equal to the fair market value of the stock on the grant date and no additional deferral feature. When a nonqualified stock option is exercised, a participant generally will recognize compensation taxable as ordinary income in an amount equal to the difference between the fair market value of the shares underlying the option on the date of exercise and the option exercise price. When a participant sells the shares, the participant will have short-term or long-term capital gain or loss, as the case may be, equal to the difference between the amount the participant received from the sale and the tax basis of the shares sold. The tax basis of the shares generally will be equal to the greater of the fair market value of the shares on the exercise date or the option exercise price.
Incentive Stock Options.   A participant generally will not recognize taxable income upon the grant or vesting of an incentive stock option. If a participant exercises an incentive stock option during employment or within three months after his or her employment ends (12 months in the case of permanent and total disability), the participant will not recognize taxable income at the time of exercise for regular U.S. federal income tax purposes (although the participant generally will have taxable income for alternative minimum tax purposes at that time as if the option were a nonqualified stock option). If a participant sells or otherwise disposes of the shares acquired upon exercise of an incentive stock option after the later of (a) one year from the date the participant exercised the option and (b) two years from the grant date of the option, the participant generally will recognize long-term capital gain or loss equal to the difference between the amount the participant received in the disposition and the option exercise price. If a participant sells or otherwise disposes of shares acquired upon exercise of an incentive stock option before these holding period requirements are satisfied, the disposition will constitute a “disqualifying disposition,” and the participant generally will recognize taxable ordinary income in the year of disposition equal to the excess of the fair market value of the shares on the date of exercise over the option exercise price (or, if less, the excess of the amount realized on the disposition of the shares over the option exercise price). The balance of the participant’s gain on a disqualifying disposition, if any, will be taxed as short-term or long-term capital gain, as the case may be.
With respect to both nonqualified stock options and incentive stock options, special rules apply if a participant uses shares already held by the participant to pay the exercise price.
Stock Appreciation Rights.   A participant generally will not recognize taxable income upon the grant or vesting of a SAR with a grant price at least equal to the fair market value of the stock on the grant date and no additional deferral feature. Upon the exercise of a SAR, a participant generally will recognize compensation taxable as ordinary income in an amount equal to the difference between the fair market value of the shares underlying the SAR on the date of exercise and the grant price of the SAR.
Unrestricted Stock Awards.   Upon receipt of a stock award that is not subject to forfeiture, vesting or other similar restrictions, a participant generally will recognize compensation taxable as ordinary income in an amount equal to the excess of the fair market value of the shares at such time over the amount, if any, paid by the participant with respect to the shares. When a participant sells the shares, the participant generally will have short-term or long-term capital gain or loss, as the case may be, equal to the difference between the amount the participant received from the sale and the tax basis of the shares sold. The tax basis of the shares generally will be equal to the amount, if any, paid by the participant with respect to the shares plus the amount of taxable ordinary income recognized by the participant upon receipt of the shares.
Restricted Stock Awards, Stock Units, Performance Shares and Performance Units.   A participant generally will not have taxable income upon the grant of restricted stock, stock units, performance shares or performance units. Instead, the participant generally will recognize ordinary income at the time of vesting or payout equal to the fair market value (on the vesting or payout date) of the shares or cash received minus any amount paid. For restricted stock only, a participant may instead elect to be taxed at the time of grant if the participant makes a timely and proper Section 83(b) election for the award.
 
