Xperi
Xperi Corp (Form: DEF 14A, Received: 03/15/2017 12:33:40)
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

 

 

Filed by the Registrant  ☒                            Filed by a Party other than the Registrant  ☐

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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

 

Definitive Additional Materials

 

Soliciting Material Pursuant to Section 240.14a-12

XPERI CORPORATION

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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LOGO

Notice of Annual Meeting

of Stockholders

Thursday, April 27, 2017

11:00 a.m., Local Time

3025 Orchard Parkway

San Jose, CA 95134

The Annual Meeting of the Stockholders of Xperi Corporation (the “Company”) will be held on Thursday, April 27, 2017 at 11:00 a.m. local time, at Xperi Corporation, 3025 Orchard Parkway, San Jose, CA 95134, for the following purposes:

 

1.

To elect seven (7) members of the Board of Directors to hold office until the next annual meeting or until their successors are duly elected and qualified;

 

2.

To approve the Xperi Corporation 2017 Performance Bonus Plan for Executive Officers and Key Employees;

 

3.

To approve the Xperi Corporation Amended and Restated International Employee Stock Purchase Plan;

 

4.

To hold an advisory vote on executive compensation;

 

5.

To hold an advisory vote on the frequency of the advisory vote on executive compensation;

 

6.

To ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accountants of the Company for its year ending December 31, 2017; and

 

7.

To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

These items of business are more fully described in the proxy statement accompanying this notice. The Board of Directors has fixed the close of business on March 3, 2017 as the record date for the determination of stockholders entitled to receive notice of, and to vote at, the Annual Meeting of Stockholders, or at any adjournments of the Annual Meeting of Stockholders.

We are pleased to be furnishing proxy materials to stockholders primarily over the Internet. We believe that this process expedites stockholders’ receipt of proxy materials and lowers the costs of printing and distributing our annual meeting materials. On or about March 17, 2017, a Notice of Internet Availability of Proxy Materials was mailed to our stockholders containing instructions on how to access our 2017 Proxy Statement and 2016 Annual Report on Form 10-K, and how to vote online. The Notice also included instructions on how you can receive a copy of your annual meeting materials, including the notice of annual meeting, proxy statement, and proxy card by mail, via e-mail or by downloading them online. If you choose to receive your annual meeting materials by mail, the notice of annual meeting, proxy statement from the Board of Directors, proxy card and annual report will be enclosed. If you choose to receive your annual meeting materials via e-mail, the e-mail will contain voting instructions and links to the annual report and the proxy statement on the Internet, both of which are available at http://www.proxyvote.com and on our website at http://ir.xperi.com/. If you access http://www.proxyvote.com using the instructions on the Notice, you will also be given the option to elect to receive future proxy materials by e-mail or in printed form by mail. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to the annual meeting materials and a link to the proxy voting site. Your election to receive future proxy materials by e-mail or in printed form by mail will remain in effect until you terminate such election.


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In order to ensure your representation at the Annual Meeting of Stockholders, you are requested to submit your proxy over the Internet, by telephone or by mail. If you attend the Annual Meeting of Stockholders and file with the Secretary of the Company an instrument revoking your proxy or a duly executed proxy bearing a later date, your proxy will not be used.

All stockholders are cordially invited to attend the Annual Meeting of Stockholders.

 

By Order of the Board of Directors
X PERI Corporation
/s/ Paul E. Davis

PAUL E. DAVIS

Secretary

San Jose, California

March 15, 2017


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Table of Contents

 

PROXY STATEMENT FOR THE ANNUAL MEETING      1  
PROXY SUMMARY      1  
ABOUT THE MEETING      7  
PROPOSAL 1 — ELECTION OF DIRECTORS      11  
GOVERNANCE OF THE COMPANY      1 8  

Compensation of Directors

     24  
PROPOSAL 2 — APPROVAL OF THE XPERI CORPORATION 2017 PERFORMANCE BONUS PLAN FOR EXECUTIVE OFFICERS AND EMPLOYEES      26  
PROPOSAL 3 — APPROVAL OF THE XPERI CORPORATION AMENDED AND RESTATED INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN      32  
EQUITY COMPENSATION PLAN INFORMATION      3 8  
EXECUTIVE OFFICERS      3 9  
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE      40  
EXECUTIVE COMPENSATION AND RELATED INFORMATION      42  

Compensation Discussion and Analysis

     42  

Report of the Compensation Committee

     68  

Compensation of Named Executive Officers

     69  
PROPOSAL 4 — ADVISORY VOTE ON EXECUTIVE COMPENSATION      7 3  
PROPOSAL 5 — ADVISORY VOTE ON THE FREQUENCY OF THE ADVISORY VOTE ON EXECUTIVE COMPENSATION      7 4  
PROPOSAL 6 — RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS      7 5  

Report of the Audit Committee

     77  
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS      7 8  
STOCKHOLDER PROPOSALS FOR THE 2018 ANNUAL MEETING OF STOCKHOLDERS      8 0  
OTHER MATTERS      8 0  
APPENDIX A — XPERI CORPORATION 2017 PERFORMANCE BONUS PLAN FOR EXECUTIVE OFFICERS AND KEY EMPLOYEES      A-1  
APPENDIX B — AMENDED AND RESTATED INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN      B-1  
APPENDIX C — RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL MEASURES      C-1  


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LOGO

Xperi Corporation

3025 Orchard Parkway

San Jose, CA 95134

PROXY STATEMENT FOR THE ANNUAL MEETING

OF STOCKHOLDERS

TO BE HELD ON APRIL 27, 2017

This proxy statement is furnished in connection with the solicitation of proxies for use prior to or at the Annual Meeting of Stockholders (the “Annual Meeting”) of Xperi Corporation (together with its subsidiaries, herein referred to as the “Company” or “Xperi”), a Delaware corporation, to be held at 11:00 a.m. Pacific Daylight Time on Wednesday, April 27, 2017 and at any adjournments or postponements thereof for the following purposes:

 

   

To elect seven (7) members of the Board of Directors to hold office until the next annual meeting or until their successors are duly elected and qualified;

 
   

To approve the Xperi Corporation 2017 Performance Bonus Plan for Executive Officers and Key Employees;

 
   

To approve the Xperi Corporation Amended and Restated International Employee Stock Purchase Plan;

 
   

To hold an advisory vote on executive compensation;

 
   

To hold an advisory vote on the frequency of the advisory vote on executive compensation;

 
   

To ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accountants of the Company for its year ending December 31, 2017; and

 
   

To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

 

We made this proxy statement and accompanying form of proxy available to stockholders beginning on March 17, 2017.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be Held on April 27, 2017:

This proxy statement, form of proxy and the Company’s 2016 Annual Report on Form 10-K are available electronically at http://www.proxyvote.com and on our website at http://ir.xperi.com.

PROXY SUMMARY

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider, and you should read the entire Proxy Statement carefully before voting. Page references are supplied to help you find further information in this Proxy Statement.

 

   XPERI - Proxy Statement          1
      


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References to “Xperi,” “we,” “us” and “our” refer to Xperi Corporation and its consolidated subsidiaries. References to “GAAP” refer to generally accepted accounting principles in the United States of America. References to “RSUs” refer to time-based vesting restricted stock units. References to “PSUs” refer to performance-based vesting restricted stock units.

Business Highlights

2016 was a transformative year for Xperi. We completed the acquisition of DTS, Inc. (“DTS”), a publicly-traded developer of sound-based technologies, in December 2016. At the time of the acquisition, Tessera Technologies, Inc. and DTS were combined under the newly-formed Tessera Holding Corporation and shares of the combined company traded on the NASDAQ market under Tessera’s ticker symbol “TSRA”. During the first quarter of 2017, we introduced our new corporate name, “Xperi Corporation”, stock ticker, “XPER”, and launched a new corporate logo.

Our combined portfolio of products and technologies uniquely positions us to deliver innovative audio and imaging products and next-generation 3D semiconductor interconnect solutions for the mobile device, consumer electronics, and automotive markets. Our products and technologies also address the growing potential of emerging markets such as IoT and AR/VR. Our team of more than 400 world-class engineers is focused on creating core technologies that power intelligent, immersive, and personalized digital experiences.

Financial Performance

 

    Total revenue was $259.6 million for the year ended December 31, 2016, as compared with $273.3 million for the year ended December 31, 2015
    Total recurring revenue for 2016 was $243.8 million as compared with $242.3 million for 2015.
    Operating expenses totaled $170.2 million for 2016 as compared with $111.1 million for 2015.
    Net income was $56.1 million, or $1.12 per diluted share in 2016, as compared with $117.0 million, or $2.23 per diluted share in 2015, including a $6.3 million reversal of a deferred tax valuation allowance.

Strategic Performance

During 2016, we accomplished the following:

 

   

Acquisitions:

     

DTS acquisition.

     

Acquisition of technology from Pelican Imaging, whose multi-aperture technology will support and improve the use of our biometrics technology and Fotosavvy tools.

   

Audio and imaging businesses achieved new revenue milestones.

   

Capital allocation: in 2016 we bought back 2.3 million shares at an average price of $30.04 for a total of $67.7 million dollars. In the past three years, we have bought back 8.3 million shares for a total of $252.5 million dollars at an average price of $30.27. Additionally, during the year we paid out $39.2 million dollars in dividends.

   

Product licensing: we saw progress across automotive, mobile and home markets.

     

Automotive

   

HD Radio technology is in more than 40% of new cars sold in the U.S. The solution is in over 200 different car models across all 36 auto brands sold in the U.S.

     

Mobile, which includes smartphones, PCs, headphones, drones, and activity cameras

   

Our technologies were shipped in approximately 450 million devices. We are working with more than 20 smartphone manufacturers offering imaging and audio solutions that provide a best-in-class entertainment experience to users.

   

In imaging, we added a number of smartphone manufacturers to our roster of customers and to date, we have 12 mobile manufacturers, 4 SOC partners and have reached 25% mobile market penetration.

   

In audio, we expanded our footprint to 12 mobile manufacturers. We realized a little under 10% mobile market penetration, and increased our Headphone:X technology footprint to 8 brands and over 40 models.

 

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In biometrics, our imaging solutions for mobile applications were further developed and we progressed a number of strategic engagements.

   

In the emerging VR/AR markets, market interest grew in both our imaging and audio solutions.

     

Home market

   

In 2016, our audio technology was shipped in more than 150 million home-based consumer electronic devices including TVs, game consoles, soundbars, wireless speakers, Blu-ray players, AVRs, and set-top-boxes.

 

   

Intellectual property licensing: we made significant progress engaging various existing and potential customers around our intellectual property portfolio. In one case, as a last resort, we filed what we believe were well-planned and executed legal matters against Broadcom.

   

Invensas business: we continue to make excellent progress in developing, optimizing and commercializing our broad port-folio of innovative semiconductor technologies. We made progress licensing and facilitating the technology transfer of our foundational wafer bonding technologies – the ZiBond and Direct Bond Interface (DBI) platform solutions.

Governance Highlights

We are committed to high standards of corporate governance. The Company’s corporate governance program features the following:

 

    a strong independent chairman of the Board;
    a Board that is up for election annually and has been since the Company’s initial public offering in 2003;
    all of our directors, other than our CEO, are independent;
    we have no stockholder rights plan in place;
    regularly updated charters for each of the Board’s committees, which clearly establish the roles and responsibilities of each such committee;
    regular executive sessions among our non-employee and independent directors;
    a Board that enjoys unrestricted access to the Company’s management, employees and professional advisers;
    each director attended at least 75% of the aggregate of the total number of Board meetings and total number of meetings of Board committees on which such director served during the time he served on the Board or committees;
    a clear Code of Business Conduct and Ethics that is reviewed regularly for best practices;
    a clear set of Corporate Governance Guidelines that is reviewed regularly for best practices;
    a clawback policy that provides that our Compensation Committee or Board of Directors may require the forfeiture, recovery or reimbursement of incentive compensation from an executive officer in the event of restatement of the Company’s financial results due to its material noncompliance with any financial reporting requirement under United States securities laws;
    policy prohibiting hedging, pledging or shorting of company stock by all employees and directors;
    longest tenure of any director is less than five years;
    majority voting for directors in non-contested elections;
    the Compensation Committee’s engagement of an independent compensation consultant; and
   

minimum stock ownership requirement to ensure that our directors and executives remain aligned with the interests of the Company and its stockholders.

 

   XPERI - Proxy Statement          3
      


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Board Nominees

 

                         Independent                 

  Name

 

 

Age    

 

 

Director        
Since

 

 

Experience/
Qualification

 

 

Yes

 

 

No

 

 

Committee

Memberships                    

 

 

Other Company            

Boards

 

  Tudor Brown   58   2013  

     Public Company President

     Extensive experience in
    semiconductor industry

        and licensing

     Fellow of the Institution of
    Engineering and
    Technology

     Fellow of the Royal
    Academy of Engineering

 

 

 

LOGO

     

      Compensation Committee

 

      Nominating and

  Governance Committee Chair

 

      Lenovo Group

 

      Semiconductor

  Manufacturing

  International

  Corporation

 

      Marvell Technology

  Group

  John Chenault   69   2013  

     Public Company CFO

     Extensive experience in
    semiconductor industry

     Audit Committee
    experience and
    financial expertise

 

 

 

LOGO

            Audit Committee Chair   Ichor Holdings, Ltd.
  David Habiger   48   2016  

     Public Company CEO

     Extensive experience in
    digital media and
    entertainment

     Audit Committee
    experience and
    financial expertise

     Member of the National
    Association of Corporate
    Directors

 

 

LOGO

      None  

      Control4 Corporation

 

      Echo Global

  Logistics, Inc

 

      Enova International,

  Inc.

 

      Immersion

  Corporation

 

      Grubhub

 

      Stamps.com

 

  Richard S. Hill   65   2012  

     Public Company CEO

     Extensive experience in
    semiconductor industry

 

 

LOGO

     

      Board Chair

      Nominating and   

  Governance Committee

 

      Autodesk, Inc.

 

      Arrow Electronics,

  Inc.

 

      Cabot

  Microelectronics

  Corporation

 

                           

     Marvell Technology
   Group Ltd.

     Yahoo Inc.

 

  Thomas Lacey  

58

 

2013

 

     Public Company CEO

     Extensive experience in
    semiconductor industry

 

     

 

LOGO

 

None

       DSP Group, Inc.
  George A.   Riedel  

59

 

2013

 

     CEO

     Extensive experience in
    licensing technology and
    telecom industry

 

 

 

LOGO

     

     Audit Committee

     Compensation Committee

       Accedian Networks
  Christopher A.   Seams  

54

 

2013

 

     Public Company Executive

     Extensive experience in
    semiconductor industry

     Member of IEEE

 

 

 

LOGO

     

     Compensation Committee

  Chair

     Audit Committee

       Nanometrics

Tudor Brown has served on the Board since May 2013. Mr. Brown was one of the founding members, and until May 2012, President of ARM Holdings plc (“ARM”). Mr. Brown began his career at ARM over twenty years ago as a principal engineer, and he later assumed other roles, including Chief Technical Officer, Chief Operating Officer, and member of the board of directors. He is a Fellow of the Institution of Engineering and Technology and a Fellow of the Royal Academy of Engineering. Mr. Brown joined the board of Marvell in December 2016.

John Chenault has served on the Board since March 2013. Mr. Chenault served as Chief Financial Officer of Novellus Systems, a semiconductor company, and served in other roles at Novellus, including Vice President of

 

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Corporate Development, Vice President of Operation and Administration, Executive Vice President of Worldwide Sales and Service and Executive Vice President of Business Operations.

David C. Habiger has served on the Board since December 2016. Mr. Habiger is a Senior Advisor at Silver Lake Partners and a Venture Partner with the Pritzker Group. Mr. Habiger served as the interim CEO at Textura Corporation, a software company focused on construction management, from May 2015 until its sale to Oracle Corporation in June 2016. He is a member of the National Association of Corporate Directors and is on the Advisory Board of the University of Chicago Center for Entrepreneurship.

Richard S. Hill has served on the Board since August 2012 and as Chairman of the Board since March 2013. Mr. Hill previously served as the Chief Executive Officer and member of the board of directors of Novellus Systems Inc., where he had worked for nearly 20 years.

Thomas Lacey has served on the Board since May 2013 and as its interim Chief Executive Officer since May 2013 and Chief Executive Officer since December 9, 2013. Mr. Lacey has held senior roles at Components Direct, Phoenix Technologies Ltd., SunFab™ Thin Film Solar Products group of Applied Materials, Inc. and Vista Point Technologies, Intel Corporation, as well as other companies.

George A. Riedel has served on the Board since May 2013. Mr. Riedel was most recently the Chairman and CEO of Cloudmark, Inc., having stepped down in January 2017, and was previously in senior roles at Nortel Networks Corporation, Juniper Networks, Inc., and McKinsey & Company.

Christopher A. Seams has served on the Board since March 2013. Mr. Seams was most recently the Chief Executive Officer and a member of the board of directors of Deca Technologies, a subsidiary of Cypress Semiconductor Corporation, and was previously the Executive Vice President of Sales & Marketing at Cypress Semiconductor Corporation. Mr. Seams is a senior member of the Institute of Electrical and Electronics Engineers (“IEEE”), served on the Engineering Advisory Council for Texas A&M University and was a board member of Joint Venture Silicon Valley.

Approval of the Xperi Corporation 2017 Performance Bonus Plan for Executive Officers and Key Employees

We believe that the ability to provide bonuses to certain employees at Xperi is required to both recruit and retain the high-caliber talent that is necessary to support the business. Since 2012, we have paid executive bonuses under our 2012 Performance Bonus Plan for Executive Officers and Key Employees (the “2012 Plan”), which was approved by our stockholders at the 2012 annual meeting of the Company’s stockholders. Bonus awards under the 2012 Plan are eligible to be exempt from the limitations of Section 162(m) as “performance-based” compensation. Pursuant to Section 162(m) of the Code, no further awards are eligible to be granted under the 2012 Plan as “performance-based” compensation following the date of the Annual Meeting unless that plan is reapproved by the stockholders. Our Board of Directors has approved the Xperi Corporation 2017 Performance Bonus Plan for Executive Officers and Key Employees (the “2017 Plan”), subject to stockholder approval, to replace the 2012 Plan.

Approval of the Amended and Restated International Employee Stock Purchase Plan

We operate in a highly competitive and challenging marketplace in which our success depends to a great extent on our ability to attract and retain high-caliber employees, particularly international employees. Our Compensation Committee believes that offering an international employee stock purchase plan to eligible employees of the Company and its participating subsidiaries assists with these challenges. Such a plan provides eligible employees with a convenient means of acquiring an equity interest in the Company through payroll deductions or direct contributions, to enhance such employees’ sense of participation in the affairs of the Company and its participating subsidiaries, and to provide an incentive for continued employment. The Company provides these benefits through our existing International Employee Stock Purchase Plan (the “Existing IESPP”), which was first adopted in 2008 and most recently amended in 2013. The purpose of the Existing IESPP is to promote the success and enhance

 

   XPERI - Proxy Statement          5
      


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the value of the Company by linking the interests of employees of the Company and its subsidiaries to those of our stockholders, and providing such persons with a chance to share in the value created by their efforts. With the acquisition of DTS, the Company now has a larger employee population in non-U.S. locations, including locations where we previously had no employees, creating the need to update the Existing IESPP to meet the needs of those employees.

As of December 31, 2016, a total of just 23,130 shares remained available for issuance under the Existing IESPP. Under the proposed amended and restated International Employee Stock Purchase Plan (the “Restated IESPP”), an additional 200,000 shares will be added to the share reserve. If the requested increase in the number of shares authorized for issuance is not approved, we do not expect to have sufficient shares to meet our anticipated needs in 2017 and thereafter.

Executive Compensation

Philosophy

The executive compensation program emphasizes performance-based compensation and the amount of compensation paid to our executives varies significantly based on overall strategic and financial performance. The primary objective of our executive compensation program is to build long-term stockholder value. Our approach to executive compensation is to pay for current results and strategic actions taken that are expected to translate into improved future financial performance. We hold our executives to stringent performance standards and, as a result, our executive compensation plans are designed to pay competitively if strategic and financial performance objectives are met and less so if variable pay metrics are missed, as was the case in 2016.

Compensation Practices

 

   

Clawback policy

 

 

   

Minimum stock ownership guidelines

 

 

   

Double-trigger agreements

 

 

   

No guaranteed bonuses under our annual bonus plan and extremely limited perquisites

 

 

   

Prohibition of hedging and pledging shares

 

 

   

No stock option exchanges or repricing without stockholder approval

 

Auditors

The Audit Committee appointed PricewaterhouseCoopers LLP as independent registered public accountants for the Company and its subsidiaries for the fiscal year ending December 31, 2017. We are asking our stockholders to ratify this appointment.

