Definitive Proxy Statement
Table of Contents

 

 

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  ☐

Check the appropriate box:

 

 

Preliminary Proxy Statement

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

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material 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)

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)

 

Title of each class of securities to which transaction applies:

 

     

 

(2)

 

Aggregate number of securities to which transaction applies:

 

     

 

(3)

 

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

 

     

 

(4)

 

Proposed maximum aggregate value of transaction:

 

     

 

(5)

 

Total fee paid:

 

     

 

Fee paid previously with preliminary materials:

 

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

 

(1)

 

Amount Previously Paid:

 

     

 

(2)

 

Form, Schedule or Registration Statement No.:

 

     

 

(3)

 

Filing Party:

 

     

 

(4)

 

Date Filed:

 

     

 

 

 


Table of Contents

LOGO

Notice of Annual Meeting

of Stockholders

Friday, April 27, 2018

8:00 a.m., Local Time

Hyatt Regency Westlake

880 S Westlake Blvd,

Westlake Village, CA 91361

The Annual Meeting of the Stockholders of Xperi Corporation (the “Company”) will be held on Friday, April 27, 2018 at 8:00 a.m. local time, at Hyatt Regency Westlake, 880 S. Westlake Blvd., Westlake Village, CA 91361, 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 Company’s Seventh Amended and Restated 2003 Equity Incentive Plan;

 

3. To approve the Company’s Amended and Restated 2003 Employee Stock Purchase Plan;

 

4. To hold an advisory vote to approve executive compensation;

 

5. To ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accountants of the Company for its year ending December 31, 2018; and

 

6. 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 5, 2018 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 16, 2018, a Notice of Internet Availability of Proxy Materials was mailed to our stockholders containing instructions on how to access our 2018 Proxy Statement and 2017 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.


Table of Contents

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
XPERI Corporation
/s/ Paul E. Davis

PAUL E. DAVIS

Secretary

San Jose, California

March 14, 2018


Table of Contents

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      18  

Compensation of Directors

     24  
PROPOSAL 2 — APPROVAL OF THE COMPANY’S SEVENTH AMENDED AND RESTATED 2003 EQUITY INCENTIVE PLAN      26  
PROPOSAL 3 — APPROVAL OF THE COMPANY’S AMENDED AND RESTATED 2003 EMPLOYEE STOCK PURCHASE PLAN      40  
EQUITY COMPENSATION PLAN INFORMATION      46  
EXECUTIVE OFFICERS      47  
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE      48  
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT      48  
EXECUTIVE COMPENSATION AND RELATED INFORMATION      50  

Compensation Discussion and Analysis

     50  

Report of the Compensation Committee

     77  

Compensation of Named Executive Officers

     78  
PROPOSAL 4 — ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION      86  
PROPOSAL 5 — RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS      87  

Report of the Audit Committee

     89  
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS      90  
STOCKHOLDER PROPOSALS FOR THE 2019 ANNUAL MEETING OF STOCKHOLDERS      92  
OTHER MATTERS      92  
APPENDIX A — SEVENTH AMENDED AND RESTATED 2003 EQUITY INCENTIVE PLAN      A-1  
APPENDIX B — AMENDED AND RESTATED 2003 EMPLOYEE STOCK PURCHASE PLAN      B-1  
APPENDIX C — RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL MEASURES      C-1  


Table of Contents

LOGO

Xperi Corporation

3025 Orchard Parkway

San Jose, CA 95134

PROXY STATEMENT FOR THE ANNUAL MEETING

OF STOCKHOLDERS

TO BE HELD ON APRIL 27, 2018

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 8:00 a.m. Pacific Daylight Time on Friday, April 27, 2018 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 Company’s Seventh Amended and Restated 2003 Equity Incentive Plan;  
    To approve the Company’s Amended and Restated 2003 Employee Stock Purchase Plan;  
    To hold an advisory vote to approve executive compensation;  
    To ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accountants of the Company for its year ending December 31, 2018; 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 16, 2018.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be Held on April 27, 2018:

This proxy statement, form of proxy and the Company’s 2017 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.

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.

 

   XPERI - Proxy Statement         1
      


Table of Contents

Business Highlights

2017 was a year of change for our company, and despite some challenges, we achieved a number of significant milestones, which we believe will drive meaningful long-term shareholder value.