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Tax Consequences to the Company.   In the foregoing cases, we generally will be entitled to a deduction at the same time, and in the same amount, as a participant recognizes ordinary income, subject to certain limitations imposed under the Code. Code Section 162(m) generally denies a tax deduction to any publicly held corporation for compensation paid to certain “covered employees” to the extent that such compensation paid in a taxable year to a covered employee exceeds $1 million.
Code Section 409A.   We intend that awards granted under the 2021 Plan will comply with, or otherwise be exempt from, Code Section 409A, but make no representation or warranty to that effect.
Tax Withholding.   We are authorized to deduct or withhold from any award granted or payment due under the 2021 Plan, or require a participant to remit to us, the amount of any withholding taxes due in respect of the award or payment and to take such other action as may be necessary to satisfy all obligations for the payment of applicable withholding taxes. We are not required to issue any shares or otherwise settle an award under the 2021 Plan until all tax withholding obligations are satisfied.
Vote Required and Board of Directors Recommendation
For this Proposal No. 4 to be approved by the stockholders at the Annual Meeting, the number of votes cast for approval of this Proposal No. 4 must exceed the aggregate number of votes cast against approval and abstentions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE 2021 EQUITY INCENTIVE PLAN AS DESCRIBED IN THIS PROXY STATEMENT.
 
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EQUITY COMPENSATION PLAN INFORMATION
Currently, the 2013 Plan is our only equity compensation plan that we maintain and that provides for the issuance of our common stock to officers and other employees, directors and consultants (the 1998 Share Incentive Plan, the 2000 Share Incentive Plan, the 2004 Share Incentive Plan, and the 2006 Share Incentive Plan were all merged into the 2013 Plan effective immediately prior to our initial public offering). The 2013 Plan, and each of the equity plans that were merged into it, were approved by our stockholders, prior to our initial public offering. The Company does not maintain any equity incentive plans that have not been approved by stockholders. The following table sets forth information regarding outstanding options and shares reserved for future issuance under the foregoing plan as of December 31, 2020:
Plan Category
Number of shares to be
issued upon exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of shares
remaining available for
future issuance under
equity compensation plans
Equity compensation plans approved by stockholders
1,601,186(1) $ 10.29(2) 0(3)
(1)
Includes 275,802 subject to outstanding stock option awards and 1,325,384 shares subject to outstanding restricted stock unit awards as of December 31, 2020.
(2)
The weighted-average exercise price does not reflect the shares that will be issued in connection with the settlement of restricted stock units since restricted stock units have no exercise price.
(3)
Shares of common stock available for issuance in connection with future awards under our 2013 Plan consist of the initial share reserve of 800,000 shares (adjusted to reflect our 30:1 reverse stock split on August 20, 2013), plus the remaining shares available for issuance under our prior equity incentive plans and any lapsed awards under such prior plans, plus any shares that have been added since the 2013 Plan’s adoption to the share reserve under the 2013 Plan’s “evergreen” provision. Under the 2013 Plan, the maximum aggregate number of common shares that may be issued pursuant to all awards under the 2013 Plan increases annually on the first day of each fiscal year by the number of common shares equal to the lesser of (i) 333,333 shares, (ii) 2% of the total issued and outstanding common shares on the immediately preceding December 31, or (iii) such lesser amount determined by our Board. Effective on January 1, 2021, 222,247 shares of common stock were available for issuance in connection with future awards under our 2013 Plan.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Related Party Transaction Policy
We have a written Related Party Transactions Policy. Pursuant to this Policy, related party transactions include any transaction, arrangement or relationship, or series of such transactions, including any indebtedness or guarantees, in which the amount involved 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. In the event that a related party transaction is identified, such transaction must be reported to our Corporate Secretary and subsequently must be reviewed and approved or ratified by the chairman of our audit committee or our full audit committee, depending on the amount of the transaction. Any member of the audit committee who is one of the parties in the related party transaction and who has a direct material interest in the transaction may not participate in the approval of the transaction.
Related Party Transactions
There was no transaction or series of similar transactions since the beginning of fiscal 2020, or any currently proposed transaction, 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and footnotes set forth information with respect to the beneficial ownership of our common stock as of April 5, 2021 by:

each stockholder, or group of affiliated stockholders, who we know beneficially owns more than 5% of the outstanding shares of our common stock;
 