 

Voting Matters

 

       
  

Board Vote

Recommendation

 

    

Page Reference 
(for more detail) 

 

Proposal 1 – Election of Directors    FOR      11
Proposal 2 – Approval of the Xperi Performance Bonus Plan for Executive Officers and Key Employees    FOR      26
Proposal 3 – Approval of the Amended and Restated International Employee Stock Purchase Plan    FOR      32

Proposal 4 – Advisory Vote on Executive Compensation

   FOR      73
Proposal 5 – Advisory Vote on the Frequency of the Advisory Vote on Executive Compensation   

FOR ANNUAL

VOTE

     74

Proposal 6 – Ratification of Independent Registered Public Accountants

 

   FOR      75

 

6          XPERI - Proxy Statement   
    


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About the Meeting

 

 

 

What is the Purpose of the Annual Meeting?

 

 

At the annual meeting, stockholders will vote on: (1) the election of seven (7) directors; (2) the approval of the Xperi Corporation 2017 Performance Bonus Plan for Executive Officers and Key Employees; (3) the approval of the Xperi Corporation Amended and Restated International Employee Stock Purchase Plan; (4) the compensation of our named executive officers, on an advisory (non–binding) basis; (5) the frequency with which non-binding advisory votes on compensation will be brought to the stockholders; (6) the ratification of PricewaterhouseCoopers LLP to serve as the Company’s independent registered public accountants for the 2017 fiscal year; and (7) any other business that may properly come before the meeting.

 

 

Who is Entitled to Vote?

 

 

Only holders of record of our common stock as of the close of business on March 3, 2017 are entitled to receive notice of, and to vote at, the Annual Meeting. The outstanding common stock constitutes the only class of our securities entitled to vote at the Annual Meeting, and each holder of common stock shall be entitled to one vote for each share held on all matters to be voted upon at the Annual Meeting. At the close of business on March 3, 2017, there were 49,218,397 shares of common stock issued and outstanding, which were held by approximately 21 holders of record.

 

 

What are the Board of Directors’ Recommendations on the Proposals?

 

 

The Board’s recommendation is set forth together with the description of each proposal in this Proxy Statement. In summary, the Board unanimously recommends a vote FOR the nominees for director, FOR the approval of the Xperi Corporation 2017 Performance Bonus Plan for Executive Officers and Key Employees , FOR the approval of the Xperi Corporation Amended and Restated International Employee Stock Purchase Plan, FOR non-binding approval of the compensation of our named executive officers, FOR an annual advisory vote on executive compensation and FOR the ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accountants of the Company.

 

 

How do I Vote My Shares at the Annual Meeting?

 

 

Stockholders whose shares are registered in their own names may vote by proxy by mail, over the Internet or by telephone. Instructions for voting by proxy over the Internet or by mail are set forth on the Notice of Internet Availability of Proxy Materials mailed to you, or on the proxy card mailed to you if you chose to receive materials by mail. Instructions for voting by proxy by telephone are available on the Internet site identified on the Notice of Internet Availability of Proxy Materials or on the proxy card mailed to you if you chose to receive materials by mail. The Internet and telephone voting facilities will close at 11:59 pm Eastern Daylight Time on April 26, 2017. If you access http://www.proxyvote.com using the instructions on the Notice, you will also be given the option to elect to receive future proxy materials by e-mail or in printed form by mail. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to the proxy materials and a link to the proxy voting site. Your election to receive future proxy materials by e-mail or in printed form by mail will remain in effect until you terminate such election.

If you sign and return a proxy card by mail but do not give voting instructions, your shares will be voted (1) FOR ALL of the seven (7) nominees named in Proposal No. 1 in this proxy statement; (2) FOR the approval of the Xperi Corporation 2017 Performance Bonus Plan for Executive Officers and Key Employees (3) FOR the approval of the Xperi Corporation Amended and Restated International Employee Stock Purchase Plan; (4) FOR the approval of

 

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compensation of our named executive officers (NEOs) as disclosed in this proxy statement; (5) FOR an annual advisory vote on executive compensation; (6) FOR the ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accountants for the Company for the year ending December 31, 2017; and (7) as the proxy holders deem advisable, in their discretion, on other matters that may properly come before the Annual Meeting.

If your shares are held in street name, the voting instruction form sent to you by your broker, bank or other nominee should indicate whether the institution has a process for beneficial holders to provide voting instructions over the Internet or by telephone. A number of banks and brokerage firms participate in a program that permits stockholders whose shares are held in street name to direct their vote over the Internet or by telephone. If your bank or brokerage firm gives you this opportunity, the voting instructions from the bank or brokerage firm that accompany this proxy statement will tell you how to use the Internet or telephone to direct the vote of shares held in your account. If your voting instruction form does not include Internet or telephone information, please complete and return the voting instruction form in the self-addressed, postage-paid envelope provided by your broker. Stockholders who vote by proxy over the Internet or by telephone need not return a proxy card or voting instruction form by mail, but may incur costs, such as usage charges, from telephone companies or Internet service providers.

If you plan to attend the Annual Meeting and wish to vote in person, you will be given a ballot at the Annual Meeting. Please note, however, that if your shares are held in “street name,” which means your shares are held of record by a broker, bank or other nominee, and you wish to vote at the Annual Meeting, you must bring to the Annual Meeting a legal proxy from the broker, bank or other nominee who is the record holder of the shares, authorizing you to vote at the Annual Meeting.

 

 

Can I Change My Vote After I Return My Proxy Card?

 

 

Yes, any proxy may be revoked at any time before it is exercised by filing with the Company’s Secretary an instrument revoking it or by submitting prior to the time of the Annual Meeting a duly executed proxy bearing a later date. Stockholders who have voted by proxy over the Internet or by telephone or have executed and returned a proxy and who then attend the Annual Meeting and desire to vote in person are requested to so notify the Secretary in writing prior to the time of the Annual Meeting. We request that all such written notices of revocation to the Company be addressed to Paul E. Davis, Secretary, Xperi Corporation, at the address of our principal executive offices at 3025 Orchard Parkway, San Jose, California 95134. Our telephone number is (408) 321-6000. Stockholders may also revoke their proxy by entering a new vote over the Internet or by telephone.

 

 

What Does it Mean if I Get More than One Proxy Card?

 

 

If your shares are registered differently or are in more than one account, you may receive more than one proxy card. Sign and return all proxy cards to ensure that all of your shares are voted.

 

 

What does “Householding” mean and How Does it Affect Me?

 

 

We have adopted a procedure approved by the SEC known as “householding.” This procedure allows multiple stockholders residing at the same address the convenience of receiving a single copy of our Annual Report on Form 10-K and proxy statement, if they have elected to receive proxy materials by mail. This allows us to save money by reducing the number of documents we must print and mail, and helps protect the environment as well. Householding is available to both registered stockholders (i.e., those stockholders with certificates registered in their name) and streetname holders (i.e., those stockholders who hold their shares through a brokerage).

If you are a registered stockholder that has requested to receive proxy materials by mail and you have consented to our mailing of proxy materials and other stockholder information only to one account in your household, as identified by you, we will deliver or mail a single copy of our Annual Report on Form 10-K and proxy statement for all registered stockholders residing at the same address. Your consent will be perpetual unless you revoke it, which you may do at any time by contacting the Householding Department of Broadridge Financial Solutions, Inc.,

 

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at 51 Mercedes Way, Edgewood, NY 11717, or by calling 1-800-542-1061. If you revoke your consent, we will begin sending you individual copies of future mailings of these documents within 30 days after we receive your revocation notice. If you received a householded mailing this year, and you would like to receive additional copies of our Annual Report on Form 10-K and proxy statement mailed to you, please call Investor Relations at (408) 321-6000, send an e-mail request to ir@xperi.com, or write to c/o Investor Relations, Xperi Corporation, 3025 Orchard Parkway, San Jose, CA 95134 and we will promptly deliver the requested copy.

Registered stockholders that have requested to receive proxy materials by mail and have not consented to householding will continue to receive copies of our Annual Reports on Form 10-K and our proxy statements for each registered stockholder residing at the same address. As a registered stockholder, you may elect to participate in householding and receive only a single copy of the Annual Reports on Form 10-K and proxy statements for all registered stockholders residing at the same address by contacting Broadridge as outlined above.

Stockholders who hold their shares through a brokerage may elect to participate in householding or revoke their consent to participate in householding by contacting their respective brokers.

 

 

What is a Quorum?

 

 

A quorum of stockholders is necessary to take action at the Annual Meeting. Stockholders representing a majority of the outstanding shares of our common stock present in person or represented by proxy will constitute a quorum. We will appoint an election inspector for the meeting to determine whether or not a quorum is present and to tabulate votes cast by proxy or in person at the Annual Meeting.

 

 

What Vote is Required to Approve Each Proposal?

 

 

Proposal 1—Election of Directors

The Company has adopted a majority vote standard for non-contested director elections and a plurality vote standard for contested director elections. The voting standard is discussed further under the section entitled “Proposal No. 1—Election of Directors—Required Vote and Board of Directors Recommendation.”

Proposal 2—Approval of the Xperi Corporation 2017 Performance Bonus Plan for Executive Officers and Key Employees

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote on the proposal is required to approve the Xperi Corporation 2017 Performance Bonus Plan for Executive Officers and Key Employees. Abstentions have the same effect as negative votes on this proposal. Broker non-votes will not be counted for any purpose in determining whether this proposal has been approved.

Proposal 3—Approval of the Xperi Corporation Amended and Restated International Employee Stock Purchase Plan

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote on the proposal is required to approve the Amended and Restated International Employee Stock Purchase Plan. Abstentions have the same effect as negative votes on this proposal. Broker non-votes will not be counted for any purpose in determining whether this proposal has been approved.

Proposal 4—Advisory Vote on Executive Compensation

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote on the proposal is required to approve the non-binding executive compensation proposal. Abstentions have the same effect as negative votes on this proposal. Broker non-votes will not be counted for any purpose in determining whether this proposal has been approved.

 

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Proposal 5—Advisory Vote on Frequency of Advisory Vote on Executive Compensation

The option of one year, two years or three years that receives the affirmative vote of holders of a majority of shares present in person or by proxy and entitled to vote on the proposal will be the frequency recommended by stockholders for the advisory vote on the compensation of our named executive officers, unless none of the frequency options receives a majority vote, in which case the option that receives the highest number of votes will be considered to be the frequency recommended by stockholders. Abstentions have the same effect as a vote against each of the frequency options. Broker non-votes are not counted for any purpose in determining which frequency option has been recommended by stockholders.

Proposal 6—Ratification of Independent Registered Public Accountants

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote on the proposal is required to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accountants. Abstentions have the same effect as negative votes on this proposal. Broker non-votes will not be counted for any purpose in determining whether this proposal has been approved.

 

 

What are Broker Non-Votes?

 

 

If your shares are held by a broker, bank or other stockholder of record, in nominee name or otherwise (typically referred to as being held in “street name”) and you do not instruct your broker how to vote your shares, your broker will not have discretion to vote your shares on any of the non-routine matters. A broker non-vote occurs when a broker, bank or other stockholder of record, exercising its fiduciary powers submits a proxy for the annual meeting but does not vote on a particular proposal because such holder does not have discretionary voting authority with respect to that proposal and has not received voting instructions from the beneficial owner. Under the rules that govern brokers, brokers have the discretion to vote on routine matters, but not on non-routine matters. Typically, the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accountants is treated as a routine matter, and the election of directors and other proposals presented in this proxy statement are not. However, when a matter to be voted on at a stockholders meeting is the subject of a contested solicitation, banks, brokers and other nominees do not have discretion to vote your shares on that matter.

Broker non-votes will be counted as shares present for the purpose of determining the presence of a quorum. We encourage you to provide instructions to your broker regarding the voting of your shares.

 

 

What Happens if I Abstain?

 

 

Proxies marked “abstain” will be counted as shares present for the purpose of determining the presence of a quorum, but for purposes of determining the outcome of a proposal, they will be treated as a “no” or “none” vote depending upon the matter to be voted upon – please see “What vote is required to approve each proposal?” above for the specific result of an abstention vote.

 

 

How Will Xperi Solicit Proxies?

 

 

We have retained Broadridge to assist in the distribution of proxy materials. The costs and expenses of preparing and mailing proxy solicitation materials for the annual meeting and other costs of the proxy solicitation will be borne by us. Certain of our officers and employees may solicit the submission of proxies authorizing the voting of shares in accordance with the Board of Directors’ recommendations. Such solicitations may be made by telephone, facsimile transmission or personal solicitation. No additional compensation will be paid to such officers, directors or regular employees for such services. We will reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them in sending proxy material to stockholders.

 

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Proposal 1—Election of Directors

The Board of Directors has nominated the seven (7) individuals identified under “Director Nominees” below for election as directors, all of whom are currently directors of the Company. Each of the nominees has agreed to be named in this proxy statement and to serve as a director if elected. Our Board of Directors is currently comprised of eight (8) members. Mr. Stout is not standing for re-election. Directors are elected at each annual meeting and hold office until their successors are duly elected and qualified at the next annual meeting. In the absence of instructions to the contrary, the persons named as proxy holders in the accompanying proxy intend to vote in favor of the election of the seven (7) nominees designated below to serve until the 2018 Annual Meeting of Stockholders and until their respective successors shall have been duly elected and qualified.

 

LOGO

  

Tudor Brown

Director Since 2013

Age 58

Skills and Qualifications:

 

   

Public Company President

 
   

Extensive experience in semiconductor industry and licensing

 
   

Fellow of the Institution of Engineering and Technology

 
   

Fellow of the Royal Academy of Engineering

 
   

M.A. in Electrical Sciences from Cambridge University

 

Current Directorships:

 

   

Lenovo Group

 
   

Semiconductor Manufacturing International Corporation

 
   

Marvell Technology Group Ltd.

 

Past Directorships:

 

   

ARM Holdings plc

 
   

ANT Software Limited

 

Xperi Committee Assignments:

 

   

Nominating and Governance Committee Chair

 
   

Compensation Committee Member

 

Tudor Brown has served on the Board since May 2013. Mr. Brown was one of the founding members and, until May 2012, President, of ARM, a publicly-traded, semiconductor IP and software design company based in Cambridge, UK. Mr. Brown began his career at ARM over twenty years ago as a principal engineer and later assumed other roles, including Chief Technical Officer from 1997 through 2000, Chief Operating Officer from 2001 through 2008, and a member of the board of directors from 2001 through his retirement in May 2012. Mr. Brown became President of ARM in July 2008 with responsibility for developing high-level relationships with industry partners and governmental agencies and for regional development, and served as a director on ARM’s board of directors. Mr. Brown was also a non-executive director of ANT Software Limited, a UK company, from April 2005 until February 2013. He became an independent director of Lenovo Group, listed on HKSE, in January 2013 and Semiconductor Manufacturing International Corporation in August 2013 and was a member of the advisory board of Annapurna Labs up until January 2015. Mr. Brown received an M.A. degree in Electrical Sciences from Cambridge University, and holds one patent in low-power logic. He is a Fellow of the Institution of Engineering and Technology and a Fellow of the Royal Academy of Engineering. The Board believes that Mr. Brown brings his experience as a founder and senior executive of one of the world’s most successful semiconductor technology and licensing companies, along with his strong operational experience and deep industry knowledge, to his role as a member of the Board.

 

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LOGO   

John Chenault

Director Since 2013

Age 69

Skills and Qualifications:

 

   

Public Company CFO

 
   

Extensive experience in semiconductor industry

 
   

Audit Committee experience and financial expertise

 
   

M.B.A. from Western Illinois

 

Current Directorships:

 

   

Ichor Holdings, Ltd.

 

Past Directorships:

 

   

Ultra Clean Technology

 

Xperi Committee Assignments:

 

   

Audit Committee Chair

 

John Chenault has served on the Board since March 2013. Mr. Chenault served as Chief Financial Officer of Novellus Systems, a semiconductor company, from April 2005 to September 2005, at which point he retired. Prior to that, he served as Vice President of Corporate Development from February 2005 to April 2005, Vice President of Operation and Administration from September 2003 to February 2005, Executive Vice President of Worldwide Sales and Service from February 2002 to September 2003 and Executive Vice President of Business Operations from July 1997 to January 2002. Mr. Chenault has served on the board of directors of Ichor Holdings, Ltd. since October 2015. Mr. Chenault also served on the board of directors of Ultra Clean Technology from June 2009 to July 2015. Mr. Chenault received a Bachelor of Business degree in Economics and an M.B.A. from Western Illinois University. The Board believes Mr. Chenault brings his extensive management, financial expertise and operations experience in the semiconductor industry to his role as a member of the Board.

 

LOGO   

David C. Habiger

Director Since 2016

Age 48

Skills and Qualifications:

 

   

Public Company CEO

 
   

Extensive experience in digital media and entertainment

 
   

Audit Committee experience and financial expertise

 
   

Recipient of Ernst & Young Entrepreneur of the Year Award

 
   

Chosen as one of the Digital Power 50 by the Hollywood Reporter

 
   

Selected as one of Corporate Leader Magazine’s 40 under 40 Business Leaders

 
   

Member of the National Association of Corporate Directors

 
   

Serves on the Advisory Board of the University of Chicago Center for Entrepreneurship

 
   

M.B.A. from the University of Chicago

 

Current Directorships:

 

   

Control4 Corporation

 
   

Echo Global Logistics, Inc. (Audit Committee Chair)

 

 

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Enova International, Inc.

 
   

Immersion Corporation

 
   

GrubHub Inc.

 
   

Stamps.com Inc.

 

Past Directorships:

 

   

RealD Inc.

 
   

Textura Corporation

 

David C. Habiger has served on the Board since December 2016. Mr. Habiger served as a director of DTS from March 2014 until its acquisition by the Company in December 2016. Mr. Habiger has been a Senior Advisor at Silver Lake Partners since December 2012 and a Venture Partner with the Pritzker Group since January 2013. Mr. Habiger served as the interim CEO at Textura Corporation, a software company focused on construction management, from May 2015 until its sale to Oracle in June 2016. From May 2011 to August 2012, he served as the Chief Executive Officer of NDS Group Ltd., a provider of video software and content security solutions. Mr. Habiger worked with the founding members of Sonic Solutions (“Sonic”), a computer software company, from 1992 to 2011 and served as President and Chief Executive Officer of Sonic from 2005 to 2011. He serves as a director for Control4 Corporation, Echo Global Logistics, Inc., Enova International, Inc., Immersion Corporation, GrubHub Inc. and Stamps.com Inc., and previously served as director for RealD Inc. and Textura Corporation. He is a member of the National Association of Corporate Directors and is on the Advisory Board of the University of Chicago Center for Entrepreneurship. Mr. Habiger received a bachelor’s degree in business administration from St. Norbert College and an M.B.A. from the University of Chicago. Mr. Habiger was selected to serve on our Board due to his extensive experience in the digital media and entertainment industries and his in-depth knowledge and understanding of the consumer electronics industry.

 

LOGO   

Richard S. Hill

Director Since 2012

Chairman Since 2013

Age 65

Skills and Qualifications:

 

   

Public Company CEO

 
   

Extensive experience in semiconductor industry

 
   

B.S. in Bioengineering from the University of Illinois in Chicago

 
   

M.B.A. from Syracuse University

 

Current Directorships:

   

Autodesk, Inc.

 
   

Arrow Electronics, Inc.

 
   

Cabot Microelectronics Corporation

 
   

Marvell Technology Group Ltd.

 
   

Yahoo Inc.

 

Past Directorships:

 

   

LSI Corporation

 
   

Planar Systems, Inc.

 

Xperi Committee Assignments:

 

   

Chairman of the Board

 
   

Nominating and Governance Committee Member

 

 

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Richard S. Hill has served as a member of the Board since August 2012 and as Chairman of the Board since March 2013. Mr. Hill also served as the Company’s Interim Chief Executive Officer from April 15, 2013 until May 29, 2013. Mr. Hill previously served as the Chief Executive Officer and member of the board of directors of Novellus Systems Inc., until its acquisition by Lam Research Corporation in June 2012. During his nearly 20 years leading Novellus Systems, a designer, manufacturer, and marketer of semiconductor equipment used in fabricating integrated circuits, Mr. Hill grew annual revenues from approximately $100 million to over $1 billion. Presently, Mr. Hill is Chairman of Marvell Technology Group Ltd. (“Marvell”), a producer of storage, communications and consumer semiconductor products, and a member of its board of directors. Mr. Hill served as Interim Chief Executive Officer of Marvell from May 2016 until July 2016. Mr. Hill is also a member of the boards of directors of Autodesk, Inc., a multinational software corporation that makes software for the architecture, engineering, construction, manufacturing, media, and entertainment industries, Arrow Electronics, Inc., a global provider of products and services to industrial and commercial users of electronic components and enterprise computing, Cabot Microelectronics Corporation, the leading global supplier of chemical mechanical planarization (CMP) slurries and a growing CMP pad supplier to the semiconductor industry, and Yahoo Inc., a technology company providing search engine and related services. Mr. Hill previously served on the board of directors of LSI Corporation and Planar Systems, Inc. Mr. Hill received a B.S. in Bioengineering from the University of Illinois in Chicago and an M.B.A. from Syracuse University. The Board believes that Mr. Hill brings extensive expertise in executive management and engineering for technology and defense-related companies to his role as Chairman of the Board.