 

    We launched new innovative technologies such as Virtual:X, Connected Radio, and DMS, our Driver Monitoring System, that will drive increased penetration and average selling prices in the home, mobile and automotive markets.
    We accelerated certain investments in machine learning and next generation smart technologies that we believe will provide avenues for greater growth in the mid-term.
    We completed the first major step in our long-term IP licensing strategy by successfully settling our litigation with Broadcom and entering into a multi-year license agreement.
    We updated and refined Xperi’s long-term strategy, adjusting it to reflect key market trends and better position us to drive long term growth, increased cash flow and enhanced shareholder value.

Importantly, we generated $147 million in operating cash flow, returned approximately $55 million to shareholders in the form of dividends and stock repurchases, and paid down $100 million of debt just after year-end.

Financial Performance

 

    Total revenue was $373.7 million for the year ended December 31, 2017, including the impact of purchase accounting in the amount of $51.6 million, as compared with $259.6 million for the year ended December 31, 2016.
    We generated $147.3 million in operating cash flow for the fiscal year ended December 31, 2017, compared to $153.9 million in 2016.

Strategic Performance

During 2017, we accomplished the following:

 

    Acquisitions: We successfully completed the integration of Tessera and DTS, meeting our synergy targets, and now operate as one company.
    Capital allocation: In 2017 we bought back 0.7 million shares at an average price of $23.46 for a total of $15.3 million dollars. Additionally, during the year we paid out $39.5 million dollars in dividends.
    Product licensing:  
      Our automotive business for the year was up more than 19 percent compared to last year driven by continued penetration of HD Radio in new cars sold in North America, which reached approximately 50% as we exited the year.
      Our newest audio technologies including, DTS:X and Virtual:X, doubled in revenue – and we expect them to double again in 2018.
      We re-organized all product licensing business units under home, mobile, and automotive as a strategic step towards realizing Xperi’s vision.
    Semiconductor and intellectual property licensing:
      we made significant progress engaging various existing and potential customers around our intellectual property portfolio.
      We completed the first major step in our long-term IP licensing strategy by successfully settling our litigation with Broadcom and entering into a multi-year license agreement.
      We filed what we believe were well-planned and executed legal matters against Samsung.
      Invensas continued to make excellent progress in developing, optimizing and commercializing our broad portfolio of innovative semiconductor technologies.
      We reached a significant milestone in transferring DBI technology to multiple high-volume manufacturing facilities.
      DBI technology is now available from SMIC, one of the leading semiconductor foundries in the world.
      In addition, Teledyne Dalsa, one of the world’s foremost pure-play MEMS foundries, is ready to offer DBI technology to its foundry customers.

 

2         XPERI - Proxy Statement   
    


Table of Contents

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 nominee 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 such director 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 six 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
      


Table of Contents

Board Nominees

 

                         Independent                 

  Name

 

 

Age    

 

 

Director        
Since

 

 

Experience/

Qualification

 

 

Yes

 

 

No

 

 

Committee
Memberships                    

 

 

Other Company            
Boards

 

  John Chenault   70   2013  

    Public Company CFO

    Extensive experience in     semiconductor industry

    Audit Committee
    experience and
    financial expertise

 

 

 

LOGO

          Audit Committee Chair        Ichor Holdings, Ltd.
  David Habiger   49   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

     

     Audit Committee

 

     Nominating and

  Governance Committee

 

     Control4 Corporation

 

     Echo Global
  Logistics, Inc

 

     Grubhub

 

     Stamps.com

  Richard S. Hill   66   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.

 

  Jon Kirchner

 

50

 

2017

 

    Public Company CEO

    Extensive experience in     digital media and     entertainment

 

     

 

LOGO

 

None

      Free Stream Media   Corp (Samba TV)
  V. Sue Molina  

70

 

2018

 

    Extensive accounting and     finance expertise

    Experience in advising     Boards and past service     on Boards of public     companies

 

 

 

LOGO

     

None

   
  George A.   Riedel  

60

 

2013

 

    CEO

    Extensive experience in     licensing technology and     telecom industry

 

 

 

LOGO

     

    Audit Committee

 

    Compensation Committee

   
  Christopher A.   Seams  

55

 

2013

 

    Public Company Executive

    Extensive experience in     semiconductor industry

    Member of IEEE

 

 

LOGO

     

    Compensation Committee     Chair

      Nanometrics

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 Corporate Development, Vice President of Operations 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.