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each of our named executive officers;

each of our current directors and nominees; and

all of our current directors and current executive officers as a group.
Beneficial ownership of shares is determined under the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Except as indicated by footnote, and subject to applicable community property laws, we believe each person identified in the table possesses sole voting and investment power with respect to all shares of common stock beneficially owned by them.
Applicable percentage ownership in the following table is based on 26,787,041 shares of common stock outstanding as of April 5, 2021. Shares of common stock subject to options currently exercisable or exercisable within 60 days of April 5, 2021, and restricted stock units, or RSUs, which vest or will vest within 60 days of April 5, 2021, are deemed to be outstanding for calculating the number and percentage of outstanding shares of the person holding such options or RSUs, but are not deemed to be outstanding for calculating the percentage ownership of any other person. Beneficial ownership or voting power representing less than 1% is denoted with an asterisk (*).
Unless otherwise noted below, the address of each person listed on the table is c/o Applied Optoelectronics, Inc., 13139 Jess Pirtle Blvd, Sugar Land, Texas 77478.
Names of Beneficial owner
Number of Shares
of Common Stock
Beneficially Owned
Percentage of
Common Stock
Beneficially
Owned
5% or Greater Stockholders:
BlackRock, Inc.(1)
3,447,082 12.87%
Barclays PLC(2)
2,447,674 9.14%
Citadel Advisors LLC and related entities and persons(3)
1,965,107 7.34%
Vanguard Group Inc.(4)
1,439,208 5.37%
D. E. Shaw & Co., L.P. and related entities and persons(5)
1,388,322 5.18%
Directors and Named Executive Officers:
Chih-Hsiang (Thompson) Lin(6)
717,584 2.66%
Che-Wei Lin(7)
90,681 *
William H. Yeh(8)
90,797 *
Richard B. Black(9)
71,034 *
Alex Ignatiev(10)
52,549 *
Min-Chu (Mike) Chen(11)
64,903 *
Elizabeth Loboa(12)
13,053 *
Hung-Lun (Fred) Chang(13)
38,067 *
Stefan J. Murry(14)
38,991 *
Shu-Hua (Joshua) Yeh(15)
108,716 *
David Kuo(16)
7,498 *
All executive officers and directors as a group (11 persons)(17)
1,293,873 4.78%
(1)
Based on a Schedule 13G filed with the SEC on January 26, 2021, BlackRock, Inc., a Delaware corporation, reported that as of December 31, 2020, it had sole voting power over 3,393,412 shares and sole dispositive power over 3,447,082 shares and that its address is BlackRock Inc., 55 East 52nd Street, New York, New York, 10055.
(2)
Based on a Schedule 13G filed with the SEC on February 12, 2021, Barclays PLC reported that as of December 31, 2020 it had sole voting power over 1,223,837 shares and sole dispositive power over 1,223,837 shares and that its address is Barclays PLC, 1 Churchill Place, London, E14 5HP, England; Barclays Bank PLC reported that as of December 31, 2020 it had sole voting power over 815,424 shares and sole dispositive power over 815,424 shares and that its address is Barclays
 