 

 

LOGO   

Thomas Lacey

Director Since 2013

Age 58

Skills and Qualifications:

 

   

Public Company CEO

 
   

Extensive experience in semiconductor industry

 
   

B.A. in computer science from the University of California, Berkeley

 
   

M.B.A. from the Leavy School of Business at Santa Clara University

 

Current Directorships:

 

   

DSP Group, Inc.

 

Past Directorships:

 

   

International Rectifier Corporation

 
   

Phoenix Technologies Ltd.

 

Thomas Lacey has served on the Board since May 2013 and as its Chief Executive Officer since December 9, 2013. From May 2013 until his appointment as Chief Executive Officer, Mr. Lacey served as the Company’s Interim Chief Executive Officer. Mr. Lacey is the former Chairman and Chief Executive Officer of Components Direct, a provider of cloud-based product life cycle solutions, and served in those capacities from May 2011 to April 2013. Mr. Lacey has also served on the board of directors of DSP Group, Inc. (“DSP”), a publicly-traded leading global provider of wireless chipset solutions for converged communications, since May 2012, joined its audit committee and became chairman of its nominating and governance committee in May 2013, and became chairman of its audit committee in 2016. Mr. Lacey also previously served on the board of directors and the audit committee of publicly-traded International Rectifier Corporation, a leader in power management technology from March 2008 until its sale in January 2015. Previously, Mr. Lacey served as the President, Chief Executive Officer and a director of Phoenix Technologies Ltd., a publicly-traded, global provider of basic input-output software for personal computers, from February 2010 to February 2011. Prior to joining Phoenix Technologies Ltd., Mr. Lacey was the Corporate Vice President and General Manager of the SunFab™ Thin Film Solar Products group of

 

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Applied Materials, Inc., which trades on NASDAQ, from September 2009. Mr. Lacey previously served as President of Flextronics International’s Components Division, named Vista Point Technologies, from 2006 to 2007. Mr. Lacey joined Flextronics in connection with the sale to Flextronics of publicly-traded International Display Works, where Mr. Lacey had been Chairman, President and Chief Executive Officer from 2004 to 2006. Prior to International Display Works, Mr. Lacey held various management and executive positions at publicly-traded Intel Corporation for 13 years, including Vice President Sales and Marketing, President of Intel Americas, and Vice President and General Manager, Flash Products. Mr. Lacey holds a B.A. in computer science from the University of California, Berkeley, and an M.B.A. from the Leavy School of Business at Santa Clara University. The Board believes that Mr. Lacey brings his experience in the senior management of public companies, including service as chairman, president, chief executive officer and corporate vice president, his experience on the boards of directors of public companies, as well as his knowledge of the Company as its Chief Executive Officer, to his role as a member of the Board.

 

LOGO   

George A. Riedel

Director Since 2013

Age 59

Skills and Qualifications:

 

   

CEO

 
   

Extensive experience in licensing technology and telecom indsutry

 
   

Director at McKinsey & Company, a global management consulting firm

 
   

B.S. with Distinction in Mechanical Engineering from the University of Virginia

 
   

M.B.A. from Harvard Business School

 

Current Directorships:

 

   

Accedian Networks Inc.

 

Past Directorships:

 

   

Blade Network Technologies Inc.

 
   

PeerApp Ltd.

 
   

Cloudmark, Inc.

 
   

NextDocs Corporation

 

Xperi Committee Assignments:

 

   

Audit Committee Member

 
   

Compensation Committee Member

 

George A. Riedel has served on the Board since May 2013. Mr. Riedel was most recently the Chairman and CEO of Cloudmark, Inc., a private SF based network security company. Mr. Riedel stepped down in January 2017. Mr. Riedel joined the board at Cloudmark in June 2013, became Chairman in January 2014 and CEO in December 2014. Mr. Riedel is currently the Chairman of the Board of Montreal-based Accedian Networks, where he has served as a director since 2010. Mr. Riedel also served on the board of directors of PeerApp from 2011 until 2014 and on the board of directors of Blade Network Technologies from 2009 until its sale to IBM in 2010. In March 2006, Mr. Riedel joined Nortel Networks Corporation, a publicly-traded, multinational, telecommunications equipment manufacturer (“Nortel”), as part of the turnaround team as the Chief Strategy Officer. His role changed after Nortel initiated creditor protection under the respective restructuring regimes of Canada under the Companies’ Creditors Arrangement Act, in the U.S. under the Bankruptcy Code, the United Kingdom under the Insolvency Act 1986, on January 14, 2009, and subsequently, Israel, to lead the sale/restructuring of various carrier and enterprise business units through a series of transactions to leading industry players such as Ericsson, Avaya and Ciena. Mr. Riedel led the efforts to create stand-alone business units, carve out the relevant P&L and balance sheet elements and assign predominately used patents to enable sales of the assets. In 2010,

 

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Mr. Riedel’s role changed to President of Business Units and CSO as he took leadership of the effort to monetize the remaining 6,500 patents and applications patents as well as manage the P&L for several business units that were held for sale. The 2011 patent sale led to an unprecedented transaction of $4.5 billion to a consortium of Apple, Ericsson, RIM, Microsoft and EMC. Prior to Nortel, Mr. Riedel was the Vice President of Strategy and Corporate Development of Juniper Networks, Inc., a publicly-traded designer, developer and manufacturer of networking products, from 2003 until 2006. Previously, Mr. Riedel was also a Director at McKinsey & Company, a global management consulting firm, where he spent 15 years serving clients in the telecom and technology sectors in Asia and North America on a range of strategy and growth issues. Mr. Riedel earned a B.S. with Distinction in Mechanical Engineering from the University of Virginia and his M.B.A. from Harvard Business School. The Board believes that Mr. Riedel brings his experience from his direct involvement in the restructuring of Nortel, including the sale of Nortel’s patent portfolio for $4.5 billion, as well as his knowledge of the technology industry and leadership experience, to his role as a member of the Board.

 

LOGO   

Christopher A. Seams

Director Since 2013

Age 54

Skills and Qualifications:

 

   

Public Company Executive

 
   

Extensive experience in semiconductor industry

 
   

Member of IEEE

 
   

Served on Engineering Advisory Council for Texas A&M University

 
   

Board member of Venture Silicon Valley

 
   

B.S. in Electrical Engineering from Texas A&M University

 
   

M.S. in Electrical and Computer Engineering from the University of Texas at Austin

 

Current Directorships:

 

   

Nanometrics Inc

 

Past Directorships:

 

   

Deca Technologies Inc.

 

Xperi Committee Assignments:

 

   

Compensation Committee Chair

 
   

Audit Committee Member

 

Christopher A. Seams has served on the Board since March 2013. Mr. Seams served as the Chief Executive Officer and a director of Deca Technologies Inc., a subsidiary of Cypress Semiconductor Corporation, a global semiconductor company, from May 2013 until August 2016. Mr. Seams previously was an Executive Vice President of Sales & Marketing at Cypress Semiconductor Corporation, from July 2005 until June 2013. He previously served as an Executive Vice President of Worldwide Manufacturing & Research and Development of Cypress Semiconductor Corporation. Mr. Seams joined Cypress in 1990 and held a variety of positions in process and assembly technology research and development and manufacturing operations. Prior to joining Cypress in 1990, he worked as a process development Engineer or Manager for Advanced Micro Devices and Philips Research Laboratories. Mr. Seams currently serves on the board of directors of Nanometrics Inc. Mr. Seams is a senior member of IEEE, served on the Engineering Advisory Council for Texas A&M University and was a board member of Joint Venture Silicon Valley. Mr. Seams received a B.S. in Electrical Engineering from Texas A&M University and a M.S. in Electrical and Computer Engineering from the University of Texas at Austin. The Board believes that Mr. Seams brings extensive management, sales and marketing, and engineering experience in the semiconductor industry to his role as a member of the Board.

 

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REQUIRED VOTE AND BOARD OF DIRECTORS’ RECOMMENDATION

Our bylaws provide that, in an uncontested election, each director will be elected by a majority of votes cast. A “majority of votes cast” means the number of shares voted “for” a director exceeds the number of votes cast “against” that director. Abstentions and broker non-votes will not be counted as votes cast, and therefore will have no effect on the outcome of the election of directors. In addition, our Corporate Governance Guidelines (the “Guidelines”) include a director resignation policy that provides that, in uncontested elections, an incumbent director nominee who does not receive the required votes for re-election is expected to tender his or her resignation to the Board. The Nominating and Governance Committee, or another duly authorized committee of the Board, will determine whether to accept or reject the tendered resignation generally within 90 days after certification of the election results. No director who failed to receive the required votes for re-election may participate in the consideration of the matter. The Company will publicly disclose the Nominating and Governance Committee’s (or other responsible committee’s) decision. Our bylaws further provide that in a contested election, each director will be elected by a plurality of the votes cast, which means that the nominees receiving the largest number of affirmative votes will be elected.

The Board of Directors recommends that the stockholders vote “FOR” the election of each of Tudor Brown, John Chenault, David C. Habiger, Richard S. Hill, Thomas Lacey, George Riedel, and Christopher A. Seams.

 

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Governance of the Company

 

Pursuant to the Delaware General Corporation Law and the Company’s Bylaws, our business, property and other affairs are managed by or under the direction of the Board of Directors. Members of the Board are kept informed of our business through discussions with our Chief Executive Officer and other officers, by reviewing materials provided to them and by participating in meetings of the Board and its committees.

NON-EXECUTIVE CHAIRMAN AND BOARD LEADERSHIP

Mr. Hill has served as non-executive Chairman of the Board since March 21, 2013, except for a period from April 15, 2013 through May 29, 2013 when he served as Interim Chief Executive Officer and Executive Chairman while a search for a new Chief Executive Officer was being conducted. We believe that separating the roles of Chief Executive Officer and Chairman of the Board is in the best interests of the Company and its stockholders because it provides the appropriate balance between strategy development and oversight and accountability of management. Our Corporate Governance Guidelines require that the Chairman of the Board not be the same person as the Chief Executive Officer.

BOARD ROLE IN RISK MANAGEMENT

The Board of Directors oversees an enterprise-wide approach to risk management, designed to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational performance and enhance shareholder value. Risk management includes not only understanding company specific risks and the steps management implements to manage those risks, but also what level of risk is acceptable and appropriate for the Company. Management is responsible for establishing our business strategy, identifying and assessing the related risks and implementing appropriate risk management practices. Our Board of Directors reviews our business strategy and management’s assessment of the related risk, and discusses with management the appropriate level of risk for the Company. For example, the Board of Directors meets with management at least quarterly to review, advise and direct management with respect to strategic business risks, litigation risks and risks related to the Company’s acquisition strategy, among others. The Board also delegates oversight to Board committees to oversee selected elements of risk.

The Audit Committee oversees financial risk exposures, including monitoring the integrity of the Company’s financial statements, internal controls over financial reporting, and the independence of the Company’s independent registered public accountants. The Audit Committee receives periodic internal controls and related assessments from the Company’s finance department and an annual attestation report on internal control over financial reporting from the Company’s independent registered public accountants. The Audit Committee also assists the Board of Directors in fulfilling its oversight responsibility with respect to compliance matters and meets at least quarterly with our finance department, independent registered public accountants and internal or external legal counsel to discuss risks related to our financial reporting function. In addition, the Audit Committee ensures that the Company’s business is conducted with the highest standards of ethical conduct in compliance with applicable laws and regulations by monitoring our Code of Business Conduct, Ethics Policy, and our Corporate Compliance Hotline. The Audit Committee also discusses other risk assessment and risk management policies of the Company periodically with management.

The Compensation Committee participates in the design of compensation structures that avoid creating incentives that encourage a level of risk-taking behavior inconsistent with the Company’s business strategy as is further described in the Compensation Discussion and Analysis section below.

The Nominating and Governance Committee oversees governance-related risks by working with management to establish corporate governance guidelines applicable to the Company, and making recommendations regarding

 

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director nominees, the determination of director independence, Board leadership structure and membership on Board committees.

COMPENSATION RISK ASSESSMENT

In early 2017, management assessed our compensation policies and programs for all employees for purposes of determining the relationship of such policies and programs and the enterprise risks faced by the Company and presented its assessment to our Compensation Committee. Based on its assessment, management recommended, and the Compensation Committee, concluded, that none of our compensation policies or programs create risks that are reasonably likely to have a material adverse effect on the Company. In connection with their review, management and the Compensation Committee noted certain key attributes of our compensation policies and programs that help to reduce the likelihood of excessive risk taking, including:

 

    The program design provides a balanced mix of cash and equity compensation, fixed and variable compensation and annual and long-term incentives.
    Corporate performance objectives are designed to be consistent with the Company’s overall business plan and strategy, as approved by the Board of Directors.
    The determination of executive incentive awards is based on a review of a variety of indicators of performance, including both financial and non-financial goals, reducing the risk associated with any single indicator of performance.
    Incentive payments are capped at no more than 200% of target.
    The Company’s equity awards generally vest over four year periods or based upon the achievement of performance objectives.
    The Compensation Committee has the right to exercise negative discretion over executive incentive plan payments.

BOARD AND COMMITTEES OF THE BOARD; DIRECTOR INDEPENDENCE

The Board of Directors currently consists of eight (8) persons. Mr. Lacey is CEO of Xperi. Mr. Hill was interim CEO of Xperi’s predecessor corporation for six weeks in 2013. Messrs. Brown, Chenault, Habiger, Riedel, Seams and Stout are not, and have never been, employees of our Company or any of our subsidiaries.

The Board currently has the following three standing committees, with the following members:

 

Member

 

 

Audit

 

 

Compensation

 

 

Nominating and Corporate
Governance

 

Richard S. Hill LOGO

     

 

LOGO

Tudor Brown

   

 

LOGO

 

 

LOGO

John Chenault LOGO

 

 

LOGO

   

George A. Riedel

 

 

LOGO

 

 

LOGO

 

Christopher A. Seams

 

 

LOGO

 

 

LOGO

 

Donald Stout

     

 

LOGO

 

Number of Meetings During 2016

 

 

 

7

 

 

6

 

 

6

 

 

LOGO

 

  = Chair

 

  

LOGO = Member

 

  

LOGO = Financial Expert

 

  

LOGO = Chairman

 

During 2016, the Board of Directors held a total of 10 meetings. Each director attended at least 75% of the aggregate of the total number of Board meetings and total number of meetings of Board committees on which such director served during the time he served on the Board or committees.

 

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The Board of Directors has determined that all of the Company’s directors nominated for election, other than Mr. Lacey, are each “independent directors” as such term is defined in NASDAQ Marketplace Rule 5605(a)(2).

The Board of Directors has a standing Audit Committee, Compensation Committee and Nominating and Governance Committee. The Audit Committee has been established in accordance with Section 3(a)(58)(A) of the Exchange Act. Each of our Audit Committee, Compensation Committee and Nominating and Governance Committee is composed entirely of independent directors in accordance with current NASDAQ listing standards. Furthermore, each member of our Audit Committee meets the enhanced independence standards established by the Sarbanes-Oxley Act of 2002 and related rulemaking of the Securities and Exchange Commission (the “SEC”). The Board of Directors has further determined that Mr. John Chenault, a member of the Audit Committee of the Board of Directors, is an “Audit Committee Financial Expert,” as such term is defined in Item 407(d)(5) of Regulation S-K promulgated by the SEC, by virtue of his relevant experience listed in his biographical summary provided above in the section entitled “Proposal 1—Election of Directors.” Copies of our Audit Committee, Nominating and Governance Committee and Compensation Committee charters and our corporate governance guidelines are available, free of charge, on our website at http://www.xperi.com. The Board of Directors from time to time constitutes such other committees as it deems appropriate to further the purposes of the Board.

Following the Annual Meeting, the Board will continue with three standing committees, with the following members:

 

Member

 

  

Audit

 

 

Compensation

 

  

Nominating and Corporate
Governance

 

 

Richard S. Hill LOGO

       

 

LOGO

Tudor Brown     

 

LOGO

  

 

LOGO

John Chenault LOGO   

 

LOGO

    
David C. Habiger   

 

LOGO

    

 

LOGO

George A. Riedel   

 

LOGO

 

 

LOGO

  
Christopher A. Seams     

 

LOGO

  
               

 

LOGO  

  = Chair

 

 

LOGO = Member

 

  

LOGO = Financial Expert

 

  

LOGO = Chairman

 

 

 

Audit Committee

 

The Audit Committee reviews the work of our internal accounting and audit processes and the independent registered public accountants. The Audit Committee has sole authority for the appointment, compensation and oversight of our independent registered public accountants and to approve any significant non-audit relationship with the independent registered public accountants. The Audit Committee is also responsible for preparing the report required by the rules of the SEC to be included in our annual proxy statement. The Audit Committee is currently comprised of Mr. Chenault as the Chair, Mr. Riedel and Mr. Seams. Messrs. Chenault and Seams joined the Audit Committee in April 2013 and Mr. Riedel joined the Audit Committee in May 2015. During 2016, the Audit Committee held seven (7) meetings. Following the Annual Meeting of Stockholders, Mr. Chenault will continue as the Chair, with Messrs. Riedel and Habiger as members.

 

 

Compensation Committee

 

The Compensation Committee approves our goals and objectives relevant to compensation, stays informed as to market levels of compensation and, based on evaluations submitted by management, recommends to our Board of Directors compensation levels and systems for the Board of Directors and our officers that correspond to our

 

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goals and objectives. The Compensation Committee also produces an annual report on executive compensation for inclusion in our proxy statement. The Compensation Committee is currently comprised of Mr. Seams as the Chair, Mr. Brown and Mr. Riedel. Mr. Riedel joined the Compensation Committee in June 2013. Mr. Brown joined the Compensation Committee in May 2015 and Mr. Seams became the Chair of the Compensation Committee in May 2015. During 2016, the Compensation Committee held six (6) meetings. Following the Annual Meeting of Stockholders, Mr. Seams will continue as the Chair, with Messrs. Brown and Riedel as members.

 

 

Nominating and Governance Committee

 

The Nominating and Governance Committee is responsible for recommending to our Board of Directors individuals to be nominated as directors and committee members. This includes evaluation of new candidates as well as evaluation of current directors. In evaluating the current directors the committee conducted a thorough self-evaluation process, which included the use of questionnaires. This committee is also responsible for developing and recommending to the Board of Directors our corporate governance guidelines, as well as reviewing and recommending revisions to the guidelines on a regular basis. The Nominating and Governance Committee is currently comprised of Mr. Brown as the Chair, Mr. Hill and Mr. Stout. Mr. Brown joined the Nominating and Governance Committee as chair in May 2015. Mr. Stout joined the Nominating and Governance Committee in June 2013. Mr. Hill joined the Nominating and Governance Committee in May 2015. During 2016, the Nominating and Governance Committee held six (6) meetings. Following the Annual Meeting of Stockholders, Mr. Brown will continue as the Chair, with Messrs. Hill and Habiger as members.

While we do not have a formal diversity policy, we understand the desirability of having a Board with diverse and varied background, experience and opinions. Our Nominating and Governance Committee takes into account a number of the following factors when considering director nominees:

 

   

independence from management;

 

   

relevant business experience;

 

   

age, gender and ethnic background;

 

   

educational and professional background;

 

   

judgment, skill, integrity and reputation;

 

   

existing commitments to other businesses and service on other boards;

 

   

potential conflicts of interest with other pursuits;

 

   

legal considerations such as antitrust issues;

 

   

the needs of the Board and the Company with respect to the particular talents, experience and diversity of its directors;

 

   

corporate governance background, to enable the committee to determine whether the candidate would be suitable for Nominating and Governance Committee membership;

 

   

financial and accounting background, to enable the committee to determine whether the candidate would be suitable for Audit Committee membership;

 

   

executive compensation background, to enable the committee to determine whether the candidate would be suitable for Compensation Committee membership; and

 

   

the size and composition of the existing Board.

The director qualifications developed to date focus on what the Board believes to be essential competencies to effectively serve on the Board. The Nominating and Governance Committee may consider the following criteria in recommending candidates for election to the board:

 

    experience in corporate governance, such as an officer or former officer of a publicly held company;
    experience in the Company’s industry;
    experience as a board member of other publicly held companies; and
    technical expertise in an area of the Company’s operations.

 

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The Nominating and Governance Committee evaluates each individual in the context of the Board as a whole, with the objective of assembling a Board that can best perpetuate the success of the Company and represent shareholder interests through the exercise of sound judgment using its diversity of experience.