 

4         XPERI - Proxy Statement   
    


Table of Contents

Jon Kirchner has served on the Board and as Chief Executive Officer since June 2017. Previously he was president of Xperi following the completion of the acquisition of DTS in December 2016. Mr. Kirchner 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. He served as DTS’s Chief Executive Officer from 2001 to 2010 and served in a number of senior leadership roles at DTS from 1993 to 2001. Prior to joining DTS, Mr. Kirchner worked for the consulting and audit groups at Price Waterhouse LLP (now PricewaterhouseCoopers LLP).

V. Sue Molina has served on the Board since February 2018. Previously, she served as a board member at DTS, Inc., a wholly owned subsidiary of the Company, from January 2008 to December 2016, where she served as the chair of the Audit Committee and was a member of the Nominating and Corporate Governance Committee. Up until her retirement in May 2004, Ms. Molina was a tax partner at Deloitte and Touche LLP. Additionally, she spent 20 years with Ernst and Young LLP, including her last 10 years as a partner. Ms. Molina also served as the chair of the Compensation Committee and as a member of the Audit Committee for Sucampo Pharmaceuticals, Inc.

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. He is currently a Senior Lecturer at Harvard Business School.

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”), a member of NACD and ACCD, served on the Engineering Advisory Council for Texas A&M University and was a board member of Joint Venture Silicon Valley.

Approval of the Company’s Seventh Amended and Restated 2003 Equity Incentive 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. Our Compensation Committee believes that offering an equity incentive 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, 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 Sixth Amended and Restated 2003 Equity Incentive Plan (the “Existing Plan”), which was first adopted in 2003 and most recently amended and restated in 2015. The purpose of the Existing Plan 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, creating the need to update the Existing Plan.

As of February 15, 2018, a total of just 781,833 shares remained available under the Existing Plan. Under the proposed Seventh Amended and Restated 2003 Equity Incentive Plan (the “Restated Plan”) an additional 4,350,000 shares will be reserved for issuance. 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 2018 and thereafter.

Approval of the Company’s Amended and Restated 2003 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. Our Compensation Committee believes that offering an 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, to enhance such employees’ sense of participation in the affairs of the

 

   XPERI - Proxy Statement         5
      


Table of Contents

Company and its participating subsidiaries, and to provide an incentive for continued employment. The Company provides these benefits to our U.S employees through our existing 2003 Employee Stock Purchase Plan (the “Existing ESPP”), which was first adopted in 2003 and most recently amended in 2014. The purpose of the Existing ESPP 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, creating the need to update the Existing ESPP.

As of February 15, 2018, a total of just 120,430 shares remained available for issuance under the Existing ESPP. Under the proposed amended and restated 2003 Employee Stock Purchase Plan (the “Restated ESPP”), an additional 1,000,000 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 2018 and thereafter under the Existing ESPP.

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 targeted performance levels are not achieved, as was the case in 2017.

Compensation Practices

 

    Clawback policy  

 

    Minimum stock ownership guidelines  

 

    Double-trigger change in control 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, 2018. 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 Company’s Seventh Amended and Restated 2003 Equity Incentive Plan    FOR     

26

Proposal 3 – Approval of the Company’s Amended and Restated 2003 Employee Stock Purchase Plan    FOR     

40

Proposal 4 – Advisory Vote to Approve Executive Compensation

   FOR     

86

Proposal 5 – Ratification of Independent Registered Public Accountants

 

   FOR     

87

 

6         XPERI - Proxy Statement   
    


Table of Contents

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 Company’s Seventh Amended and Restated 2003 Equity Incentive Plan; (3) the approval of the Company’s Amended and Restated 2003 Employee Stock Purchase Plan; (4) the compensation of our named executive officers, on an advisory (non–binding) basis; (5) the ratification of PricewaterhouseCoopers LLP to serve as the Company’s independent registered public accountants for the fiscal year 2018; and (6) 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 5, 2018 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 5, 2018, there were 49,439,923 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 Company’s Seventh Amended and Restated 2003 Equity Incentive Plan, FOR the approval of the Company’s Amended and Restated 2003 Employee Stock Purchase Plan, FOR non-binding approval of the compensation of our named executive officers, 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, 2018. 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 Company’s Seventh Amended and Restated 2003 Equity Incentive Plan; (3) FOR the Company’s Amended and Restated 2003 Employee Stock Purchase Plan (4) FOR the approval of compensation of our named executive officers (NEOs) as disclosed in this proxy statement; (5) FOR the ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accountants for the Company for the year ending December 31, 2018; and (6) as the proxy holders deem advisable, in their discretion, on other matters that may properly come before the Annual Meeting.