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Bank PLC, 1 Churchill Place, London, E14 5HP, England; Barclays Capital Inc. reported that as of December 31, 2020 it had sole voting power over 409,083 shares and sole dispositive power over 409,083 shares and that its address is Barclays Capital Inc., 745 Seventh Ave, New York, NY 10019; Barclays Capital Securities Ltd reported that as of December 31, 2020 it had sole voting power over -670 shares and sole dispositive power over -670 shares and that its address is Barclays Capital Securities Ltd, 5 The North Colonnade, Canary Wharf, London, X0 E14 4BB.
(3)
Based on a Schedule 13G filed with the SEC on February 16, 2021, Citadel Advisors LLC reported that as of December 31, 2020, it had sole voting and dispositive power over 0 shares, and shared voting and dispositive power over 1,763,534 shares, and that its address is Citadel Advisors LLC, 131 S. Dearborn Street, 32nd Floor, Chicago, IL 60603. Based on the Schedule 13G: Citadel Advisors LLC (“Citadel Advisors”) is the portfolio manager for Citadel Global Equities Master Fund Ltd., a Cayman Islands limited company, (“CG”) and Citadel Equity Fund Ltd., a Cayman Islands limited company (“CEFL”); Citadel Advisors Holdings LP (“CAH”) is the sole member of Citadel Advisors; Citadel GP LLC, a Delaware limited liability company (“CGP”), is the general partner of CAH; CALC IV LP, a Delaware limited partnership (“CALC4”), is the non-member manager of CRBU Holdings LLC, a Delaware limited liability company (“CRBH”), and Citadel Securities LLC, a Delaware limited liability company; Citadel Securities GP LLC a Delaware limited liability company (“CSGP”), is the general partner of CALC4; and Mr. Kenneth Griffin is the President and Chief Executive Officer of CGP, and owns a controlling interest in CGP and CSGP. Citadel Advisors, CAH and CGP may each be deemed to beneficially own 1,763,534 shares; Citadel Securities LLC, CALC4 and CSGP may each be deemed to beneficially own 201,573 shares; and Mr. Griffin may be deemed to beneficially own 1,965,107 shares.
(4)
Based on a Schedule 13G filed with the SEC on February 8, 2021, Vanguard Group Inc., a Pennsylvania corporation, reported that as of December 31, 2020, it had sole voting power over 0 shares, shared voting power over 14,523 and sole dispositive power over 1,419,573 shares and shared dispositive power over 19,635 and that its address is The Vanguard Group, 100 Vanguard Blvd., Malvern, PA 19355.
(5)
Based on a Schedule 13G filed with the SEC on February 8, 2021: D. E. Shaw Valence Portfolios, L.L.C. reported that as of January 27, 2021, it had sole voting power and sole dispositive power over 0 shares, but shared voting power and shared dispositive power over 1,323,743 shares; D. E. Shaw & Co., L.L.C. reported that as of January 27, 2021, it had sole voting power and sole dispositive power over 0 shares, but shared voting power and shared dispositive power over 1,385,611 shares; D. E. Shaw & Co., L.P. reported that as of January 27, 2021, it had sole voting power and sole dispositive power over 0 shares, but shared voting power over 1,388,133 shares and shared dispositive power over 1,388,322 shares; and David E. Shaw reported that as of January 27, 2021, he had sole voting power and sole dispositive power over 0 shares, but shared voting power over 1,388,133 shares and shared dispositive power over 1,388,322 shares. Based on this Schedule 13G, the business address for each such reporting is 1166 Avenue of the Americas, 9th Floor, New York, New York, 10036. The Schedule 13G reported that David E. Shaw is the president and sole shareholder of D. E. Shaw & Co., Inc., which is the general partner of D. E. Shaw & Co., L.P., which in turn is the investment adviser of D. E. Shaw Valence Portfolios, L.L.C. and D. E. Shaw Oculus Portfolios, L.L.C. and the managing member of D. E. Shaw Investment Management, L.L.C. and D. E. Shaw Adviser, L.L.C., which in turn is the investment adviser of D. E. Shaw Asymptote Portfolios, L.L.C., and that, by virtue of these positions, David E. Shaw may be deemed to be the beneficial owner of the shares reported in this Schedule 13G.
(6)
Includes (i) 165,348 shares of common stock issuable upon the exercise of stock options within 60 days of April 5, 2021; (ii) 528,441 shares of common stock; and (iii) 23,795 RSUs which vest within 60 days of April 5, 2021. Dr. Lin is our President, Chief Executive Officer and Chairman of the Board.
(7)
Includes (i) 87,417 shares of common stock and (ii) 3,264 RSUs which vest within 60 days of April 5, 2021. Mr. Lin is a member of our Board.
(8)
Includes (i) 87,533 shares of common stock and (ii) 3,264 RSUs which vest within 60 days of April 5, 2021. Mr. Yeh is a member of our Board.
(9)
Includes (i) 59,608 shares of common stock and (ii) 3,264 RSUs which vest within 60 days of April 5, 2021 and (iii) 8,162 shares of common stock held of record by Heather B. Black Revocable Trust, which Heather Black is trustee and has the sole voting and dispositive power over such shares. Ms. Black is Mr. Black’s spouse. Mr. Black is a member of our Board.
(10)
Includes (i) 49,285 shares of common stock and (ii) 3,264 RSUs which vest within 60 days of April 5, 2021. Dr. Ignatiev is a member of our Board.
(11)
Includes (i) 46,639 shares of common stock; (ii) 3,264 RSUs which vest within 60 days of April 5, 2021 and (iii) 15,000 shares of common stock held of record by Yuh-Mei Chung. Ms. Chung is Dr. Chen’s spouse. Dr. Chen is a member of our Board.
(12)
Includes (i) 9,789 shares of common stock and (ii) 3,264 RSUs which vest within 60 days of April 5, 2021. Dr. Loboa is a member of our Board.
(13)
Includes (i) 2,225 shares of common stock issuable upon the exercise of stock options within 60 days of April 5, 2021; (ii) 29,813 shares of common stock; and (iii) 6,029 RSUs which vest within 60 days of April 5, 2021. Dr. Chang is our Senior Vice President and North America General Manager.
(14)
Includes (i) 16,000 shares of common stock issuable upon the exercise of stock options within 60 days of April 5, 2021; (ii) 16,578 shares of common stock; and (iii) 6,413 RSUs which vest within 60 days of April 5, 2021. Dr. Murry is our Chief Financial Officer and Chief Strategy Officer.
 