Prior to each annual meeting of stockholders at which directors are to be elected, and whenever there is otherwise a vacancy on the Board of Directors, the Nominating and Governance Committee will consider incumbent Board members and other well-qualified individuals as potential director nominees. The Nominating and Governance Committee will determine whether to retain an executive search firm to identify Board candidates, and if so, will identify the search firm and approve the search firm’s fees and other retention terms and will specify for the search firm the criteria to use in identifying potential candidates, consistent with the director qualification criteria described above. The Nominating and Governance Committee will review each potential candidate. Management may assist the Nominating and Governance Committee in the review process at the Nominating and Governance Committee’s direction. The Nominating and Governance Committee will select the candidate or candidates it believes are the most qualified to recommend to the Board for selection as a director nominee. Our Nominating and Governance Committee will consider candidates recommended by our stockholders in accordance with the procedures set forth in the Nominating and Governance Committee Charter. Such recommendations must be submitted in writing to the Chairman of the Nominating and Governance Committee, c/o the Corporate Secretary, Xperi Corporation, 3025 Orchard Parkway, San Jose, CA 95134, no later than 120 days prior to the anniversary of the date on which the Company’s proxy statement was mailed or made available to stockholders in connection with the previous year’s annual meeting of stockholders. The recommendations must be accompanied by the following information: the name and address of the nominating stockholder, a representation that the nominating stockholder is a stockholder of record, a representation that the nominating stockholder intends to appear in person or by proxy at the annual meeting to nominate the person or persons specified, information regarding each nominee that would be required to be included in a proxy statement, a description of any arrangements or understandings between the nominating stockholder and the nominee, and the consent of each nominee to serve as a director, if elected. Candidates recommended by the stockholders are evaluated in the same manner as candidates identified by a Nominating and Governance Committee member.

Each of the nominees for election as director at the 2017 Annual Meeting is recommended by the Nominating and Governance Committee and each nominee is presently a director and stands for re-election by the stockholders.

Pursuant to our bylaws, stockholders who wish to nominate persons for election to the Board of Directors at an annual meeting must be a stockholder of record both at the time of giving the notice and at the meeting, must be entitled to vote at the meeting and must comply with the notice provisions in our bylaws. A stockholder’s notice of nomination to be made at an annual meeting must be delivered to our principal executive offices not less than 90 days nor more than 120 days before the anniversary date of the immediately preceding annual meeting. However, if an annual meeting is more than 30 days before or more than 60 days after such anniversary date, the notice must be delivered no later than the 90th day prior to such annual meeting or, if later, the 10th day following the day on which the first public announcement of the date of such annual meeting was made. A stockholder’s notice of nomination to be made at a special meeting at which the election of directors is a matter specified in the notice of meeting must be delivered to our principal executive offices not earlier than the 120th day prior to and not later than the 90th day prior to such special meeting or, if later, the 10th day following the day on which first public announcement of the date of such special meeting was made. The stockholder’s notice must include the following information for the person making the nomination:

 

    name and address;
    the class and number of shares of the Company owned beneficially or of record;
    disclosure regarding any derivative, swap or other transactions which give the nominating person economic risk similar to ownership of shares of the Company or provide the opportunity to profit from an increase in the price or value of shares of the Company;
    any proxy, agreement, arrangement, understanding or relationship that confers a right to vote any shares of the Company;
    any agreement, arrangement, understanding or relationship, engaged in to mitigate economic risk related to, or the voting power with respect to, shares of the Company;
    any rights to dividends on the shares that are separate from the underlying shares;

 

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    any performance related fees that the nominating person is entitled to based on any increase or decrease in the value of any shares of the Company; and
    any other information relating to the nominating person that would be required to be disclosed in a proxy statement filed with the SEC.

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

 

    description of all direct and indirect financial or other relationships between the nominating person and the nominee during the past three years;
    the same information as for the nominating person (see above); and
    all information required to be disclosed in a proxy statement in connection with a contested election of directors.

The stockholder’s notice must be updated and supplemented, if necessary, so that the information required to be provided in the notice is true and correct as of the record date for the meeting and as of the date that is ten business days prior to the meeting.

The chairman of the meeting will determine if the procedures in the bylaws have been followed, and if not, declare that the nomination be disregarded. The nominee must be willing to provide any other information reasonably requested by the Nominating and Governance Committee in connection with its evaluation of the nominee’s independence.

 

 

Other Committees

 

Our Board of Directors may establish other committees as it deems necessary or appropriate from time to time.

STOCKHOLDER COMMUNICATIONS WITH DIRECTORS AND MANAGEMENT AND DIRECTOR ATTENDANCE AT ANNUAL MEETINGS

Stockholders may send correspondence to the Board of Directors or any member of the Board of Directors, c/o the Secretary at our principal executive offices at the address set forth above. The Secretary will review all correspondence addressed to the Board, or any individual Board member, for any inappropriate correspondence and correspondence more suitably directed to management. However, the Secretary will summarize all correspondence not forwarded to the Board and make the correspondence available to the Board for its review at the Board’s request. The Secretary will forward stockholder communications to the Board prior to the next regularly scheduled meeting of the Board of Directors following the receipt of the communication.

Directors are encouraged to attend in person the Annual Meeting of Stockholders. All members of the Board of Directors attended our last Annual Meeting in April 2016.

 

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COMPENSATION OF DIRECTORS

We currently pay our non-executive Chairman an annual retainer of $55,000 and each of our other non-employee directors an annual retainer of $35,000. In addition, we pay each of our non-employee directors the following annual retainers for their service as a member, or chair, as applicable, of our Board committees:

 

Annual Retainers for Committee Members:         

Audit Committee

   $ 8,000  

Compensation Committee

   $ 6,000  

Nominating and Governance Committee

   $ 4,000  
Annual Retainers for Committee Chairs:   

Audit Committee

   $   20,000  

Compensation Committee

   $ 12,000  

Nominating and Governance Committee

   $ 8,000  

All Board and committee retainers are paid in equal quarterly installments over the course of each year of a director’s service on the Board or applicable committee. We also reimburse all non-employee directors for reasonable expenses related to our Board or committee meetings.

Each of our non-employee directors receives restricted stock and options to purchase shares of our common stock on the terms and conditions set forth in our Sixth Amended and Restated 2003 Equity Incentive Plan (the “Equity Incentive Plan”). Any non-employee director who was initially elected or appointed to the Board of Directors prior to our 2016 Annual Meeting of Stockholders received a restricted stock award of 10,000 shares on the date of his or her initial election or appointment to the Board of Directors. In March 2016, the Board of Directors amended our Equity Incentive Plan to delete this initial restricted stock award for non-employee directors who are initially elected or appointed to the Board of Directors on or after our 2016 Annual Meeting of Stockholders. In addition, a non-employee director receives a combination of options and/or restricted stock awards on the date of each annual meeting of our stockholders, as follows:

 

    The number of shares of common stock in the restricted stock award is determined by dividing (1) a dollar value to be paid in the form of restricted stock grants (“Restricted Stock Amount”) by (2) the fair market value per share of our common stock on the date of grant.
    The number of shares that may be purchased pursuant to the option award is determined by dividing (1) a dollar amount to be paid in the form of option grants (“Option Amount”) by (2) the quotient of (A) the fair market value per share of our common stock on the date of grant divided by (B) two (2).
    The total of the Restricted Stock Amount plus the Option Amount received by each non-employee director at each annual meeting of stockholders is equal to $150,000. The Compensation Committee will determine the allocation between restricted stock and option amounts annually.

A non-employee director who is initially appointed after any annual meeting of stockholders will receive a restricted stock award or option grant on the date of his or her initial appointment to the Board of Directors equal to the pro-rated amount of the annual grant.

Initial restricted stock awards granted prior to the 2016 Annual Meeting of Stockholders vest over a period of four years, with 25% of the shares subject to the award vesting on each of the first four anniversaries of the date of grant. Annual option grants and restricted stock awards (or any pro-rated grants for directors initially appointed between annual meetings) vest on the earlier to occur of the first anniversary of the date of grant or the next annual meeting of stockholders. No portion of an option automatically granted to a director is exercisable after the tenth anniversary after the date of option grant. Additionally, an option automatically granted to a director may be exercisable after the termination of the director’s services as described in the option agreement, generally ending three months after such termination.

 

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The following table shows compensation information for our non-employee directors for fiscal year 2016.

2016 DIRECTOR COMPENSATION TABLE

 

Name   

Fees 

Earned 

or Paid 

in Cash 

($) 

      

Stock 

Awards 

($)(1) 

   

Option 

Awards 

($) 

      

Total 

($) 

 
Richard S. Hill      $59,000           $149,985        --           $208,985   
Tudor Brown      $49,000           $149,985        --           $198,985   
John Chenault      $55,000           $149,985        --           $204,985   
David C. Habiger (2)      $2,917           $58,345        --           $61,262   
George A. Riedel      $49,000           $149,985        --           $198,985   
Christopher A. Seams      $55,000           $149,985        --           $204,985   
Donald Stout      $39,000            $149,985         --            $188,985  

(1) The amounts reflected in this column represent the aggregate grant date fair value for stock awards granted to our non-employee directors in 2016, measured in accordance with ASC 718, excluding the effect of estimated forfeitures, and do not reflect whether the recipient has actually realized a financial benefit from these awards. For the methodology of how the aggregate grant date fair value amount is calculated, please see Note 13 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on February 27, 2017. The aggregate number of shares subject to unvested restricted stock awards outstanding for each non-employee director at December 31, 2016 was: Mr. Hill: 4,998; Mr. Brown: 6,248; Mr. Chenault: 5,623; Mr. Habiger: 1,446; Mr. Riedel: 6,248; Mr. Seams: 5,623; and Mr. Stout: 6,248. None of the non-employee directors held any stock options as of December 31, 2016.

(2) Joined Xperi Corporation Board of Directors in December 2016 and therefore board fees and stock awards are pro-rated.

 

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Proposal 2—Approval of Xperi

Corporation 2017 Performance Bonus Plan for Executive Officers and Key Employees

 

Our Board of Directors has approved the Xperi Corporation 2017 Performance Bonus Plan for Executive Officers and Key Employees (the “2017 Plan”), subject to stockholder approval. The principal features of the 2017 Plan are summarized below, but the summary is qualified in its entirety by reference to the 2017 Plan, which is attached to this proxy statement as Appendix A. At the time our Board of Directors approved the 2017 Plan, it directed that the 2017 Plan be submitted to our stockholders for approval at the Annual Meeting. If the stockholders approve the 2017 Plan, it will be effective as of the date of the Annual Meeting.

In general, Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), places a limit on deductibility for federal income tax purposes of the compensation paid to certain “covered employees,” within the meaning of Section 162(m) of the Code. Each of our named executive officers (other than our Chief Financial Officer) is currently a covered employee. Compensation paid to covered employees in excess of $1 million in a taxable year is not generally deductible by us under Section 162(m) of the Code. However, compensation that qualifies as “performance-based” as determined under Section 162(m) does not count against the $1 million limitation. One of the requirements for purposes of Section 162(m) is that the material terms of the performance goals under which the compensation may be paid must be disclosed to and approved by the Company’s stockholders every five years. For purposes of Section 162(m), the material terms include:

 

    the employees eligible to receive compensation,
    a description of the business criteria on which the performance goals are based; and
    the maximum amount of compensation that can be paid to an employee under the performance goals.

Since 2012, we have paid executive bonuses under our 2012 Performance Bonus Plan for Executive Officers and Key Employees (the “2012 Plan”). Our stockholders approved the 2012 Plan at the 2012 annual meeting of the Company’s stockholders. Pursuant to Section 162(m) of the Code, no further awards may be granted under the 2012 Plan as “performance-based” compensation following the date of the Annual Meeting unless that plan is reapproved by the stockholders.

In lieu of reapproving the 2012 Plan, our stockholders are being asked to approve the adoption of the 2017 Plan in order to preserve our ability to grant bonus awards to covered employees that are eligible to qualify for deductibility by the Company for federal income tax purposes. Accordingly, the 2017 Plan is intended to be designed in a manner such that payments under it may, but are not required to, satisfy the requirements for “performance-based” compensation, within the meaning of Section 162(m) of the Code.

Stockholder approval is only one of several requirements under Section 162(m) of the Code that must be satisfied for amounts payable under the 2017 Plan to qualify for the performance-based compensation exemption under Section 162(m) of the Code, and submission of the 2017 Plan for stockholder approval should not be viewed as a guarantee that all amounts paid under the 2017 Plan will in practice be deductible by the Company.

 

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SUMMARY OF THE XPERI CORPORATION 2017 PERFORMANCE BONUS PLAN

Administration

Our Compensation Committee, all of whose members will be “outside directors” (as defined under Section 162(m) of the Code) for purposes of administering the 2017 Plan, will administer the 2017 Plan. Our Compensation Committee will have the authority to grant awards in accordance with the provisions of the 2017 Plan. The Compensation Committee will have the authority to interpret all provisions of the 2017 Plan, to adopt, amend, and rescind rules pertaining to the administration, interpretation and application of the Plan, and to make all other determinations necessary or advisable for the administration of the 2017 Plan. Our Board of Directors has the authority to exercise the rights and duties of the Compensation Committee under the 2017 Plan except with respect to matters which under Section 162(m) of the Code are required to be determined in the sole and absolute discretion of the Compensation Committee.

Eligibility

Our executive officers and other key employees of the Company and our subsidiaries who are selected by our Compensation Committee would be eligible to participate in the 2017 Plan. As of March 3, 2017, we had 697 employees. We estimate that approximately 77% of our employees will be eligible to participate in the 2017 Plan although the Compensation Committee retains the discretion to designate the eligible participants under the 2017 Plan.

Plan Operation

Under the 2017 Plan, our Compensation Committee may grant awards that are intended to qualify as performance-based compensation within the meaning of Section 162(m) and awards that do not so qualify. Awards granted under the 2017 Plan are payable upon achievement of performance goals established by the Compensation Committee.

With respect to awards intended to qualify as performance-based compensation within the meaning of Section 162(m) of the Code, within the earlier of 90 days after commencement of a performance period or the expiration of 25% of the performance period for awards that are intended to qualify as performance-based compensation within the meaning of Section 162(m), our Compensation Committee will designate or approve the following in writing in connection with the grant of an award:

 

    the performance period, which may consist of one or more periods of times, and which may be of varying and overlapping durations (for instance, the Compensation Committee may determine that awards may have a performance period that coincides with our fiscal year);
    objectively determinable performance goals applicable to the performance periods; and
    the maximum amount that may be paid upon achievement of the performance goals (which amount may be stated as a specific dollar amount or a specified percentage of the participant’s base salary for a performance period).

Performance Goals

The performance goals, which must be objectively determinable and, with respect to awards intended to qualify as performance-based compensation within the meaning of Section 162(m) of the Code, substantially uncertain at the time they are established, are set by our Compensation Committee based on one or any combination of two or more of the following criteria:

 

    revenue;
    sales;
    cash flow;
    earnings or earnings per share of our common stock (including earnings before any one or more of the following: (i) interest, (ii) taxes, (iii) depreciation, (iv) amortization or (v) non-cash equity-based compensation expenses);

 

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    return on equity;
    return on capital or return on invested capital;
    total stockholder return;
    return on assets or net assets;
    income or net income or pre-tax income;
    operating income or net operating income;
    operating profit or net operating profit;
    operating margin;
    gross or net profit margin;
    cost reductions or savings or expense management;
    price per share of our common stock;
    research and development expenses (including research and development expenses as a percentage of sales or revenues);
    working capital;
    market share;
    customer satisfaction;
    completion of acquisitions, dispositions, partnerships or other corporate transactions;
    implementation of new technology by customers/partners;
    completion of settlements and/or licensing arrangements; and
    achievement of new product or technology development milestones.

Depending on the performance criteria used to establish the performance goals, the performance goals may be expressed in terms of overall company performance or the performance of a subsidiary, division or business unit. The performance goals may be measured in absolute terms or as compared to any incremental increase or as compared to the results of a peer group or market performance indicators or indices. The achievement of the performance criteria shall be determined in accordance with generally accepted accounting principles to the extent applicable.

Adjustments

At the time of grant, the Compensation Committee may specify one or more adjustments that may be made to one or more of the performance goals. With respect to awards intended to qualify as performance-based compensation within the meaning of Section 162(m) of the Code, any such adjustments must be objectively determinable. The adjustments may include one or more of the following:

    items that are extraordinary or unusual in nature or infrequent in occurrence, including one-time or non-recurring items;
    items related to a change in accounting principles under United States Generally Accepted Accounting Principles, or GAAP;
    items related to financing activities;
    expenses for restructuring or productivity initiatives;
    other non-operating items;
    items related to acquisitions, including transaction-related charges and amortization;
    items attributable to the business operations of any entity acquired by the Company during the performance period;
    items related to the disposal of a business or segment of a business;
    items related to discontinued operations that do not qualify as a segment of a business under GAAP;
    taxes;
    stock-based compensation;
    non-cash items; and
    any other items of significant income or expense which are determined to be appropriate adjustments.

Annual Award Limit

The maximum aggregate amount that may be paid under all awards granted under the 2017 Plan to a participant during any calendar year may not exceed $5,000,000. Our Compensation Committee does not currently intend to grant individual awards that approach the maximum allowable amount, but is asking our stockholders to approve this maximum amount to preserve necessary flexibility over the next five years.

 

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Payment of Awards; Form of Payment

Following completion of each performance period and prior to the distribution of any payment for an award granted under the 2017 Plan, the Compensation Committee will determine whether the performance goals for the performance period were satisfied. Awards will be paid as soon as practicable after the Compensation Committee has certified in writing the extent to which the applicable performance goals have been satisfied. The Compensation Committee retains the discretion to increase or reduce the amount otherwise payable under an award granted pursuant to the 2017 Plan (including a reduction to zero), provided that with respect to any award that is intended to qualify as performance-based compensation within the meaning of Section 162(m) of the Code, the Compensation Committee cannot increase or make any upward adjustment to such award over the amount that would otherwise be due based upon the established terms of the award or modify the performance goals (other than pursuant to automatic objectively determinable adjustments established at the time the performance goals were established) to the extent the existence or exercise of such discretion is inconsistent with the requirements for such award to qualify as performance-based compensation within the meaning of Section 162(m) of the Code.

Awards may be paid, at the option of the Compensation Committee, in cash, or common stock of the Company or in the form of a right to receive common stock, or in any combination of the foregoing.

Termination of Employment

Except as otherwise provided in a written agreement between a participant and the Company of any of its subsidiaries, if a participant’s employment with the Company or any of its subsidiaries is terminated for any reason other than death or disability prior to payment of any payment under an award, the participant will not have a right to payment with respect to the award. The Compensation Committee retains the discretion to determine if any portion of a participant’s award under the 2017 Plan should be paid upon a termination of participant’s employment by reason of death or disability.

Forfeiture and Claw-Back Provisions

The Compensation Committee has adopted, effective October 30, 2014, the Xperi Corporation Compensation Recovery Policy. Any award under the 2017 Plan shall be subject to the provisions of the Compensation Recovery Policy. In addition, any award paid under the 2017 Plan shall be subject to the provisions of any other claw-back policy implemented by the Company, including, without limitation, any claw-back policy adopted to comply with the requirements of the Dodd Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder, to the extent set forth in such claw-back policy.

Amendment and Termination

Our Compensation Committee or Board of Directors may amend, suspend or terminate the 2017 Plan at any time and from time to time. An amendment will be subject to approval of our stockholders only if such approval is necessary to maintain the Plan in compliance with Section 162(m) of the Code. With respect to any award under the 2017 Plan which is intended to qualify as performance-based compensation within the meaning of Section 162(m) of the Code, no action of the Compensation Committee or Board of Directors may modify the 2017 Plan, such award or the performance goals or adjustments applicable to such award to the extent such modification would cause the award to fail to constitute qualified performance-based compensation.

Tax Withholding

The Company has the right to deduct or withhold, or require a participant to remit to the Company, an amount sufficient to satisfy federal, state and local taxes required by law to be withheld with respect to any taxable event applicable to a participant arising under the 2017 Plan.

Effective Date

The 2017 Plan will be effective as of the date of the Annual Meeting. If the 2017 Plan is not approved at the Annual Meeting, the 2017 Plan will not become effective, but the 2012 Plan will continue in effect, although we will no longer be able to grant new awards under the 2012 Plan after the date of the Annual Meeting that qualify as performance-based compensation for Section 162(m).

The 2017 Plan does not have a fixed term. However, the awards under the 2017 Plan will no longer be eligible to qualify as performance-based compensation under Section 162(m) of the Code unless the 2017 Plan is submitted

 

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for reapproval by the stockholders of the Company not later than the 2022 stockholders’ meeting, subject to any earlier stockholder approvals (or reapprovals) mandated for performance-based compensation under Section 162(m) of the Code, and further subject to termination by the Board of Directors or the Compensation Committee at any time.