 

   XPERI - Proxy Statement         7
      


Table of Contents

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 street name 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., 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.

 

8         XPERI - Proxy Statement   
    


Table of Contents

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 Company’s Seventh Amended and Restated 2003 Equity Incentive 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 Xperi Corporation Seventh Amended and Restated 2003 Equity Incentive 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 3—Approval of the Company’s Amended and Restated 2003 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 Xperi Corporation Amended and Restated 2003 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 to Approve 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.

Proposal 5—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.

 

   XPERI - Proxy Statement         9
      


Table of Contents

 

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, employees and third parties 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 officers, directors or regular employees for such services. We may pay fees to third party solicitors. 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.

 

10         XPERI - Proxy Statement   
    


Table of Contents

 

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. Brown 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 2019 Annual Meeting of Stockholders and until their respective successors shall have been duly elected and qualified.

 

LOGO   

John Chenault

Director Since 2013

Age 70

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

 

Current 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 Operations 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.

 

   XPERI - Proxy Statement         11
      


Table of Contents
LOGO   

David C. Habiger

Director Since 2016

Age 49

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)  
    GrubHub Inc.  
    Stamps.com Inc.  

Past Directorships:

 

    Immersion Corporation  
    Enova International, Inc  
    RealD Inc.  
    Textura Corporation  
    DTS  
    Sonic Solutions  

Current Xperi Committee Assignments:

 

    Audit Committee Member  
    Nominating and Governance Committee Member  

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, a Venture Partner with the Pritzker Group since January 2013 and an advisor at MDP since February 2014. Mr. Habiger served as the 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., GrubHub Inc., and Stamps.com Inc., and previously served as a director for Enova International, Inc., Immersion Corporation, RealD Inc., Textura Corporation, DTS, and Sonic Solutions. 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. The Board believes that Mr. Habiger brings extensive experience in the digital media and entertainment industries and his in-depth knowledge and understanding of the consumer electronics industry to his role as a member of the Board.

 

12         XPERI - Proxy Statement   
    


Table of Contents
LOGO   

Richard S. Hill
Director Since 2012

Chairman Since 2013

Age 66

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.  

Past Directorships:

 

    LSI Corporation  
    Planar Systems, Inc.  
    Yahoo Inc.  

Current Xperi Committee Assignments:

 

    Chairman of the Board  
    Nominating and Governance Committee Member  

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, and Cabot Microelectronics Corporation, the leading global supplier of chemical mechanical planarization (CMP) slurries and a growing CMP pad supplier to the semiconductor industry. Mr. Hill previously served on the board of directors of LSI Corporation, Planar Systems and Yahoo 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.

 

   XPERI - Proxy Statement         13
      


Table of Contents
LOGO   

Jon Kirchner
Director Since 2017

Age 50

Skills and Qualifications:

 

    Public Company CEO  
    Extensive experience in digital media and entertainment industry  
    Recipient of Ernst & Young Technology Entrepreneur of the Year Award  
    Recipient of Digital 25: Leaders in Emerging Entertainment Award from Producers Guild of America  
    B.A. in Economics from Claremont McKenna College  

Current Directorships:

 

    Free Stream Media Corporation (Samba TV)  

Past Directorships:

 

    DTS  

Jon E. Kirchner has served on the Board and as Chief Executive Officer since June 2017. Previously he was president of Xperi following the completion of the acquisition of DTS in December 2016. 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. The Board believes that Mr. Kirchner brings his experience in the senior management of public companies, including service as chairman, president, Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, his extensive experience in the digital media and entertainment industries, as well as his knowledge of the Company as its Chief Executive Officer, to his role as a member of the Board.

 

14         XPERI - Proxy Statement   
    


Table of Contents

 

LOGO   

V. Sue Molina
Director Since 2018

Age 70

Skills and Qualifications:

 

    Extensive accounting and financial expertise  
    Experience in advising Boards  
    Past service on Boards of public companies  
    B.S.B.A. and a Masters of Accounting degree from the University of Arizona  

Current Directorships:

 

   

Vital Voices Global Partnership

 

Past Directorships:

 

    DTS  
    Sucampo Pharmaceuticals, Inc.  