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(15)
Includes (i) 22,000 shares of common stock issuable upon the exercise of stock options within 60 days of April 5, 2021; (ii) 80,346 shares of common stock; and (iii) 6,370 RSUs which vest within 60 days of April 5, 2021. Mr. Yeh is our Senior Vice President and Asia General Manager.
(16)
Includes (i) 3,764 shares of common stock; and (ii) 3,734 RSUs which vest within 60 days of April 5, 2021. Mr. Kuo is our Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary.
(17)
Includes (i) 205,573 shares of common stock issuable upon the exercise of stock options within 60 days of April 5, 2021; (ii) 999,213 shares of common stock; (iii) 65,925 RSUs that vest within 60 days of April 5, 2021 and (v) 23,162 shares of common stock held by beneficial ownership.
 
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STOCKHOLDER PROPOSALS OR NOMINATIONS
TO BE PRESENTED AT NEXT ANNUAL MEETING
Pursuant to Rule 14a-8 under the Exchange Act of 1934, some stockholder proposals may be eligible for inclusion in our proxy statement for the 2022 annual meeting. These stockholder proposals must be submitted, along with proof of ownership of our stock in accordance with Rule 14a-8(b)(2), to the Corporate Secretary at our principal executive offices no later than the close of business on December 24, 2021 (120 days prior to the anniversary of this year’s mailing date). Stockholders must comply with the procedures and requirements of Rule 14a-8 for their proposal to be included on our proxy statement for the 2022 annual meeting.
Submitting a stockholder proposal does not guarantee that we will include it in our Proxy Statement. Our nominating and corporate governance committee reviews all stockholder proposals and makes recommendations to the Board for actions on such proposals. For information on qualifications of director nominees considered by our nominating and corporate governance committee, see the “Corporate Governance—Director Nominations” section of this Proxy Statement.
In addition, our Bylaws provide that any stockholder intending to nominate a candidate for election to the Board or to propose any business at our 2022 annual meeting, other than non-binding proposals presented pursuant to Rule 14a-8 under the Exchange Act, must give notice to the Corporate Secretary at our principal executive offices, not earlier than the close of business on the 120th day nor later than the close of business on the 90th day prior to the first anniversary of the date of the preceding year’s annual meeting as first specified in the notice of meeting (without regard to any postponements or adjournments of such meeting after the notice was first given), which for 2022, will be no earlier than the close of business on February 3, 2022 nor later than the close of business on March 5, 2022. The notice must include the information specified in our Bylaws, including information concerning the nominee or proposal, as the case may be, and information concerning the proposing or nominating stockholder’s ownership of and agreements related to our stock. If the 2022 annual meeting is held more than 30 days before or after the first anniversary of the date of the 2021 Annual meeting, the stockholder must submit notice of any such nomination and of any such proposal that is not made pursuant to Rule 14a-8 by the later of the 90th day prior to the 2022 annual meeting or the 10th day following the date on which public announcement of the date of such meeting is first made. We will not entertain any proposals or nominations at the meeting that do not meet the requirements set forth in our Bylaws. If the stockholder does not also comply with the requirements of Rule 14a-4(c) under the Exchange Act, as applicable, we may exercise discretionary voting under proxies that we solicit to vote in accordance with our best judgment on any stockholder proposal or nomination. To make a submission or request a copy of our Bylaws, stockholders should contact our Corporate Secretary. We strongly encourage stockholders to seek advice from knowledgeable counsel before submitting a proposal or a nomination.
TRANSACTION OF OTHER BUSINESS
As of the date of this Proxy Statement, the Board knows of no other business that will be conducted at the Annual Meeting other than as described in this Proxy Statement. If any other matter or matters are properly brought before the meeting or any adjournment or postponement of the meeting, it is the intention of the persons named in the accompanying proxy to vote the proxy on such matters in accordance with their best judgment.
HOUSEHOLDING
The U.S. Securities and Exchange Commission, or SEC, has adopted rules that permit companies and intermediaries, such as brokers, to satisfy the delivery requirements for proxy statements with respect to two or more stockholders sharing the same address by delivering a copy of these materials, other than the proxy card, to those stockholders. This process, which is commonly referred to as “householding,” can mean extra convenience for stockholders and cost savings for the Company. Beneficial stockholders can request information about householding from their banks, brokers, or other holders of record. Through householding, stockholders of record who have the same address and last name will receive only one copy of our Proxy Statement and Annual Report, unless one or more of these stockholders notifies us that they wish to continue receiving individual copies. This procedure will reduce printing costs and postage fees.
 