Non-Exclusivity

Nothing contained in the 2017 Plan prevents our Board of Directors or the Compensation Committee from adopting other or additional compensation arrangements that provide for bonuses or other forms of compensation for our executive officers and key employees regardless of stockholders’ approval of the 2017 Plan. Such other arrangements may or may not qualify for deductibility under Section 162(m) of the Code and may be either applicable only for specific executives, directors or employees or may be generally applicable.

 

 

Summary of United States Federal Income Tax Consequences

 

The following is only a summary of the effect of U.S. federal income taxation upon employees and the Company, is intended for general information only and does not purport to be a complete analysis of all of the potential tax effects of the 2017 Plan. It is based upon laws, regulations, rules and decisions now in effect, all of which are subject to change. The following does not discuss the tax consequences arising in the context of the employee’s death or the effect of the income tax laws of foreign countries, states or municipalities in which the employee’s income or gain may be subject to tax.

A participant will not recognize income, and we will not be allowed a tax deduction, at the time an award is granted under the 2017 Plan (for example, when the performance goals are established). All amounts paid pursuant to the 2017 Plan will constitute taxable income to the employee when received. Generally, and subject to the limitations of Section 162(m) of the Code, we will be entitled to a federal income tax deduction when amounts paid under the 2017 Plan are included in employee income.

The 2017 Plan has been designed in a manner intended to comply with Section 162(m) of the Code so that all award payments under the 2017 Plan may, but are not required to, be eligible to qualify as performance-based compensation. As stated above, the 2017 Plan is being submitted for stockholder approval at the Annual Meeting so that payments under the 2017 Plan can qualify for deductibility by the Company under Section 162(m) of the Code. However, stockholder approval is only one of several requirements under Section 162(m) of the Code that must be satisfied for amounts payable under the 2017 Plan to qualify for the performance-based compensation exemption under Section 162(m) of the Code, and submission of the 2017 Plan for stockholder approval should not be viewed as a guarantee that all amounts paid under the 2017 Plan will in practice be deductible by the Company.

 

 

New Plan Benefits

 

The actual amount of future award payments under the 2017 Plan is not presently determinable because such amounts are dependent on the terms of future awards that have not yet been established by the Compensation Committee. We expect that the first bonus opportunities under the 2017 Plan will be granted for performance during 2018.

For fiscal 2017, we granted awards under the 2012 Plan to our named executive officers and certain other employees. The stockholders’ vote on the 2017 Plan will have no effect on our employees’ 2017 bonus opportunities granted under the 2012 Plan.

 

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REQUIRED VOTE AND BOARD OF DIRECTORS’ RECOMMENDATION

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote on the proposal is required to approve the 2017 Performance Bonus Plan for Executive Officers and Key Employees.

The Board of Directors recommends a vote “FOR” the approval of the Xperi Corporation 2017 Performance Bonus Plan for Executive Officers and Key Employees.

 

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Proposal 3—Approval of the Xperi Corporation Amended and Restated International Employee Stock Purchase Plan

We are requesting that our stockholders approve an amendment and restatement to our Existing IESPP. The amended and restated IESPP is, referred to in this proxy statement as the Restated IESPP. Our Board of Directors approved the Restated IESPP effective January 25, 2017, subject to stockholder approval.

We operate in a highly competitive and challenging marketplace in which our success depends to a great extent on our ability to attract and retain high-caliber employees, including international employees. Our Compensation Committee believes that offering an international employee stock purchase plan to eligible employees of the Company and its participating subsidiaries assists with these challenges. Such a plan provides eligible employees with a convenient means of acquiring an equity interest in the Company through payroll deductions or direct contributions, to enhance such employees’ sense of participation in the affairs of the Company and its participating subsidiaries, and to provide an incentive for continued employment. The Company provides these benefits through the Existing IESPP, which was first adopted in 2008 and most recently amended in 2013. The purpose of the Existing IESPP is to promote the success and enhance the value of the Company by linking the interests of employees of the Company and its subsidiaries to those of our stockholders, and providing such persons with a chance to share in the value created by their efforts. With the acquisition of DTS, the Company now has a larger employee population in non-U.S. locations, including locations where we previously had no employees, creating the need to update the Existing IESPP to meet the needs of those employees.

As of December 31, 2016, a total of just 23,130 shares remained available for issuance under the Existing IESPP. Under the Restated IESPP, an additional 200,000 shares will be added to the share reserve. If the requested increase in the number of shares authorized for issuance is not approved, we do not expect to have sufficient shares to meet our anticipated needs in 2017 and thereafter.

The Restated IESPP is being submitted for stockholder approval in order to ensure the Company’s compliance with the listing rules of the NASDAQ Stock Market. In the event stockholder approval of the Restated IESPP is not obtained, then the Restated IESPP will have no further force or effect, the Existing IESPP will continue in full force and effect, and we may continue to grant awards under the Existing IESPP, subject to its terms, conditions and limitations, using the shares available for issuance thereunder.

 

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Determination to Approve the Restated IESPP

 

 

The table below presents information about the number of shares that were subject to outstanding equity awards under our equity incentive plans and the shares remaining available for issuance under the Sixth Amended and Restated 2003 Equity Incentive Plan, the 2003 Employee Stock Purchase Plan (the “ESPP”) and the Existing IESPP, each at December 31, 2016, and the proposed increase in shares authorized for issuance under the Restated IESPP. For information about awards we assumed in connection with our acquisition of DTS on December 1, 2016, see “Equity Compensation Plan Information” below.

 

                  Number of        
Shares
      

  As a % of Shares  

Outstanding(1)

       Dollar Value(2)     
                   
   

Sixth Amended and Restated 2003 Equity Incentive Plan

             
   

Options outstanding

  1,331,971     2.7%     $58,873,118    
   

Weighted average exercise price of outstanding options

  $24.41            
   

Weighted average remaining term of outstanding options

  1.16 years            
   

Restricted stock units outstanding (3)

  2,079,751     4.3%     $91,924,994    
   

Shares remaining available for grant under the 2003 Equity Incentive Plan

  3,430,763     7.0%     $151,639,703    
     
   

ESPP

             
   

Shares remaining available for grant under the ESPP

  383,930     0.8%     $16,969,706    
     
   

IESPP

             
   

Shares remaining available for grant under the Existing IESPP

  23,130     0.05%     $1,022,346    
     
   

Proposed increase in shares available for issuance under Restated IESPP (over existing share reserve under the Existing IESPP)

 

  200,000       0.4%       $8,840,000    

 

 

(1) Based on 48,854,096 shares of our common stock outstanding as of December 31, 2016.

(2) Based on the closing price of our common stock on December 30, 2016, of $44.20 per share.

(3) Performance awards are included at “target” levels.

In determining whether to approve the Restated IESPP, including the proposed increase to the share reserve under the Restated IESPP, over the share reserve under the Existing IESPP, our Board of Directors considered the following:

 

   

Unless the Restated IESPP is authorized and approved by our stockholders, the number of shares available for issuance under the Existing IESPP may be too limited to effectively achieve its purpose as a powerful incentive and retention tool for employees that benefit all of our stockholders. We expect the share reserve increase under the Existing IESPP, prior to the increase included in the Restated IESPP, would be insufficient to meet our anticipated needs for 2017. The increase will enable us to continue our policy of equity ownership by non-U.S. employees as an incentive to contribute to our success.

 

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In 2016, 2015 and 2014, we issued a total of approximately 17,776, 13,212 and 18,787 shares, respectively, under the Existing IESPP. This level of equity awards represents a three-year average burn rate of 0.034% with respect to our Existing IESPP (calculated by dividing the number of shares issued under the Existing IESPP during the year by the weighted-average number of shares outstanding during the applicable year). In 2016, 2015 and 2014, we issued equity awards with respect to 1.0 million, 0.9 million and 1.0 million shares, respectively, under all of our equity incentive plans. This level of equity awards represents a three-year average burn rate of 1.9% with respect to our equity incentive plans (calculated by dividing the number of shares subject to equity awards granted under our equity incentive plans during the year by the weighted-average number of shares outstanding during the applicable year).

 

   

Based on historical usage, we estimate that the proposed aggregate share reserve under the Restated IESPP would be sufficient for approximately 5 years of awards, assuming employee participation in the Restated IESPP is consistent with historical levels, as reflected in our three-year average burn rate for the Existing IESPP and factoring in our larger headcount subsequent to the acquisition of DTS, and noting that future circumstances, including employee participation rates and our stock price, may change this. The share reserve under the Existing IESPP could last for a longer or shorter period of time, depending on employee participation rates and the price of our common stock, which we cannot predict with any degree of certainty at this time.

 

   

In 2016, 2015 and 2014, our end of year overhang rate for the Existing IESPP, calculated by dividing (i) the number of shares remaining available for issuance under our Existing IESPP by (ii) the number of our shares outstanding at the end of the fiscal year, was 0.102%, 0.081%, and 0.047%, respectively. In 2016, 2015 and 2014, our end of year overhang rate for all of our equity incentive plans, calculated by dividing (i) the sum of the number of shares subject to equity awards outstanding at the end of the applicable year under all of our equity incentive plans plus the number of shares remaining available for issuance under all of our equity incentive plans by (ii) the number of our shares outstanding at the end of the fiscal year, was 14%, 12.7%, and 14.2%, respectively. If the Restated IESPP is approved, we expect our overhang for all of our equity plans at the end of 2017 will be approximately 13%.

 

   

As noted above, we are requesting an increase of 200,000 shares to the share reserve under the Restated IESPP above the current remaining share reserve. Therefore, if this proposal is approved, there would be 0.41% additional dilution to stockholders above those levels, based on the number of shares of our common stock outstanding as of March 3, 2017.

In light of the factors described above, and the fact that the ability to continue to offer eligible foreign employees the ability to participate in the Existing IESPP, including new eligible non-U.S. employees resulting from the acquisition of DTS, the Board of Directors has determined that the size of the share reserve under the Existing IESPP should be increased at this time. The Board of Directors will not create a subcommittee to evaluate the risks and benefits for issuing shares under the Restated IESPP.

 

 

Summary of the Restated IESPP

 

 

The following is a summary of the Restated IESPP. This summary does not purport to be complete, and is qualified in its entirety by reference to the full text of the Restated IESPP, a copy of which is attached as Appendix B to this proxy statement.

Purpose. The primary purpose of the Restated IESPP is to assist employees of the Company’s designated subsidiaries located outside of the United States in acquiring a stock ownership interest in the Company, and to help such employees provide for their future security and to encourage them to remain in the employment of the Company’s designated subsidiaries.

Administration. The Restated IESPP is administered by the Compensation Committee of the Board of Directors.

 

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Share Reserve. A total of 400,000 shares of our common stock are authorized for issuance under the Restated IESPP (after taking into account the increase of 200,000 shares added in connection with this amendment and restatement). All of the foregoing share numbers may be adjusted for changes in our capitalization and certain corporate transactions, as described below under the heading “Capital Changes.”

Eligibility . Only employees of the Company’s majority-owned subsidiaries which have been designated by the Board of Directors as participating companies under the Restated IESPP who are not employed or residing in the United States may participate in the Restated IESPP. For this purpose, an “employee” is any person who is regularly employed at least 20 hours per week and five months per calendar year, except as otherwise required by applicable local laws, by the Company or any of its designated subsidiaries. Employees who work on a less frequent schedule may be eligible to participate in the Restated IESPP based on the requirements of applicable foreign law. No employee will be permitted to subscribe for shares under the Restated IESPP if, immediately upon purchase of the shares, the employee would own 5% or more of the total combined voting power or value of all classes of stock of the Company or its subsidiaries (including stock issuable upon exercise of options held by him or her), nor will any employee be granted a purchase right that would permit him or her to buy more than $25,000 worth of stock under the Restated IESPP in any calendar year (valued at the time such purchase right is granted) for each calendar year during which such purchase right is outstanding at any time.

As of February 1, 2017 (the last enrollment date under the plan), there were 248 employees of the Company’s designated subsidiaries located outside of the United States eligible to participate in the Restated IESPP, of whom 139 were participants.

Offering Periods. The Restated IESPP is implemented by a series of consecutive, overlapping 24-month offering periods, commencing February 1 and August 1 of each year.

Each offering period is comprised of four six-month purchase periods. Each purchase period will be approximately six months long and will commence on the day following the last day of the preceding purchase period, generally on February 1st or August 1st (unless those days are not days on which our stock is actively traded). Purchase dates are set for the last trading day in each six-month purchase period during an offering period and will generally occur on each January 31 and July 31 (or the immediately preceding day on which our stock is actively traded, if not actively traded on the relevant January 31 or July 31).

If the fair market value of our common stock on any purchase date is less than the fair market value on the first trading day of that offering period, then that offering period will immediately terminate and a new twenty-four month offering period and a new six-month purchase period will commence the day following that purchase date. The first day of the new offering period will become the new enrollment date for all participants in the Restated IESPP at that time.

Subject to the eligibility requirements described above and completion of all required enrollment documentation, an employee will be able to participate in the Restated IESPP on the first day of the first offering period beginning on or after the date on which such employee starts employment.

Purchase Price. The purchase price per share at which shares will be purchased during each purchase period under the Restated IESPP is eighty-five percent (85%) of the lower of either (a) our common stock’s fair market value on the first trading day of the offering period or (b) our common stock’s fair market value on the applicable purchase date. The fair market value of the common stock on a given date is the closing price as reported by NASDAQ. The closing price per share of the Company’s common stock on February 1, 2017, was $45.25.

Payment of Purchase Price; Payroll Deductions . Participants may contribute up to 20% of their eligible compensation (after tax) through payroll deductions (or in some cases direct contribution), and the accumulated deductions will be applied to the purchase of shares on each semi-annual purchase date. All payroll deductions made for a participant are credited to the participant’s account under the Restated IESPP and are included with the general funds of the Company. Funds received upon purchase of stock under the Restated IESPP will be used for general corporate purposes. An employee may purchase up to 8,000 shares during an offering period under the Restated IESPP and up to 2,000 shares during any six-month purchase period. Any payroll deductions not applied to the purchase of shares due to the application of this limitation will be refunded to the participant. Participants also may not buy a fraction of a share, and any cash remaining in a participant’s account to buy less than a whole share will automatically be rolled over into the next purchase period.

 

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Withdrawal. A participant may withdraw from the Restated IESPP by signing and delivering a notice of withdrawal from the Restated IESPP prior to the last day of the offering period.

Termination of Employment. Termination of a participant’s employment for any reason cancels his or her participation in the Restated IESPP immediately. In such event, the payroll deductions credited to the participant’s account will be returned without interest to such participant. A transfer of employment from one participating company to another will not constitute a termination of employment for purposes of the Restated IESPP.

Share Proration. If the number of shares to be purchased exceeds either the number of shares available under the Restated IESPP on either the first day of an offering period or the purchase date, then the available shares will be allocated among the participants on a pro rata basis, and the payroll deductions of each participant, to the extent in excess of the aggregate purchase price payable for the common stock prorated to such individual, will be refunded to such participant.

Capital Changes. In the event of any increase or decrease in the number of shares of our common stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification or any other increase or decrease effected without our receipt of consideration, the number of shares reserved under the Restated IESPP and the price per share and number of shares of our common stock covered by each outstanding purchase right will be adjusted proportionately. Such adjustments will be made by our Board of Directors whose determination in that respect will be final, binding and conclusive.

Effect of Sale of Assets or Merger. In the event of our merger with or into another corporation, or the sale of substantially all of our assets, the Restated IESPP will be assumed or an equivalent purchase right will be substituted for by the successor corporation (or a parent or subsidiary of such successor corporation). If the successor corporation (or a parent or subsidiary of such successor corporation) refuses to assume the purchase rights under the Restated IESPP or to provide equivalent rights, the purchase period and offering periods then in progress will be shortened and a new purchase date will be set. This date will be the day prior to the consummation of the merger or sale.

Amendment and Termination of the Restated IESPP. The Restated IESPP may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by our Board of Directors. Stockholder approval of any such amendment or modification will be obtained to the extent necessary to comply with any applicable law, regulation or stock exchange rule. The Restated IESPP will be in effect until the share reserve is exhausted, unless our Board of Directors terminates the Restated IESPP at an earlier date.

 

 

Income Tax Consequences

 

 

Because offerings under the Restated IESPP are made to employees who are located outside of the United States, income tax implications to participating employees and the Company and its designated subsidiaries in connection with the sale of shares pursuant to the Restated IESPP will vary depending on the particular laws applicable in the country in which the employee is located.

 

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New Plan Benefits and Additional Information

 

 

Because the number of shares that may be purchased under the Restated IESPP will depend on each employee’s voluntary election to participate and on the fair market value of our common stock at various future dates, the actual number of shares that may be purchased by any individual cannot be determined in advance. For illustrative purposes only, the following table sets forth (1) the number of shares of the Company’s common stock that were purchased under the Existing IESPP during the 2016 fiscal year, and (2) the aggregate purchase price paid, for the individuals and groups identified below.

 

 

 Name and Position

 

  

Number of Shares  

 

  

Aggregate
Purchase
Price ($)

 

 Thomas Lacey

   —      —  

 Chief Executive Officer

     

 Jon Kirchner

  President

   —      —  

 Robert Andersen

   —      —  

 Chief Financial Officer

     

 Craig Mitchell

  President, Invensas

   —      —  

  Geir Skaaden

   —      —  

  Chief Products and Services Officer

     

  All executive officers as a group (4 persons)

   —      —  

  All non-executive directors as a group (7 persons)

   —      —  

  All non-executive employees as a group (741 persons)

   17,776      $22.35

REQUIRED VOTE AND BOARD OF DIRECTORS’ RECOMMENDATION

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote on the proposal is required to approve the Restated IESPP.

The Board of Directors recommends a vote “FOR” approval of the Xperi Corporation Amended and Restated International Employee Stock Purchase Plan.

 

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Equity Compensation Plan Information

We have three equity compensation plans that have been approved by our stockholders: the Sixth Amended and Restated 2003 Equity Incentive Plan, the 2003 Employee Stock Purchase Plan (the “ESPP”) and the Existing IESPP. The following table sets forth the number and weighted-average exercise price of securities to be issued upon exercise of outstanding options, warrants and rights, and the number of securities remaining available for future issuance under all of our equity compensation plans, at December 31, 2016:

 

   

Plan Category

 

  

Number of Securities to
be Issued upon Exercise

of Outstanding Options,

Warrants and Rights

(a)

 

  

Weighted-Average

Exercise Price of

Outstanding Options,
Warrants and Rights

(b)

 

  

Number of Securities 
Remaining Available for 
Future Issuance under 

Equity Compensation Plans 
(Excluding Securities 

Reflected in Column (a)) 

(c)

 

 

Equity compensation plans approved by security holders

   804,349(1)    $21.28(2)    3,837,823(3) 
 

Equity compensation plans not approved by security holders

   0    0    0
   

Totals

 

  

804,349

 

       

3,837,823 

 

 

  (1)

Represents the number of securities to be issued upon exercise of outstanding options or settlement of restricted stock units under our Sixth Amended and Restated 2003 Equity Incentive Plan. Performance awards are reflected at “target” levels.

This number does not include awards assumed by us in connection with our acquisition of DTS on December 1, 2016. In connection with our acquisition of DTS, each then outstanding, out-of-the-money, vested or unvested option and each then outstanding, in-the-money, unvested option to purchase shares of DTS common stock was assumed by the Company and converted into an option to purchase shares of the Company’s common stock pursuant to the exchange ratio set forth in the merger agreement, and each then outstanding unvested DTS restricted stock unit award was assumed by the Company and converted into a restricted stock unit award of the Company pursuant to the exchange ratio set forth in the merger agreement, in each case with substantially the same terms and conditions as applied to such DTS equity award immediately prior to the effective time of the acquisition. As a result, we assumed awards under the DTS, Inc. 2014 New Employee Incentive Plan, the SRS Labs, Inc. 2006 Stock Incentive Plan and the DTS, Inc. 2012 Equity Incentive Plan. While the plans will continue to govern the existing awards granted thereunder, they were terminated in connection with the acquisition as to any future awards. As of December 31, 2016, (i) options for 12,030 shares of our common stock were outstanding under the DTS, Inc. 2014 New Employee Incentive Plan with a weighted-average exercise price of $31.63 and 136,755 shares underlying awards of restricted stock units were outstanding under the DTS, Inc. 2014 New Employee Incentive Plan; (ii) options for 40,550 shares of our common stock were outstanding under the SRS Labs, Inc. 2006 Stock Incentive Plan with a weighted-average exercise price of $21.47 and 76,882 shares underlying awards of restricted stock units were outstanding under the SRS Labs, Inc. 2006 Stock Incentive Plan; and (iii) options for 475,042 shares of our common stock were outstanding under the DTS, Inc. 2012 Equity Incentive Plan with a weighted-average exercise price of $29.69 and 564,819 shares underlying awards of restricted stock units were outstanding under the DTS, Inc. 2012 Equity Incentive Plan.