V. Sue Molina has served on the Board since February 2018. Most recently she served on the Board of Directors of DTSfrom January 2008 until December 2016, and served as Chair of the Audit Committee and Nominating and Corporate Governance Committee. From November 1997 until her retirement in May 2004, Ms. Molina was a tax partner at Deloitte & Touche LLP, an international accounting firm, serving from 2000 until May 2004 as the national partner in charge of Deloitte’s Initiative for the Retention and Advancement of Women. Prior to that, she spent twenty years with Ernst & Young LLP, an international accounting firm, the last ten years as a partner. Ms. Molina has prior board experience serving on the Board of Directors, chair of the Compensation Committee and member of the Audit Committee of Sucampo Pharmaceuticals, Inc., and on the Board of Directors, chair of the Audit Committee and a member of the Compensation Committee of Royal Neighbors of America. She received a B.S.B.A. and a Masters of Accounting degree from the University of Arizona. The Board believes that Ms. Molina brings her extensive accounting and financial expertise, her experience in advising Boards and her past service on Boards of public companies, to her role as a member of the Board.

 

LOGO   

George A. Riedel
Director Since 2013

Age 60

Skills and Qualifications:

 

   

CEO

 
    Extensive experience in licensing technology and telecom industry  
    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:

 

    None  

Past Directorships:

 

    Blade Network Technologies Inc.  
    PeerApp Ltd.  

 

   XPERI - Proxy Statement         15
      


Table of Contents
    Cloudmark, Inc.  
    NextDocs Corporation  

Current 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 of the Board of Montreal-based Accedian Networks, where he had served as a director since 2010. Up till January 2017, Mr. Riedel also served as Chairman and CEO of Cloudmark, Inc., a private SF based network security company. Mr. Riedel joined the board at Cloudmark in June 2013, became Chairman in January 2014 and CEO in December 2014. 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, 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. He is currently a Senior Lecturer at Harvard Business School. Mr. Riedel received 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 55

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  

 

16         XPERI - Proxy Statement   
    


Table of Contents

Past Directorships:

 

    Deca Technologies Inc.  

Current 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, a member of NACD and ACCD, 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. Mr. Seams has a Professional Certificate in Advanced Computer Security from Stanford University. 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.

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 John Chenault, David C. Habiger, Richard S. Hill, Jon Kirchner, V. Sue Molina, George Riedel, and Christopher A. Seams.

 

   XPERI - Proxy Statement         17
      


Table of Contents

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, internal audit function 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

 

18         XPERI - Proxy Statement   
    


Table of Contents

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

COMPENSATION RISK ASSESSMENT

In early 2018, 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. Kirchner is CEO of Xperi. Mr. Hill was interim CEO of Xperi’s predecessor corporation for six weeks in 2013. Messrs. Brown, Chenault, Habiger, Riedel and Seams and Ms. Molina 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 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

 

V. Sue Molina LOGO

     

 

LOGO

 

  = Chair

  

LOGO = Member

   LOGO = Financial Expert    LOGO = Chairman

 

   XPERI - Proxy Statement         19
      


Table of Contents

During 2017, the Board of Directors held a total of 12 meetings. With the exception of Donald Stout, who did not stand for reelection in 2017, 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. Mr. Stout attended four of the six meetings during the time he served on the Board or committees.

The Board of Directors has determined that all of the Company’s directors nominated for election, other than Mr. Kirchner, 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, and Ms. Sue Molina, are 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 each of their respective relevant experience listed in their 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 Governance

 

 
Richard S. Hill LOGO        

 

 

 

LOGO

 

 

 

John Chenault LOGO

  

 

LOGO

    
David C. Habiger   

 

LOGO

  LOGO   
George A. Riedel     

 

LOGO

  

 

 

 

LOGO

 

 

Christopher A. Seams     

 

LOGO

  
V. Sue Molina LOGO   

 

LOGO

    

 

 

 

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. Habiger. Mr. Chenault joined the Audit Committee in April 2013. Mr. Riedel joined the Audit Committee in May 2015, and Mr. Habiger joined the Audit

 

20         XPERI - Proxy Statement   
    


Table of Contents

Committee in April 2017. During 2017, the Audit Committee held eight (8) meetings. Following the Annual Meeting of Stockholders, Ms. Molina will serve as the Chair, with Messrs. Chenault 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 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 2017, the Compensation Committee held nine (9) meetings. Following the Annual Meeting of Stockholders, Mr. Seams will continue as the Chair, with Messrs. Habiger 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. Habiger and Mr. Hill. Mr. Brown joined the Nominating and Governance Committee as chair in May 2015. Mr. Hill joined the Nominating and Governance Committee in May 2015. Mr. Habiger joined the Nominating and Governance Committee in April 2017. During 2017, the Nominating and Governance Committee held five (5) meetings. Following the Annual Meeting of Stockholders, Mr. Riedel will serve as the Chair, with Mr. Hill and Ms. Molina 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.