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Stockholders who participate in householding will continue to receive separate proxy cards. If you are eligible for householding, but you and other stockholders of record with whom you share an address currently receive multiple copies of the Proxy Statement and Annual Report, or if you hold stock in more than one account and wish to receive only a single copy of the Proxy Statement or Annual Report for your household, please contact Broadridge Householding Department, in writing, at 51 Mercedes Way, Edgewood, New York 11717, or by phone at (800) 542-1061 or (866) 540-7095. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate Proxy Statement and Annual Report, please notify your broker if you are a beneficial stockholder.
By order of the Board,
[MISSING IMAGE: SG_DAVIDKUO-BW.JPG]
David Kuo
General Counsel and Corporate Secretary
April 23, 2021
 
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APPENDIX A
APPLIED OPTOELECTRONICS, INC.
2021 EQUITY INCENTIVE PLAN
1.   Purpose of the Plan.   The Company has adopted the 2021 Equity Incentive Plan to attract, retain and motivate individual service providers to the Company and its Related Companies by providing them the opportunity to acquire an equity interest in the Company and align their interests and efforts with the long-term interests of the Company’s stockholders. This Plan is intended to be the successor to the Company’s Amended and Restated 2013 Equity Incentive Plan (the “Prior Plan”). If this Plan is approved by the Company’s stockholders at the Company’s annual stockholder meeting held in June 2021 (the “2021 Annual Meeting”), no new awards may be granted under the Prior Plan from and after the date of the 2021 Annual Meeting (if this Plan is approved by the Company’s stockholders, the date of the 2021 Annual Meeting is the “Effective Date”).
2.   Definitions.   Capitalized terms used in the Plan have the meanings set forth in Appendix A.
3.   Administration.
(a)   Administrator.   The Administrator is the Board or a Committee duly authorized by the Board (for so long as such authorization is extended). The Board and any Committee may have concurrent authority to administer the Plan. All references in the Plan to the “Administrator” will be to the Board or the authorized Committee.
(i)   Rule 16b-3.   To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, those transactions will be structured to satisfy the requirements for exemption under Rule 16b-3, including that the Award will be granted by the Board or a Committee that consists solely of two or more non-employee directors (as determined under Rule 16b-3(b)(3)) and thereafter any action establishing or modifying the terms of the Award will be approved by the Board or a Committee meeting such requirements to the extent necessary for such exemption to remain available.
(ii)   Delegation to an Officer.   The Administrator may delegate to one or more officers of the Company the authority to do one or both of the following: (A) designate employees who are not officers of the Company or members of the Board to be recipients of Options and SARs (and, to the extent permitted by Applicable Law, other types of Awards) and, to the extent permitted by Applicable Law, the terms thereof, and (B) determine the number of shares of Common Stock to be subject to the Awards granted to those employees; provided, however, that the resolutions or charter adopted by the Board or any Committee evidencing such delegation will specify the information required under Section 157(c) of the Delaware General Corporation Law (or any successor statute or rule thereto), including the total number of shares of Common Stock that may be subject to the Awards granted by the officer and that the officer may not grant an Award to themselves. Any such Awards will be granted on the applicable form of Award Agreement most recently approved for use by the Administrator, unless otherwise provided in the resolutions approving the delegation authority. Notwithstanding anything to the contrary herein, the Administrator may not delegate to an officer who is acting solely in the capacity of an officer (and not also as a member of the Board) the authority to determine Fair Market Value of a share of Common Stock for purposes of determining the exercise price of Options or SARs.