 

  (2)

Represents the weighted-average exercise price of outstanding options under our Sixth Amended and Restated 2003 Equity Incentive Plan.

 

  (3)

Includes 3,430,763 shares remaining available for future issuance under the Sixth Amended and Restated 2003 Equity Incentive Plan, 383,930 shares remaining available for future issuance under the ESPP, and 23,130 shares remaining available for future issuance under the Existing IESPP as of December 31, 2016.

 

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Executive Officers

Set forth below are the name, age and position of each of our executive officers.

 

  Name   Age   Position(s)

  Thomas Lacey

  58  

Chairman and Chief Executive Officer, Director

  Jon Kirchner

  49  

President

  Robert Andersen

  54  

Chief Financial Officer

  Geir Skaaden

  50  

Chief Products and Services Officer

The following are biographical summaries of our executive officers other than Mr. Lacey, for whom a biographical summary is set forth under “Proposal 1—Election of Directors”.

Robert Andersen is executive vice president and chief financial officer of Xperi Corporation. He became executive vice president and chief financial officer of Xperi Corporation in January 2014. Prior to joining Xperi Corporation, he served as executive vice president and CFO of G2 Holdings Corp. d/b/a Components Direct, which was acquired by Avnet, Inc. Robert previously served as CFO at Phoenix Technologies Ltd., which was acquired by an affiliate of Marlin Equity Partners. Prior to his time at Phoenix Technologies, he held senior financial roles at Wind River Systems, Inc. and NextOffice, Inc. His finance career began at Hewlett-Packard Company, where he served in various controller, treasury and technology finance management roles. Robert currently serves on the board of directors of publicly traded Quantum Corporation. Robert holds a B.A. in economics from the University of California, Davis, and an M.B.A. from the Anderson School of Management at the University of California, Los Angeles.

Jon E. Kirchner is president of Xperi Corporation. He served as DTS’s Chairman of the board of directors and Chief Executive Officer from 2010 to December 2016 and had been a member of DTS’s board of directors from 2002 to December 2016. From 2001 to 2010, he served as DTS’s Chief Executive Officer. Prior to his tenure as Chief Executive Officer, Mr. Kirchner served at DTS from 1993 to 2001 in a number of senior leadership roles including President, Chief Operating Officer and Chief Financial Officer. Prior to joining DTS, Mr. Kirchner worked for the consulting and audit groups at Price Waterhouse LLP (now PricewaterhouseCoopers LLP), an international accounting firm. In 2012, Mr. Kirchner received the Ernst & Young Technology Entrepreneur of the Year Award for Greater Los Angeles. In 2011, Mr. Kirchner was honored by the Producers Guild of America, receiving the “Digital 25: Leaders in Emerging Entertainment” award for being among the visionaries that have made significant contributions to the advancement of digital entertainment and storytelling. Mr. Kirchner currently serves on the board of directors of Free Stream Media Corporation (Samba TV), a leader in developing cross platform TV experiences for consumers and advertisers. Mr. Kirchner is a Certified Public Accountant and received a B.A. in Economics, cum laude, from Claremont McKenna College.

Geir Skaaden has served as our chief products and services officer since December 2016 and leads global sales, business development and product management for our portfolio of imaging and audio solutions. He served as DTS’s Executive Vice President, Products, Platforms and Solutions from October 2015 until its acquisition by the Company in December 2016, having previously served as DTS’s Senior Vice President, Corporate Business Development, Digital Content and Media Solutions since December 2013. Prior to that, Mr. Skaaden served as DTS’s Senior Vice President, Products & Platforms from April 2012 to December 2013. From 2008 to 2012, Mr. Skaaden served in a number of positions overseeing numerous aspects including strategic sales, licensing operations, and business development. Prior to joining DTS in 2008, Mr. Skaaden served as the Chief Executive Officer at Neural Audio Corporation from 2004 to 2008, where he previously served as Vice President, Corporate Development from 2002 to 2004. Mr. Skaaden holds a B.A. in Finance from the University of Oregon, a Business degree from the Norwegian School of Management and an M.B.A. from the University of Washington.

 

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership (Forms 3, 4 and 5) with the SEC. Officers, directors and greater than 10% stockholders are required to furnish us with copies of all such forms which they file.

To our knowledge, based solely on our review of such reports or written representations from certain reporting persons, we believe that all of the filing requirements applicable to our officers, directors, greater than 10% beneficial owners and other persons subject to Section 16 of the Exchange Act were complied with during the year ended December 31, 2016, except that one Form 4 was filed late in January 2016 for Mr. Andersen.

Security Ownership Of Certain Beneficial Owners And Management

The following table sets forth information with respect to the beneficial ownership of shares of our common stock by (i) each current director and each nominee to become a director, (ii) each named executive officer, (iii) all current directors, nominees and current executive officers as a group, and (iv) each person who we know beneficially owns more than 5% of our common stock as of March 3, 2017.

The number of shares of common stock outstanding used in calculating the percentage for each listed person or entity includes common stock underlying options held by the person or entity that are exercisable within 60 days of March 3, 2017, and common stock underlying RSUs held by the person or entity that will vest within 60 days of March 3, 2017, but excludes common stock underlying options and RSUs held by any other person or entity. Percentage of beneficial ownership is based on 49,218,397 shares of common stock outstanding as of March 3, 2017.

 

   

Name of Beneficial Owner

 

 

Number of Shares

 

 

Percentage Ownership

 

   
 

Five Percent Stockholders

     
 

BlackRock, Inc. (1)

  5,640,522   11.5%  
 

Entities affiliated with Vanguard Group, Inc. (2)

  4,113,076   8.4%  
 

Entities affiliated with Renaissance Technologies LLC (3)

  2,489,900   5.1%  
 

Directors and Executive Officers

     
 

Thomas Lacey (4)

  505,734   1.0%  
 

Robert Andersen (5)

  109,187   *  
 

Christopher Seams

  34,780   *  
 

Donald E. Stout

  25,170   *  
 

George A. Riedel

  19,868   *  
 

John Chenault

  14,780   *  
 

Richard S. Hill

  46,384   *  
 

Tudor Brown

  29,780   *  
 

David Habiger

  1,446   *  
 

Jon Kirchner (6)

  344,919   *  
 

Geir Skaaden (7)

  54,699   *  
   

All directors and executive officers as a group (11 persons) (8)

 

 

1,186,747

 

 

2.4%

 

   

 

  *

Represents beneficial ownership of less than 1% of the outstanding shares of our Common Stock.

 

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  (1)

The address for BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055. BlackRock, Inc. has sole voting power as to 5,497,978 shares and sole dispositive power as to 5,640,522 shares. The shares reported as being beneficially held by BlackRock, Inc. may be held by one or more of its subsidiaries, BlackRock (Netherlands) B.V., BlackRock Advisors, LLC, BlackRock Asset Management Canada Limited, BlackRock Asset Management Ireland Limited, BlackRock Asset Management Schweiz AG, BlackRock Financial Management, Inc., BlackRock Fund Advisors, BlackRock Institutional Trust Company, N.A., BlackRock International Limited, BlackRock Investment Management (Australia) Limited, BlackRock Investment Management (UK) Ltd and BlackRock Investment Management, LLC. BlackRock Fund Advisors beneficially owns 5% or greater of our common stock. The information in this table and footnote is based solely on information contained in Schedule 13G filed with the SEC on January 9, 2017 by BlackRock, Inc.

 

  (2)

The address for The Vanguard Group, Inc. is 100 Vanguard Blvd. Malvern, PA 19355. The Vanguard Group, Inc. has sole voting power as to 83,739 shares, shared voting power as to 5,401 shares, sole dispositive power as to 4,026,236 shares and shared dispositive power as to 86,840 shares. Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 81,439 shares as a result of its serving as investment manager of collective trust accounts. Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 7,701 shares as a result of its serving as investment manager of Australian investment offerings. The information in this table and footnote is based solely on information contained in Schedule 13G filed with the SEC on February 9, 2017 by Vanguard Group, Inc.

 

  (3)

Renaissance Technologies LLC has sole voting power as to 2,489,900 shares and sole dispositive power as to 2,489,900 shares. Renaissance Technologies Holdings Corporation, as a majority owner of Renaissance Technologies LLC, may be deemed the beneficial owner of the 2,489,900 shares owned by Renaissance Technologies LLC. The address of the principal office of each of Renaissance Technologies LLC and Renaissance Technologies Holdings Corporation is 800 Third Avenue New York, New York 10022. The information in this table and footnote is based solely on information contained in Schedule 13G jointly filed with the SEC on February 14, 2017 by Renaissance Technologies LLC and Renaissance Technologies Holdings Corporation.

 

  (4)

Includes 274,628 shares issuable upon exercise of outstanding options held by Mr. Lacey, exercisable within 60 days of March 3, 2017.

 

  (5)

Includes 26,000 shares issuable upon exercise of outstanding options held by Mr. Andersen, exercisable within 60 days of March 3, 2017.

 

  (6)

Includes 113,249 shares issuable upon exercise of outstanding options held by Mr. Kirchner, exercisable within 60 days of March 3, 2017.

 

  (7)

Includes 12,451 shares issuable upon exercise of outstanding options held by Mr. Skaaden, exercisable within 60 days of March 3, 2017.

 

  (8)

Includes 426,328 shares issuable upon exercise of outstanding options held by current officers and directors as a group, exercisable within 60 days of March 3, 2017.

 

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Executive Compensation and Related Information

COMPENSATION DISCUSSION AND ANALYSIS

 

 

Executive Summary

 

 

The following discussion and analysis contains statements regarding individual and company performance targets and goals used in setting compensation for our named executive officers. These targets and goals are disclosed in the limited context of the Company’s compensation programs and should not be understood to be statements of management’s future expectations or estimates of future results or other guidance. The Company specifically cautions investors not to apply these statements to other contexts.

This section describes the Company’s executive compensation philosophy, objectives and programs, as well as the compensation-related actions taken in 2016 and planned for 2017 for our chief executive officer, our president, our chief financial officer, the president of Invensas Corporation and our chief product and services officer. These executives are referred to in this section as our named executive officers, or NEOs, and for 2016 were:

 

   

Thomas Lacey – Chief Executive Officer

   

Jon Kirchner – President

   

Robert Andersen – Chief Financial Officer

   

Craig Mitchell – President Invensas

   

Geir Skaaden – Chief Product and Services Officer

In connection with our acquisition of DTS in December 2016, Messrs. Kirchner and Skaaden joined our executive leadership and it was determined that Mr. Mitchell, while continuing to serve as the President Invensas, will no longer be deemed an executive officer of the Company. Therefore, for purposes of discussing future plans and objectives and certain other compensation plans, Messrs. Lacey, Kirchner, Andersen and Skaaden will be referred to as the continuing NEOs.

 

 

Compensation Philosophy and Guiding Principles

 

 

We have designed our executive compensation program to reward our executive officers, including the NEOs, at a level consistent with the overall strategic and financial performance of the Company and to provide remuneration sufficient to attract, retain and motivate them to exert their best efforts in the highly competitive entertainment technology, consumer electronics and intellectual property licensing environments in which we operate. We believe that competitive compensation packages consisting of a combination of base salaries, short-term performance-based cash incentives, and long-term incentives delivered in the form of equity compensation that is earned over a multi-year period enable us to attract top talent, motivate successful short-term and long-term performance, satisfy our retention objectives and align the compensation of our executive officers with our performance and stockholder value creation.

The Compensation Committee periodically reviews and analyzes market trends and the prevalence of various compensation delivery vehicles and adjusts the design and operation of our executive compensation program from time to time as it deems necessary and appropriate. In designing and implementing the various components of our executive compensation program, the Compensation Committee considers market and industry practices, as well as the tax efficiency of our compensation structure and its impact on our financial condition. While the Compensation Committee considers all factors in its deliberations, it places no formal weighting on any one factor.

 

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Pay for Performance

 

 

The executive compensation program emphasizes performance-based compensation and the amount of compensation paid to our executives varies significantly based on overall strategic and financial performance.

Financial Performance Highlights

2016 was a solid year for Xperi from a financial perspective. While revenue declined slightly and operating expenses increased (driven in part by our acquisitions during the year), our recurring revenue increased for the third straight year:

 

                         2016                                  2015                                  2014                   % Increase
(Decrease) 2016 to
2015
   
   

Total Revenue

  $259.6 million     $273.3 million     $278.8 million     (5%)  
   

Total Recurring Revenue (1)

  $243.8 million     $242.3 million     $149.8 million     1%  
   

GAAP Operating Expenses

  $170.2 million     $111.1 million     $113.1 million     53%  
                       
  (1) We define recurring revenue as payments made pursuant to a license agreement or other agreement that are scheduled to occur over at least one year of time. For a reconciliation of GAAP to non-GAAP financial results, please see Appendix C.

 

 

2016 Executive Compensation Highlights

 

 

In support of building long-term stockholder value and in consideration of the Company’s overall performance, the Compensation Committee made the following decisions in 2016:

 

   

There was no increase to CEO or CFO base compensation in 2016.

 

   

There was no increase to NEO target bonus compensation in 2016.

 

   

To emphasize stockholder alignment, the primary adjustment to the NEOs’ compensation for 2016 was in the form of additional equity awards

 

 

Summary of Certain Executive Compensation Practices

 

 

We endeavor to maintain sound corporate governance standards consistent with our executive compensation policies and practices. During 2016, the following policies and practices were in effect:

 

WHAT WE DO     WHAT WE DON’T DO
   LOGO   Pay for Performance: We link pay to performance and stockholder interests by heavily weighting total compensation to the achievement of strong financial performance and a balanced mix of performance metrics established in advance by the Compensation Committee.        LOGO   No Employment Agreements: We do not have employment agreements with any of our NEOs other than severance and change in control severance agreements.
   LOGO   Independent Compensation Advisor: The Compensation Committee selects and engages its own independent advisor.        LOGO   No “Single Trigger” Severance Payments: We do not have “single trigger” severance payments owing solely on account of the occurrence of a change of control event.

 

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   LOGO   Thoughtful Peer Group Analysis: The Compensation Committee reviews external market data when making compensation decisions and annually reviews our peer group with its independent compensation consultant.        LOGO   No Special Perquisites: We do not provide special perquisites for executives, such as company cars, club memberships, supplemental executive retirement plans or supplemental executive health benefits.
   LOGO   Thorough Compensation Risk Assessment: The Compensation Committee conducts an annual assessment of the company’s executive and broad-based compensation programs to ensure prudent risk management.        LOGO   No Hedging in Company Securities: Executives, directors and all employees are prohibited from engaging in any hedging transaction with respect to company equity securities (vested or unvested).
   LOGO   Compensation Committee Independence and Experience: The Compensation Committee is comprised solely of independent directors who have extensive experience.        LOGO   No Pledging of Company Securities: Our board of directors adopted a policy prohibiting pledges of company securities by our executives and directors.
   LOGO   Stock Ownership Guidelines: Executives and directors are subject to stock ownership guidelines equal to a multiple of their respective annual base salaries (3x for the CEO and 1x for other executives) or Board retainers (3x for directors).        LOGO   No Guaranteed Bonuses or Equity Awards: We do not provide guaranteed minimum bonuses or uncapped incentives under our annual bonus plan. We also do not provide guaranteed equity awards.
   LOGO   ”Clawback” Policy: Our clawback policy provides that our board of directors may require the forfeiture, recovery or reimbursement of incentive compensation from an executive officer in the event the officer’s wrongdoing later is determined by our board of directors to have resulted in a material negative restatement of the company’s financial results.        LOGO   No Re-Pricing or Discounted Options / SARs: We do not re-price underwater awards and do not provide discount stock options or stock appreciation rights. Further the Restated Plan prohibits repricing of stock options or stock appreciation rights without stockholder approval.
             LOGO   No Tax Gross-Ups: We do not provide tax gross-ups for “excess parachute payments or other benefits.”
             LOGO   No Dividends Paid or Accrued on Performance Units Prior to Vesting or Upon Settlement

 

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Executive Compensation Components

 

 

LOGO

Our Compensation Committee oversees the executive compensation program. Our executive compensation program is designed to attract, motivate and retain talented executives that will drive our financial, growth and operational excellence objectives while creating long-term stockholder value. The Compensation Committee has established the following set of objectives for our executive compensation program:

 

    Compensation should be market competitive : Our compensation program is designed to provide competitive total compensation relative to the relevant labor markets for our NEOs while maintaining fiscal responsibility for our stockholders, allowing us to attract and retain individuals of appropriate ability and managerial talent;

 

    Compensation should reward performance and support our business strategy : A majority of our NEO’s total compensation opportunities is variable and dependent upon the achievement of key business results and is intended to link incentive award opportunities to the achievement of company and individual performance goals or appreciation in our stock price; and

 

    Compensation should be aligned with stockholders’ interests : Our compensation program also seeks to reward our executive officers for increasing our stock price over the long-term and maximizing stockholder value by providing a portion of total compensation opportunities for our executive officers in the form of direct ownership in our company through long-term equity incentive awards.

The main elements of our compensation program are base salary, annual cash incentive bonus awards and long-term equity incentive awards. Base salary is intended to provide a baseline level of compensation for our NEOs. The remaining types of compensation, which in the aggregate represent the majority of NEO’s total compensation opportunities, tie compensation directly to the achievement of corporate and/or individual objectives. Each element of our executive compensation program is discussed in greater detail below.

 

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Base Salary

The base salary for each executive is initially established through negotiation at the time the executive is hired, taking into account the executive’s qualifications, experience, prior salary, competitive salary information, overall compensation arrangements and relevant survey data. As discussed above, in determining whether to make adjustments to base salaries for our executive officers, the Compensation Committee reviews information regarding compensation paid to individuals holding comparable positions at our peer group companies as well as the relevant market data from the applicable Radford Executive survey. In addition, each year, the Compensation Committee determines whether to approve merit increases to our executive officers’ base salaries based upon the Company’s performance, their individual performance, changes in duties and responsibilities and the recommendations of our CEO (except for purposes of determining his own salary). No formulaic or guaranteed base salary increases are provided to the NEOs. In general, while the Compensation Committee does not attempt to set the various components of executive compensation at a certain target percentile within our peer group, executive base salaries fall generally between the 25th and 75th percentiles of the relevant comparable compensation data.

On December 1, 2016, Messrs. Kirchner and Skaaden joined the Company as part of our acquisition of DTS. Their initial annual base salaries were unchanged from their base salaries in effect at DTS at $550,000 and $302,000, respectively. Mr. Mitchell’s base salary was increased to $305,000 effective March 1, 2016. No other adjustments to any base salary amounts for the other NEOs were made in 2016.

The base salaries of the NEOs for 2016 and 2015, which were effective on March 1, 2016 and March 1, 2015, respectively, other than Messrs. Kirchner and Skaaden, which were effective December 1, 2016, were as follows:

 

Named Executive Officer    2016 Base
Salary
                 2015 Base
Salary
                 Percentage      
Adjustment       
 

Thomas Lacey

   $  500,000      $ 500,000        --    

Jon Kirchner

   $  550,000        N/A        --    

Robert Andersen

   $  335,000      $ 335,000        --    

Craig Mitchell

   $  305,000      $ 293,000        4.1%    

Geir Skaaden

   $  302,000        N/A        --    

The actual base salaries paid to the NEOs during 2016 are set forth in the “Summary Compensation Table”.

In January 2017, the Compensation Committee reviewed base salaries of the NEOs in a process similar to the one described above and determined, based on job scope expansion and market factors, to make a 4.8% increase to the base salary of Mr. Andersen (bringing his base compensation to $351,000) and a 7.6% increase for Mr. Skaaden (bringing his base compensation up to $325,000), effective March 1, 2017. The Compensation Committee decided to keep the 2016 base salaries of the other NEOs, including the CEO, flat compared to 2016.

Annual Performance-Based Cash Incentives

Our NEOs are eligible to receive an annual cash incentive bonus under our MBO Plan.

 

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Annual Cash Incentive Bonus Targets

At the beginning of each year, the Compensation Committee approves minimum, target and maximum bonus opportunities for each NEO eligible to participate in the MBO Plan. Under this program in 2016, the minimum, target and maximum award opportunities were determined as a percentage of base salary as follows

 

    Minimum               Target                       Maximum            

Thomas Lacey

  --   100%   200%

Jon Kirchner (1)

  NA   NA   NA

Robert Andersen

  --   75%   150%

Geir Skaaden (1)

  NA   NA   NA

Craig Mitchell

  --   50%   100%

(1)          Messrs. Kirchner and Skaaden joined Xperi as part of our acquisition of DTS in December 2016 and therefore neither participated in the 2016 MBO plan. Messrs. Kirchner and Skaaden each received 100% of their 2016 bonus at target under the DTS plans as part of our acquisition of DTS. These bonuses were paid in early December 2016. For 2017 Mr. Kirchner will be eligible for a 100% bonus at target (200% at maximum) with no minimum and Mr. Skaaden will be eligible for a 55% bonus at target (110% at maximum) with no minimum.

These target bonus levels are reviewed annually in consultation with Compensia as part of the compensation review process. Participants may receive a smaller award (or no award) if we do not achieve a target level of performance and a larger award (capped at a level that provides executives an opportunity to earn larger awards by exceeding performance objectives, but that does not create excessive risk by providing unlimited upside opportunities) if we exceed the target level of performance. Payments of above-target bonuses may be made only if we exceed our corporate financial objectives. Our CEO’s and our President’s bonus opportunity are right at the median for our peer group companies and, on average, the bonus opportunity for all our NEOs is at or slightly below, the median.

Performance Goals

Bonuses paid to our NEOs under our MBO Plan are based on our achievement of certain predetermined corporate performance goals and (in the case of Mr. Mitchell) upon an evaluation of the individual officer’s performance for the year. With respect to both Messrs. Lacey and Andersen, 100% of each of their goals are based exclusively on the financial performance of the Company and with respect to Mr. Mitchell, 40% of his bonus is determined by our financial performance, 55% is determined based on corporate operational goals and 5% is based on individual achievements.

Achievement of Annual Corporate Performance Objectives

On an annual basis, the Compensation Committee sets a threshold financial objective that must be achieved before any annual bonuses for that year are paid. For 2016, the financial objective was for the Company to achieve positive non-GAAP operating income for 2016 (“Threshold Goal”). The Threshold Goal was achieved and the actual bonuses for the NEOs were then determined based on the corporate goal achievement as described below.

 

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In addition to the Threshold Goal, the Compensation Committee also sets corporate performance goals applicable to the annual bonuses for that year. Achievement levels up to 100% may be awarded for each corporate performance goal based on actual performance for the year relative to that goal. The corporate performance goals are a combination of financial goals, innovation and key market penetration goals and operational excellence goals that are all directly supportive of our short-term and long-term strategic plans. The performance goals set forth below summarize the specific goals set by the Compensation Committee for 2016 annual bonus purposes:

 

  Category   Goal   Achievement
Financial Goals   $299.8 million in total revenue   87% achieved with $259.3 million in revenue
  $122.2 million in non-GAAP net income (1)   82% achieved with $99.5 million in non-GAAP net income
  $265.5 million in revenue for our IP business   86% achieved with $229.2 million in revenue for our IP business
  $111.2 million in non-GAAP net income from IP business (1)   81% achieved with $89.9 million in non-GAAP net income from IP business

Innovation and Key Market Penetration Goals

(Mr. Mitchell only)

  Identify and target new customers and relicense existing customers   75% achieved based on management and Compensation Committee review of performance against targets
  Continue the development and revenue plans for our our xFD ® product, an advanced, low-cost, high-performance DRAM interconnect technology, our Bond Via Array™ (BVA ® ) package-on-package (PoP) technology and our 3-D integrated circuit technology as well as new potential packaging platforms   60% of the goals were achieved based on management and Compensation Committee review of performance against targets

Operational Excellence Goals

(Mr. Mitchell only)

  Specific individual goals for Mr. Mitchell were agreed upon between the CEO and Mr. Mitchell on a quarterly basis. Mr. Mitchell’s overall performance against these objectives was assessed by the CEO at year-end  

75% achievement

 

  (1) For purposes of calculating non-GAAP net income and non-GAAP net income from IP business, stock-based compensation expenses and the impact of acquisitions made during 2016 are excluded, amortization of intangibles is included and taxes are included at an assumed thirty percent tax rate. For a reconciliation of GAAP to non-GAAP financial results, please see Appendix C.

 

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Allocation of MBO Bonus Among Various Goals

Each NEO’s performance is determined by a combination of two or more of the above listed goals. The specific allocation for each NEO is set forth below.

 

NAME

    

 

Financial Goals

 

   

 

Innovation and Key Market
Penetration Goals

 

    Operational
Excellence
 
  Revenue
Growth
    Non-GAAP
Net
Income (2)
    Relicense and
New Customers
    Imaging,
interconnect
and leading
products
and
technologies
   

Tom Lacey

    60%       40%       --       --       --  

Robert Andersen

    60%       40%       --       --       --  

Craig Mitchell (1)

    30%       10%       20%       35%       5%  
(1) For measuring Mr. Mitchell’s performance against financial goals, only the IP business financial goals are considered.
(2) For purposes of calculating non-GAAP net income, stock-based compensation expenses and the impact of acquisitions made during 2016 are excluded, amortization of intangibles is included, and taxes are included at an assumed thirty percent tax rate. For a reconciliation of GAAP to non-GAAP financial results, please see Appendix C.

Multiplier

The bonus to be paid to any employee, including our NEOs, who participate in the MBO Plan, may be increased or decreased based on the matrix set forth below. The matrix (“2016 MBO Matrix”) is structured as a combination of year over year revenue growth for the Company and annual non-GAAP net income achievement (expressed as a percentage of revenue). For 2016 year over year revenue growth was -5% and non-GAAP net income was 38% of revenue. Therefore, the multiplier for 2016 was 0.82 and all bonuses were multiplied by 0.82. The maximum multiplier under the MBO Plan is 2.0.

 

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The Compensation Committee also has the right to exercise its discretion to reduce any bonus payment.

 

      382.6       40%       0.00       0.50       0.73       0.96       1.19       1.42       1.65       1.69       1.74       1.78       1.83       1.87       1.91       1.96       2.00  
      371.7       36%       0.00       0.50       0.72       0.94       1.16       1.38       1.60       1.65       1.70       1.75       1.80       1.85       1.90       1.95       2.00  

R

    363.5       33%       0.00       0.50       0.71       0.92       1.13       1.34       1.55       1.61       1.66       1.72       1.78       1.83       1.89       1.94       2.00  

e

    355.3       30%       0.00       0.50       0.70       0.90       1.10       1.30       1.50       1.56       1.63       1.69       1.75       1.81       1.88       1.94       2.00  

v

    349.8       28%       0.00       0.50       0.69       0.88       1.07       1.26       1.45       1.52       1.59       1.66       1.73       1.79       1.86       1.93       2.00  

e

    344.4       26%       0.00       0.50       0.68       0.86       1.04       1.22       1.40       1.48       1.55       1.63       1.70       1.78       1.85       1.93       2.00  

n

    338.9       24%       0.00       0.50       0.67       0.84       1.01       1.18       1.35       1.43       1.51       1.59       1.68       1.76       1.84       1.92       2.00  

u

    333.4       22%       0.00       0.50       0.66       0.82       0.98       1.14       1.30       1.39       1.48       1.56       1.65       1.74       1.83       1.91       2.00  

e

    328.0       20%       0.00       0.50       0.65       0.80       0.95       1.10       1.25       1.34       1.44       1.53       1.63       1.72       1.81       1.91       2.00  
      322.5       18%       0.00       0.50       0.64       0.78       0.92       1.06       1.20       1.30       1.40       1.50       1.60       1.70       1.80       1.90       2.00  

G

    317.0       16%       0.00       0.50       0.63       0.76       0.89       1.02       1.15       1.24       1.34       1.43       1.53       1.62       1.71       1.81       1.90  

r

    311.6       14%       0.00       0.50       0.62       0.74       0.86       0.98       1.10       1.19       1.28       1.36       1.45       1.54       1.63       1.71       1.80  

o

    306.1       12%       0.00       0.50       0.61       0.72       0.83       0.94       1.05       1.13       1.21       1.29       1.38       1.46       1.54       1.62       1.70  

w

    300.6       10%       0.00       0.50       0.60       0.70       0.80       0.90       1.00       1.08       1.15       1.23       1.30       1.38       1.45       1.53       1.60  

t

    295.2       8%       0.00       0.16       0.32       0.48       0.63       0.79       0.95       1.02       1.09       1.16       1.23       1.29       1.36       1.43       1.50  

h

    289.7       6%       0.00       0.15       0.30       0.45       0.60       0.75       0.90       0.96       1.03       1.09       1.15       1.21       1.28       1.34       1.40  
      284.2       4%       0.00       0.14       0.28       0.43       0.57       0.71       0.85       0.91       0.96       1.02       1.08       1.13       1.19       1.24       1.30  
      278.8       2%       0.00       0.13       0.27       0.40       0.53       0.67       0.80       0.85       0.90       0.95       1.00       1.05       1.10       1.15       1.20  
      273.3       0%       0.00       0.09       0.18       0.28       0.37       0.46       0.55       0.80       0.80       0.85       0.85       0.90       0.90       1.00       1.10  
      267.8       -2%       0.00       0.08       0.17       0.25       0.33       0.42       0.50       0.56       0.63       0.69       0.75       0.81       0.88       0.94       1.00  
      262.4       -4%       0.00       0.08       0.15       0.23       0.30       0.38       0.45       0.51       0.56       0.62       0.68       0.73       0.79       0.84       0.90  
      256.9       -6%       0.00       0.07       0.13       0.20       0.27       0.33       0.40       0.45       0.50       0.55       0.60       0.65       0.70       0.75       0.80  
      251.4       -8%       0.00       0.06       0.12       0.18       0.23       0.29       0.35       0.39       0.44       0.48       0.53       0.57       0.61       0.66       0.70  
      246.0       -10%       0.00       0.05       0.10       0.15       0.20       0.25       0.30       0.34       0.38       0.41       0.45       0.49       0.53       0.56       0.60  
      240.5       -12%       0.00       0.04       0.08       0.13       0.17       0.21       0.25       0.28       0.31       0.34       0.38       0.41       0.44       0.47       0.50  
      235.0       -14%       0.00       0.03       0.07       0.10       0.13       0.17       0.20       0.23       0.25       0.28       0.30       0.33       0.35       0.38       0.40  
      229.6       -16%       0.00       0.03       0.05       0.08       0.10       0.13       0.15       0.17       0.19       0.21       0.23       0.24       0.26       0.28       0.30  
      224.1       -18%       0.00       0.02       0.03       0.05       0.07       0.08       0.10       0.11       0.13       0.14       0.15       0.16       0.18       0.19       0.20  
      218.6       -20%       0.00       0.00       0.00       0.00       0.00       0.00       0.00       0.01       0.03       0.04       0.05       0.06       0.08       0.09       0.10  
      213.2       -22%       0.00       0.00       0.00       0.00       0.00       0.00       0.00       0.00       0.00       0.00       0.00       0.00       0.00       0.00       0.00  
                      11%       13%       15%       17%       19%       21%       23%       25%       27%       29%       31%       33%       35%       37%       40%  
                                                                                                                                         
  **********************************************************  Non GAAP Net Income % **********************************************************  

2016 Annual Cash Incentive Bonuses

Based on the above matrix, the bonuses under the MBO Plan paid to Messrs. Lacey, Andersen and Mitchell were: $347,650, $174,694 and $96,054, respectively calculated as follows:

 

Name  

Achievement of
Revenue Growth Goal

 

(A)

 

Company Achievement
of Non-GAAP
Net Income Goal

 

(B)

 

Multiplier

 

(C)

 

Base Pay

 

(D)

   

MBO at
Target

 

(E)

    [(DxE)x(A+B)]xC  
                                

Thomas Lacey

 

  52.2% (87% of 60%)

 

  32.8% (82% of 40%)

 

  0.82

 

   

 

$500,000

 

 

 

   

 

100%

 

 

 

   

 

$347,650

 

 

 

Robert Andersen

 

  52.2% (87% of 60%)

 

  32.8% (82% of 40%)

 

  0.82

 

   

 

$335,000

 

 

 

   

 

75%

 

 

 

   

 

$174,694

 

 

 

 

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Name  

Achievement
of IP Revenue
Growth Goal

 

(A)

 

Achievement of
IP Non-GAAP
Net Income
Goal

 

(B)

 

Achievement
of Relicense
and New
Customers
Goals

 

(D)

 

Achievement
of Imaging,
interconnect
and

leading
products

and
technologies
Goals

 

(E)

 

 

Achievement
of Operational
Excellence
Goal

 

(F)

   

Multiplier

 

 

(G)

   

Base

Pay

 

(H)

   

MBO
at
Target

 

(I)

   

([(HxI)x

(A+B+C+

D+E+F)]x

G

 

Craig Mitchell

  25.8% (86% of
30%)

 

  8.1% (81% of
10%)

 

  13.0% (65%
of 20%)

 

  26.2% (75% of
35%)

 

   

 

4.0% (80% of
5%)

 

 
 

 

   

 

0.82

 

 

 

   

 

$305,000

 

 

 

   

 

50

 

 

   

 

$96,054

 

 

 

Long-Term Incentives

Our long-term equity incentive award program is intended to provide executives with opportunities to participate in the appreciation of our stock price and to create unvested equity award value that will provide a financial incentive for executives to remain with and work for the continued success of the organization. Our long-term equity incentive award program is generally comprised of three equity award vehicles:

 

    Restricted Stock Unit Awards : RSUs are used primarily in new hire executive packages and as part of our annual review process. RSUs will rise and fall in value just as a traded share of stock will, aligning executives’ interests with stockholders.

 

    Performance Based Restricted Stock Unit Awards : Performance based RSUs are provided to all of our NEOs. These shares vest upon the occurrence of certain longer-term strategic milestones or specific annual financial goals and are intended to align a significant portion of these executives’ compensation to a single long-term strategic goal or to specific annual long-term financial or stock price goals.

 

    Stock Option Awards : Stock options form a basis of our long-term equity incentive award program. Stock options align the interests of management and stockholders by rewarding increases in stockholder value.

Stock Option Awards

Stock options granted generally have a four-year vesting schedule in order to provide an incentive for continued employment and generally expire ten years from the date of the grant, subject to earlier termination in the event of termination of employment. This provides a reasonable time frame in which to align the executive officer with the price appreciation of our shares. The exercise price of options granted under the stock plans is 100% of the fair market value of the underlying stock on the date of grant. Under Xperi Corporation’s 2003 Equity Incentive Plan, or the 2003 Equity Plan, the fair market value of our common stock is equal to the last closing sales price per share on the NASDAQ Global Select Market on the date of grant. Executives do not realize value from our stock options unless our stock price appreciates following the date of grant.

In 2016, no NEOs received stock option awards.

Time-Based Restricted Stock Unit Awards

As discussed above, we typically award RSUs to selected new hires and other employees as part of the annual award program. The Compensation Committee believes that RSUs are an effective tool for adding an immediate financial incentive to remain with and work for us that will mitigate potential attempts by labor market competitors to recruit critical employees. In March 2016, Messrs. Andersen and Mitchell each received 14,000 RSUs which coupled with the performance-based RSUs described in the following section further our compensation objectives of having significant long term incentives for our NEOs. The foregoing RSUs have a four-year vesting schedule in order to provide an incentive for continued employment.

Performance-Based Restricted Stock Unit Awards

In December 2013 and again in July 2014, Mr. Lacey, received 250,000 performance-based RSUs (for a total of 500,000 performance-based RSUs). Of these 500,000 performance based RSUs, 62,500 may vest in each

 

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calendar year at target and 125,000 may vest each year at maximum. The performance-based vesting requirements are agreed upon by Mr. Lacey and the Compensation Committee on an annual basis with respect to the shares that may vest in that year and will require continued employment until the vesting date. For 2014, 2015 and 2016 all of Mr. Lacey’s performance-based shares were tied to the Company’s financial goals for revenue growth and non-GAAP net income under the multiplier matrix under the MBO Plan, as described above. Any performance-based RSUs that do not vest in a given year will be forfeited. Our Compensation Committee believes that setting a one-year performance measurement period for these performance based RSUs was appropriate at this time due to our historical financial performance and the risk of setting inappropriate targets if we were to project more than one year in advance.

In January 2014 and again in July 2014, Mr. Andersen, received 29,400 performance-based RSUs (for a total of 58,800 performance-based RSUs). Of these 58,800 performance-based RSUs, 7,350 may vest each calendar year at target and 14,700 may vest each year at maximum. The performance-based vesting requirements are agreed upon by Mr. Andersen and the Company’s Chief Executive Officer, and approved by the Compensation Committee, on an annual basis with respect to the shares that may vest in that year and will require continued employment until the vesting date. For 2014, 2015 and 2016, all of Mr. Andersen’s performance-based shares were tied to the Company’s financial goals for revenue growth and non-GAAP net income under the multiplier matrix under the MBO Plan, as described above. Any performance-based RSUs that do not vest in a given year will be forfeited.

In March of 2015, Mr. Mitchell received 18,000 performance-based RSUs. Of these 18,000 performance-based RSUs, 6,000 may vest in each of 2015, 2016 and 2017. The performance-based vesting requirements shall be as agreed upon by Mr. Mitchell and the Company’s Chief Executive Officer, and approved by the Compensation Committee, on an annual basis with respect to the shares that may vest in that year and will require continued employment until the vesting date.

For 2016 performance, the performance-based RSUs previously granted to our NEOs and eligible to vest based on 2016 performance were released in March 2017. The following table summarizes the performance-based RSUs granted to our NEOs that were eligible to vest during 2016:

 

   

Number of RSUs
Available for
Release at Target
Based on 2016
performance

 

 

Number of RSUs
Available for
Release at
Maximum Based on
2017 performance

 

  Release Conditions   Shares Released          
  Thomas Lacey   62,500   125,000  

100% based on financial targets for revenue growth and non-GAAP net income in accordance with 2016 MBO multiplier matrix – multiplier determined pursuant to MBO matrix (0.82 for 2016, as described above) was multiplied by target RSUs.

 

  51,250
  Robert Andersen   7,350   14,700  

100% based on financial targets for revenue growth and non-GAAP net income in accordance with 2016 MBO multiplier matrix-multiplier determined pursuant to MBO matrix (0.82 for 2016, as described above) was multiplied by target RSUs.

 

  6,027
  Craig Mitchell   6,000   6,000  

100% based on specific milestones. The Compensation Committee determined that Mr. Mitchell had achieved 65% of these milestones, and 65% of his “target” RSUs vested accordingly.

 

  3,900

 

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Specific milestones and achievements for the release of Mr. Mitchell’s performance shares for 2016 are as follows:

 

Percent of Total  

 

 

    Goal

 

   Achievement 
of Goal 
      

50%  

  BVA: announce qualification complete, sign and announce license agreement (including royalty table) and obtain order for product design win      50%      

10%  

  Secure xFD-based product announcement and initial production or minimize all xFD engineering efforts by Q2’16      100%      

30%  

  DBI: Sign development agreement with leading semiconductor manufacturer for DBI program; sign substantive license agreement with royalty rates      100%      

10%  

 

 

Exceed Ziptronix revenue target

 

 

    

 

0% 

 

 

 

  

2017 Equity Awards

In January 2017, the Compensation Committee undertook a similar process as described above and approved grants of time-based vesting RSUs and grants of PSUs to each of the NEOs. The equity awards granted to the NEOs effective March 1, 2017, were as follows:

 

  Named Executive Officer   Number of Shares
Subject to RSU
Awards(2)
     Number of Shares  
Subject to PSU Awards  
 

  Thomas Lacey

    -        -    

  Jon Kirchner

    15,000        35,000(1)    

  Robert Andersen

    30,000        11,500(3)    

  Craig Mitchell

    16,000        -    

  Geir Skaaden

    20,000        -    
(1)

Number of shares reflected at 100% of target. Each PSU represents the contingent right to receive between zero and two shares of the Company’s common stock upon vesting, subject to the level of achievement of performance goals. The PSUs vest in four equal installments for each calendar year (starting in 2017) based upon goals and objectives agreed upon by the company and Mr. Kirchner and approved by the Compensation Committee.

 

(2)

The RSUs vest in four equal annual installments beginning on March 1, 2018.

 

(3)

All of the PSU award to Mr. Andersen will vest based on 2017 performance against certain specified goals relating to integration of DTS.

Other Compensation

Employee Benefits

We maintain a Section 401(k) Savings/Retirement Plan (the “401(k) Plan”) to cover eligible employees of the Company and any designated affiliate in the United States. The 401(k) Plan permits eligible employees to defer up to the maximum dollar amount allowed by law. The employees’ elective deferrals are immediately vested and non-forfeitable upon contribution to the 401(k) Plan. We currently make discretionary matching contributions to the 401(k) Plan in an amount equal to fifty percent of deferrals up to a maximum of three percent of the participant’s annual base pay and subject to certain other limits. Employer contributions to the Plan are vested as follows: 25% after one year of service, 50% after two years of service, 75% after three years of service and 100% after four years of service. Employees who are 21 years of age or older are eligible to participate in the 401(k) Plan as of the date of hire.