(b)   Powers of Administrator.   The Administrator will have full power and exclusive authority, subject to the terms of this Plan, restrictions under Applicable Law, and the delegation of authority from the Board, to:
(i)   select which Eligible Persons will be granted Awards;
(ii)   determine the type of Awards, number of shares of Common Stock covered by the Award, the Fair Market Value of the shares, and the terms and conditions of that Award (including when the Award may vest, be exercised (including prior to vesting), or settled, whether the Award carries
 
A-1

 
rights to dividends or Dividend Equivalents, and whether the Award is to be settled in cash, shares of Common Stock, or other property) and the form of Award Agreement;
(iii)   determine whether, to what extent and under what circumstances Awards may be amended (including to waive restrictions, accelerate vesting or extend exercise periods), tolled, cancelled or terminated;
(iv)   interpret and administer the Plan, any Award Agreement and any other agreements or documents related to the administration of Awards;
(v)   establish rules, and delegate ministerial duties to the Company’s employees consistent with Applicable Law, for the proper administration of the Plan; and
(vi)   make any other determination and take any other action that the Administrator deems necessary or desirable for administration of the Plan.
The Administrator’s decisions will be final, conclusive and binding on all persons, including the Company, any Participant, any stockholder and any Eligible Person.
4.
Shares Subject to the Plan.
(a)   Authorized Number of Shares.   Subject to adjustment from time to time as provided in this Plan, the maximum aggregate number of shares of Common Stock available for issuance under the Plan (the “Share Reserve”) will be the sum of:
(i)   2,100,000 shares, plus
(ii)   any shares of Common Stock that, as of the Effective Date, are available to be made subject to new grants under the Prior Plan, which shares will cease to be available for issuance under the Prior Plan as of the Effective Date and instead become available under this Plan, plus
(iii)   up to 1,613,762 shares of Common Stock subject to awards granted under the Prior Plan that, on or after the Effective Date, would otherwise return to the share reserve of the Prior Plan under the terms of the Prior Plan (including shares tendered or withheld to pay the exercise or purchase price of or withholding taxes due on an award granted under the Prior Plan and shares subject to Lapsed Awards (as defined in the Prior Plan)), which shares will cease to be available under the Prior Plan and will become available under this Plan effective on the date the shares would otherwise return to the Prior Plan.
The maximum aggregate Share Reserve (the sum of (i), (ii) and (iii)) will not exceed 3,713,762 shares of Common Stock. Shares issued under the Plan will be drawn from authorized and unissued shares or treasury shares.
(b)   Share Use.
(i)   If any Award lapses, expires, terminates or is forfeited or canceled due to failure to earn or exercise the Award prior to the issuance of shares thereunder, if shares are issued to a Participant but are forfeited to or repurchased by the Company at their original exercise or purchase price pursuant to the Company’s reacquisition or repurchase rights under the Plan, including any forfeiture or repurchase caused by the failure to meet a contingency or condition required for the vesting of such shares, or if an Award is settled in cash or other property, then those shares will revert to and be available for issuance under the Plan.
(ii)   Shares tendered to or withheld by the Company to pay the exercise or purchase price of an Award or to satisfy any tax withholding obligation in connection with the exercise or settlement of an Award will be deemed issued and not be added back to the Share Reserve. Vested shares that have been issued under an Award and subsequently forfeited or reacquired by the Company will not be added back to the Share Reserve. If any shares of Common Stock are repurchased by the Company on the open market with the proceeds of the exercise or purchase price of an Award, then the number of shares so repurchased shall not remain available for subsequent issuance under the Plan.
 