Similarly, DTS maintained a 401(k) Savings/Retirement Plan (the “DTS 401(k) Plan”) that covers employees who were acquired as part of the DTS acquisition (including Messrs. Kirchner and Skaaden). Under the DTS 401(k) Plan, which is currently operating in parallel with the 401(k) Plan, we match contributions by employees up to 4% of an employee’s elective deferrals. There is no vesting schedule under the DTS 401(k) Plan. We are currently exploring what options are available to combine the 401(k) Plan and the DTS 401(k) Plan.

 

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Perquisites and Other Personal Benefits

Executive officers are eligible to participate in all of our employee benefit plans, such as medical, dental, vision, group life and disability insurance, in each case on the same basis as other employees, subject to applicable law. We also provide vacation and other paid holidays to all employees, including our executive officers. In addition, we provide certain highly-compensated employees, including our NEOs, with supplemental long-term disability coverage. Other than as described in this section, we do not provide any special perquisites or health or welfare benefits to our NEOs that are not available to all of our employees.

Retention Arrangements

Effective upon the completion of our acquisition of DTS, DTS established the DTS, Inc. 2016 Executive Retention Bonus Plan (the “Retention Plan”) and entered into letter agreements thereunder (the “Retention Agreements”) with Jon Kirchner, Geir Skaaden and certain other executive officers who continued employment with DTS following completion of the Company Merger (collectively, the “DTS Executives”).

The terms of the Retention Plan provide that each DTS Executive who executes a Retention Agreement and is continuously employed with Xperi or one of its subsidiaries through the 18-month anniversary of the closing of our acquisition of DTS (the “Vesting Date”) will be entitled to receive payment of the DTS Executive’s retention bonus; provided, that if the DTS Executive’s employment is terminated (i) by Xperi or one of its subsidiaries (as applicable) without cause, (ii) by the DTS Executive for good reason or (iii) due to the DTS Executive’s death or disability at any time prior to the Vesting Date, the DTS Executive will be entitled to payment of a pro-rata portion of his or her retention bonus. The DTS Executive will immediately forfeit his or her retention bonus upon a termination of his or her employment for cause or his or her resignation without good reason at any time prior to the Vesting Date. Any amounts that are forfeited will not be reallocated to other DTS Executives. Under the Retention Plan, Mr. Kirchner is eligible to receive a retention bonus of $5,049,366, Mr. Skaaden is eligible to receive a retention bonus of $1,275,576, and the other DTS Executives may receive, in the aggregate, retention bonuses equal to $2,609,272.

 

 

Post-Employment Compensation Arrangements

 

 

We have entered into change in control severance agreements and severance agreements with certain of our executive officers to provide severance and/or change in control benefits. The Compensation Committee believes these types of agreements are essential in order to attract and retain qualified executives and promote stability and continuity in our senior management team. We believe that the stability and continuity provided by these agreements are in the best interests of our stockholders. For details, see “Employment, Severance and Change in Control Arrangements” below.

 

 

Compensation-Setting Process

 

 

The Compensation Committee has the primary authority to approve the compensation provided to our executive officers. Consistent with prior years, for 2016, Compensia, an independent compensation consulting firm, was retained by the Compensation Committee to assist it in the determination of the key elements of the compensation programs. Compensia reports to and is accountable to the Compensation Committee, and may not conduct any other work for us without the authorization of the Compensation Committee. Compensia did not provide any services to us in 2016 beyond its engagement as an advisor to the Compensation Committee on executive and Board compensation matters. After review and consultation with Compensia, the Compensation Committee has determined that Compensia is independent and there is no conflict of interest resulting from retaining Compensia currently or during the year ended December 31, 2016. In reaching these conclusions, the Compensation Committee considered the factors set forth in Exchange Act Rule 10C-1 and NASDAQ listing standards.

In 2016, Compensia provided advice to the Compensation Committee with respect to competitive practices and the amounts and nature of compensation paid to executive officers in similar organizations. Compensia also advised on, among other things, structuring our various compensation programs and determining the appropriate levels of salary, bonus and other awards payable to our executive officers.

 

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To aid the Compensation Committee in making its compensation determinations, our CEO provides recommendations annually to the Compensation Committee regarding the compensation of all executive officers, excluding himself. Each named executive officer other than our CEO, in turn, participates in an annual performance review with the CEO to provide input about their contributions to our success for the period being assessed. The Compensation Committee gathers data on the CEO’s performance through several channels, including qualitative and quantitative assessments of the Company’s performance, discussions with other members of the management team and discussions with other members of the Board of Directors. Each Compensation Committee meeting ordinarily includes an executive session without members of management present.

Corporate and individual performance goals are established at the beginning of the year. The Company’s annual financial plan is formulated by our executive management team and is submitted for review and approval by our Board of Directors. The CEO, after discussions with the management team, then typically recommends a subset of these goals to the Compensation Committee as the corporate performance goals underlying our annual cash incentive bonus plan and performance-based equity awards. We believe that the achievement of these performance goals is based on the successful efforts and contributions of our NEOs. As described below, our Compensation Committee retains the authority under our bonus plan to authorize bonus payments to NEOs that are less than the bonus payments that would otherwise be awarded based on our achievement of the performance goals established for our bonus plan. Our Compensation Committee also has the authority to make discretionary bonus awards to NEOs, but it did not do so in 2016.

Historically, the Compensation Committee has determined that for our CEO and CFO, performance goals should be tied exclusively to the Company’s financial goals for revenue growth and net income. In the beginning of each year, our other executive officers work with our CEO to establish their individual performance goals for the year, based on their respective roles within the Company. For example, individual performance goals established for our NEOs (other than our CEO and CFO which are tied exclusively to the Company’s financial goals) for 2016 included, among others, the financial performance of an executive’s area of responsibility, strategic objectives derived from our strategic plan and interdepartmental goals critical to the ongoing success of the business. These individual performance goals in many instances comprise the basis upon which we seek to achieve our broader corporate financial and operating goals for the year. These individual goals are typically designed to support certain aspects of the corporate objectives to ensure consistency in effort, direction and strategy and are described in greater detail below.

Setting Executive Compensation

We review competitive compensation practices and the financial performance of comparable companies at least annually. This analysis provides the necessary background to the Compensation Committee to ensure that compensation opportunities for executives are competitive with compensation practices among comparable companies and that actual compensation paid to executives is appropriately aligned with our performance in the past year.

Each year Compensia works with the Compensation Committee to confirm one or more peer groups of companies to be used in the competitive assessment. In 2015, a new peer group was developed in order to provide the Compensation Committee with a comprehensive view of compensation practices reflecting our business. The peer group for 2015 was selected based on the same approach utilized in 2014 and 2013, focusing primarily on semiconductor companies with comparable revenue, market capitalization and geographic location and firms involved in the development and licensing of intellectual property. No peer group or peer company was selected on the basis of executive compensation levels. The specific attributes used to develop the peer group included:

 

    Industry : The peer group used focused on semiconductor technology companies and companies that license intellectual property.

 

    Revenue : We considered the revenue of the peer companies and selected peer companies with trailing twelve months of revenue that, at the time of the analysis, fell within the range of one-half to two times our revenue. Given the small number of intellectual property licensing companies, we included companies that were smaller than one-half our revenue in order to have a broad representation of intellectual property licensing companies. We do not base our peer company selection solely on revenue but also consider the market capitalization and geographic attributes discussed below.

 

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    Market Capitalization : For the peer group, we looked at market capitalization to reflect the differences in our business model as a technology licensing company, which would not be accurately reflected if we selected peer companies based solely on annual revenue. We selected companies with a market capitalization at the time of our analysis that was generally within a range of one-half to two times our market capitalization. Given the small number of intellectual property licensing companies, we included companies that were smaller than one-half our market-capitalization in order to have a broad representation among in intellectual property licensing companies.

 

    Geographic Location : We included U.S. based companies, with an emphasis on firms headquartered in the San Francisco Bay Area.

2015 PEER GROUP (USED FOR SETTING 2016 COMPENSATION)

 

Acacia Research Corporation (ACTG)   Monolithic Power Systems, Inc. (MPWR)
Ambarella, Inc. (AMBA)   Photronics, Inc. (PLAB)
Applied Micro Circuits Corporation (AMCC)   Power Integrations, Inc. (POWI)
Cabot Microelectronics Corporation (CCMP)   Rambus Inc. (RMBS)
Cavium, Inc. (CAVM)   Rovi Corporation (ROVI)
Integrated Device Technology, Inc. (IDTI)   RPX Corporation (RPXC)
InterDigital, Inc. (IDCC)   Silicon Laboratories, Inc. (SLAB)
Intersil Corporation (ISIL)   TiVo Inc. (TIVO)
InvenSense, Inc. (INVN)   Ultratech, Inc. (UTEK)
M/A-COM Technology Solutions Holdings, Inc. (MTSI)   Veeco Instruments Inc. (VECO)
Micrel, Incorporated (MCRL)  

The 2015 peer group was used in early 2016 for purposes of evaluating whether compensation adjustments for our NEOs for 2016 were appropriate. The details of our standings relative to our peer groups with respect to revenue and market capitalization are below (revenue is calculated using trailing 12-month revenues as of the most recently ended quarter and market capitalization is as of the last day of the most recently ended quarter):

 

Peer Group

  

Xperi Percentile Ranking on Revenue

 

   Xperi’s Percentile Ranking on Market Capitalization

Peer Group Selected in 2015 for measuring compensation in 2016 analyzed in January 2016

 

   20 th percentile    56 th percentile

Peer Group Selected in 2016 for measuring compensation in 2017 analyzed in January 2017

 

   41 st percentile    44 th percentile

Each year, Compensia surveys the compensation practices of the peer group to assess the competitiveness of our compensation programs. Although we maintain the peer group for executive compensation and performance reference purposes, the peer group compensation data is limited to publicly available information and therefore does not necessarily provide comparisons for all officers. By contrast, survey data has the advantage of including data on executive positions beyond what is available in public filings, but may not be specific to the selected companies in the peer group. In light of this, during 2015 and early 2016, the Compensation Committee also reviewed data from the Radford Executive Survey, which consists of approximately 600 companies throughout the United States primarily from technology industries. We look at multiple cuts of data from the surveys, including national data across industries, Bay Area data across industries and specific industry cuts, and within those industry and geographic groups we align revenues to be consistent with the peer group. With respect to the survey data presented to the Compensation Committee, the identities of the individual companies included in the survey were not provided to the Compensation Committee, and the Compensation Committee did not refer to individual compensation information for such companies.

We believe that by utilizing both publicly available peer group data and the survey data from the published surveys in which we participate, we are able to develop the best set of robust competitive data reasonably available for use in making compensation decisions. The Compensation Committee, when making compensation adjustments to the NEOs, reviews the publicly available peer group data and the survey data to ensure that, following any compensation adjustment, the total compensation of NEOs falls within the Company’s guidelines.

 

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Based on the objectives outlined above, the Compensation Committee strives to set target compensation opportunity levels to be competitive with the market that we compete in for executive talent and that are appropriate for the skills, experience and performance of each individual. However, the Compensation Committee does not establish compensation levels based solely on benchmarking. The Compensation Committee instead relies on the judgment of its members in making compensation decisions regarding base salaries, target bonus levels and long-term equity incentive awards after reviewing our performance and carefully evaluating each named executive officer’s performance during the year, leadership qualities, business responsibilities, career with our company, current compensation arrangements and long-term potential to enhance stockholder value. The Compensation Committee does not guarantee that any executive will receive a specific market-derived compensation level.

In addition, the Compensation Committee has taken the approach of determining the mix of compensation elements, such as base salary, bonus opportunity and equity awards, on an individual basis. The Compensation Committee allocates total compensation between cash and equity compensation based on a number of objective and subjective factors, including competitive practices among the comparable companies (discussed below), the role and responsibilities of the individual executive, and the nature of the behaviors the incentives are intended to motivate. The Compensation Committee’s philosophy is to balance compensation between long-term and short-term compensation, cash and non-cash compensation, and to take into account the roles and responsibilities of the individual officer.

Following the announcement of our acquisition of DTS, the Compensation Committee again engaged Compensia to assist the Compensation Committee in defining a new peer group to be used for 2017 compensation analysis and decisions. The Compensation Committee utilized the same approach described above, but modified revenue analysis to assume the expected revenue of the Company post-acquisition and also modified the industry to focus more on companies whose business is closer to the DTS focus including companies in internet software and services. On a prospective basis (including for the analysis of 2017 compensation) the following will represent the Xperi peer group:

 

Ambarella, Inc. (AMBA)   J2 Global Rg (JCOM)
Box, Inc. (BOX)   LogmeIn, Inc. (LOGM)
Cabot Microelectronics Corporation (CCMP)   M/A-COM Technology Solutions Holdings, Inc. (MTSI)
Cavium, Inc. (CAVM)   MaxLinear, Inc. (MXL)
Dolby Laboratories (DLB)   Monolithic Power Systems, Inc. (MPWR)
FireEye Inc. (FEYE)   Plantronics Inc. (PLT)
FormFactor, Inc. (FORM)   Power Integrations, Inc. (POWI)
Inphi Corporation (IPHI)   Rambus Inc. (RMBS)
Integrated Device Technology, Inc. (IDTI)   Semtech Corporation (SMTC)
InterDigital, Inc. (IDCC)   Silicon Laboratories, Inc. (SLAB)
Intersil Corporation (ISIL)   TiVo Inc. (TIVO)

 

 

Other Compensation Related Policies

 

Stock Ownership Guidelines

Stock Ownership and Retention Guidelines. In October 2014, our Board adopted stock ownership guidelines that apply to our CEO, each other executive officer of the Company within the meaning of Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended, and each other employee that reports directly to the Chief Executive Officer (each, an “Executive”). Each Executive will be expected to own common stock of the Company with a market value equal to the following amounts for as long as he or she remains an Executive:

 

Title   

     Ownership Threshold

 

Chief Executive Officer

   Three times (3x) base salary

Other Executives

    One times (1x) base salary

 

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Each Executive must hold 50% of all “Net Settled Shares” (as defined below) received from the vesting, delivery or exercise of equity awards granted under our equity award plans until the Executive’s ownership equals or exceeds the applicable ownership threshold, as set forth above. In no event shall shares of common stock purchased under our employee stock purchase plan be considered granted under our equity award plans for purposes of this share retention requirement. This share retention requirement applies to an Executive only if such Executive has not achieved his or her applicable ownership threshold. For purposes of the guidelines, “Net Settled Shares” means those shares of common stock that remain after payment of (a) the exercise price of stock options or purchase price of other awards and all applicable withholding taxes, including shares sold or netted with respect thereto, and (b) all applicable transaction costs.

Insider Trading Policy. Our insider trading policy prohibits directors, officers, employees and all persons living in their households from trading any type of security, whether issued by us or other companies with which we do business, while aware of material non-public information relating to the issuer of the security or from providing such material non-public information to any person who may trade while aware of such information. Additionally, we restrict trading by our directors and officers, as well as other categories of employees who may be expected in the ordinary course of performing their duties to have access to material non-public information, to quarterly trading windows that begin one full trading day following the public disclosure of our quarterly or annual financial results and that ends at 5:00 pm Eastern Time on the 15th day of the last month in each calendar quarter (or if the 15 th day falls on a non-trading day, then on the trading day immediately prior to the 15 th day of the last month in each calendar quarter). Furthermore, the insider trading policy requires that certain specified individuals meet with representatives of our legal department to confirm that they are not in possession of material non-public information prior to trading any security of the Company during open window periods. Our insider trading policy also prohibits directors, officers, employees and all persons living in their households from purchasing Company stock on margin, pledging Company stock to secure margin or other loans, short selling Company stock or buying or selling put or call options on Company stock, or entering into other derivative contracts or hedging contracts.

Clawback Policy . We have adopted an incentive compensation “clawback” policy under which the Compensation Committee or the Board of Directors may require the reimbursement or forfeiture of incentive compensation from an executive officer in the event of restatement of the company’s financial results due to its material noncompliance with any financial reporting requirement under United States securities laws. We believe that by providing the Company with the appropriate power to recover incentive compensation paid to an executive officer in this situation, the Company demonstrates its commitment to strong corporate governance. Under our clawback policy, the Compensation Committee or the Board of Directors may require reimbursement from the executive officer for incentive compensation. The amount of incentive compensation that may be recovered is the portion of any bonus paid to, and any performance-based equity awards earned by, the executive officer that the executive officer would not have received if the Company’s financial results had been reported properly. The right to cause a forfeiture or recovery of incentive compensation applies to incentive compensation during the three year period prior to the date on which the Company is required to prepare an accounting restatement.

Derivatives Trading and Hedging Policy

Our insider trading policy prohibits the pledging, trading of derivatives or the hedging of our equity securities by our employees, including our executive officers, and directors. Specifically, they may not, at any time:

 

   

trade in any puts, calls, covered calls or other derivative products involving company securities;

 

   

engage in any hedging or monetization transactions in a way that mitigates the full risk or rewards of ownership of the Company’s securities; or

 

   

hold company securities in a margin account or pledge company securities as collateral for a loan.

 

 

Tax and Accounting Considerations

 

 

Deduction Limitation

We aim to compensate the NEOs in a manner that is tax effective for us without sacrificing the effectiveness of the incentive programs being offered to executives. Section 162(m) of the Code generally disallows a tax deduction to

 

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a publicly-held company for compensation in excess of $1 million paid to its chief executive officer and its three other most highly compensated executive officers (other than its chief financial officer). Compensation that is “qualified performance-based compensation” generally is not subject to the $1 million deduction limit. Although we have plans that permit the award of deductible compensation under Section 162(m) of the Internal Revenue Code if the requirements of Section 162(m) are satisfied, the Compensation Committee does not necessarily limit executive compensation to the amount deductible under that provision. While we consider the tax deductibility of each element of executive compensation as a factor in our overall compensation program, the Compensation Committee retains the discretion to approve compensation that may not qualify for the compensation deduction if, in light of all applicable circumstances, it would be in our best interest for such compensation to be paid without regard to whether it may be tax deductible.

We account for stock-based awards to our employees under the rules of FASB ASC Topic 718, which requires us to record the compensation expense over the service period of the award. Accounting rules also require us to record cash compensation as an expense at the time the obligation is accrued.

 

 

Employment Contracts, Termination of Employment Arrangements and Change of Control Arrangements

 

 

Employment Agreements

The Company has not entered into any employment agreements with the NEOs.

Change in Control and Severance Arrangements

The Company provides for certain severance benefits if an executive’s employment is involuntarily or constructively terminated. In addition, the Company provides enhanced severance benefits if such a termination occurs in connection with a change in control. Such severance benefits are designed to alleviate the financial impact of an involuntary termination through salary, bonus and health benefit continuation and with the intent of providing for a stable work environment. We believe that reasonable severance benefits for those NEOs with which we have entered into severance agreements are important because it may be difficult for these NEOs to find comparable employment within a short period of time following certain qualifying terminations. The Company also believes these benefits are a means reinforcing and encouraging the continued attention and dedication of key executives of the Company to their duties of employment without personal distraction or conflict of interest in circumstances which could arise from the occurrence of a change in control. We believe that the interests of stockholders will be best served if the interests of our senior management are aligned with them, and providing change in control benefits should eliminate, or at least reduce, the reluctance of senior management to pursue potential change in control transactions that may be in the best interests of stockholders.

The Company extends change in control benefits because they are essential to help the Company fulfill its objectives of attracting and retaining key managerial talent. These agreements are intended to be competitive within our industry and company size and to attract highly qualified individuals and encourage them to be retained by the Company. While these arrangements form an integral part of the total compensation provided to these individuals and are considered by the Compensation Committee when determining executive officer compensation, the decision to offer these benefits did not influence the Compensation Committee’s determinations concerning other direct compensation or benefit levels. The Compensation Committee has determined that such arrangements offer protection that is competitive within our industry and company size and are necessary to attract highly qualified individuals and encourage them to be retained by the Company. In making the decision to extend the benefits, the Compensation Committee relied on the assurances of its independent advisor that the programs are representative of market practice, both in terms of design and cost.

Severance Agreements

The Company has entered into severance and change in control severance agreements with each of Messrs. Lacey, Kirchner, Andersen, Skaaden and Mitchell, as further described below.

 

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Severance Agreement with Mr. Lacey

The severance agreement between the Company and Mr. Lacey provides that if Mr. Lacey is involuntarily terminated without cause or resigns for good reason, or Mr. Lacey’s employment terminates as a result of his death or permanent disability, Mr. Lacey shall, upon the effectiveness of a general release of claims by Mr. Lacey in favor of the Company, receive:

 

    his fully earned but unpaid base salary and his earned but unpaid vacation through the date of separation;
    a lump sum cash payment equal to 100% of his annual salary;
    his target annual bonus for the calendar year in which termination occurs (which bonus shall be prorated for the portion of the calendar year that has elapsed prior to the date of termination);
    continuation of health benefits for eighteen months following termination; and