A-2

 
(iii)   If a Participant receives dividends or Dividend Equivalents in respect of an Award in the form of shares or reinvests cash dividends or Dividend Equivalents paid in respect of Awards into shares of Common Stock, those shares will not reduce the Share Reserve, unless expressly determined otherwise by the Administrator.
(iv)   No fractional shares may be issued under the Plan; however, cash shall be paid in lieu of any fractional Share in settlement of an Award.
(v)   The Administrator may grant Substitute Awards under the Plan. If the Board approves a written agreement between the Company and an Acquired Entity pursuant to which a merger or consolidation is completed and that agreement sets forth the terms and conditions of the substitution for or assumption of outstanding awards of the Acquired Entity, the grant of those substitute or assumed awards will be deemed to be the action of the Administrator without any further action by the Administrator, and the persons holding the newly substituted or assumed Awards will be deemed to be Participants.
5.
Eligibility & Award Size Limits.
(a)   Eligible Recipients.   The Administrator may grant Awards (i) to any employee (including any officer) of the Company or a Related Company and (ii) to any independent contractor (including directors, consultants and advisors) who is a natural person for bona fide services rendered to the Company or any Related Company, provided (A) the services are not in connection with the offer and sale of the Company’s securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities, in each case within the meaning of Form S-8 promulgated under the Securities Act and (B) the grant of an Award or issuance of the shares thereunder does not cause the Company to lose the ability to register the issuance of the shares under Form S-8.
(b)   Award Limits.   Subject to adjustment as provided in Section 12, the Administrator may not grant Awards under the Plan in excess of the following limits (each, an “Award Limit”):
(i)   Outside Directors.   In any calendar year, no individual who is an Outside Director on the grant date may be (A) granted stock-settled Awards under this Plan with an aggregate grant date fair value (as calculated for the Company’s financial reporting purposes) of greater than $300,000, (B) granted cash-settled Awards under this Plan with an aggregate grant date fair value (as calculated for the Company’s financial reporting purposes) of greater than $300,000, and (C) paid annual cash retainer fees of greater than $150,000. However, in the calendar year in which the Outside Director is first appointed or elected to the Board, the foregoing limits in (A) and (B) may each be increased to $400,000. Any Awards granted to an Outside Director while the Outside Director served as a consultant (other than in the capacity of an Outside Director) or employee of the Company or any Related Company will not count toward these Award Limits. Awards granted under the Plan will be considered in determining compliance under the Company’s Stock Ownership and Retention Guidelines.
(ii)   Other Participants.   In any calendar year, no Participant who is an employee or consultant of the Company or any Related Company (other than in the capacity of an Outside Director) on the grant date may be granted under this Plan (A) stock-settled Awards with an aggregate grant date fair value (as calculated for the Company’s financial reporting purposes) of greater than $3,000,000 or (B) cash-settled Awards with an aggregate grant date fair value (as calculated for the Company’s financial reporting purposes) of greater than $3,000,000, in each case, increased to $4,000,000 in the calendar year in which the Participant first becomes an employee or consultant of the Company or a Related Company. Any Awards granted to a Participant while the Participant served as an Outside Director will not count toward these Award Limits.