 

   XPERI - Proxy Statement         21
      


Table of Contents

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.

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 2018 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;

 

22         XPERI - Proxy Statement   
    


Table of Contents
    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;
    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 2017.

 

   XPERI - Proxy Statement         23
      


Table of Contents

COMPENSATION OF DIRECTORS

We currently pay our each non-employee directors an annual retainer of $50,000. We currently pay our non-executive Chairman an additional annual retainer of $50,000. 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

   $ 12,000  

Compensation Committee

   $ 8,000  

Nominating and Governance Committee

   $ 6,000  
Annual Retainers for Committee Chairs:   

Audit Committee

   $   25,000  

Compensation Committee

   $ 20,000  

Nominating and Governance Committee

   $ 15,000  

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 units and options to purchase shares of our common stock on the terms and conditions set forth in our stockholder-approved equity plan (as described in Proposal 2 below). A non-employee director receives a combination of options and/or restricted stock unit awards on the date of each annual meeting of our stockholders, as follows:

 

    The number of shares of common stock in the restricted stock unit award is determined by dividing (1) a dollar value to be paid in the form of restricted stock units (“Restricted Stock Unit 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 Unit 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 units and option amounts annually.

A non-employee director who is initially appointed after any annual meeting of stockholders will receive a restricted stock unit 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.

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.

 

24         XPERI - Proxy Statement   
    


Table of Contents

The following table shows compensation information for our non-employee directors for fiscal year 2017.

2017 DIRECTOR COMPENSATION TABLE

 

Name   

Fees 

Earned 

or Paid 

in Cash 

($) 

      

Stock 

Awards 

($)(1) 

   

Option 

Awards 

($) 

      

Total 

($) 

 
Richard S. Hill      $82,500           $149,968        --           $232,468   
Tudor Brown      $61,000           $149,968        --           $210,968   
John Chenault      $65,000           $149,968        --           $214,968   
David C. Habiger      $51,500           $149,968        --           $201,468   
George A. Riedel      $59,500           $149,968        --           $209,468   
Christopher A. Seams      $62,500           $149,968        --           $212,468   
Donald Stout (2)      $19,500           --        --           $19,500   

(1) The amounts reflected in this column represent the aggregate grant date fair value for stock awards granted to our non-employee directors in 2017, 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, 2017, filed with the SEC on February 23, 2018. The aggregate number of shares subject to unvested restricted stock unit awards outstanding for each non-employee director at December 31, 2017 was: Mr. Hill: 4,470; Mr. Brown: 4,470; Mr. Chenault: 4,470; Mr. Habiger: 4,470; Mr. Riedel: 4,470; and Mr. Seams: 4,470. None of the non-employee directors held any stock options as of December 31, 2017.

(2) Did not stand for re-election to Xperi Corporation Board of Directors in April 2017.

 

   XPERI - Proxy Statement         25
      


Table of Contents

Proposal 2—Approval of the

Company’s Seventh Amended and Restated 2003 Equity Incentive Plan

Introduction

Our stockholders are being asked to approve our Seventh Amended and Restated 2003 Equity Incentive Plan (the “Restated Plan”). Our Board of Directors approved the Restated Plan on March 12, 2018, subject to stockholder approval. The Restated Plan will become effective immediately upon stockholder approval at the Annual Meeting. If the Restated Plan is not approved by our stockholders, the Restated Plan will not become effective, the Sixth Amended and Restated 2003 Equity Incentive Plan (the “Existing Plan”) will continue in full force and effect, and we may continue to grant awards under the Existing Plan, subject to its terms, conditions and limitations, using the shares available for issuance thereunder. The Restated Plan is being submitted for stockholder approval in order for us to meet the stockholder approval requirements of Nasdaq and the requirements of Section 422 of the Code.

The principal features of the Restated Plan are summarized below, but the summary is qualified in its entirety by reference to the Restated Plan itself, which is attached to this proxy statement as Appendix A.

Description of Proposed Amendments

Increase in Share Reserve. We strongly believe that an employee equity compensation program is a necessary and powerful incentive and retention tool that benefits all stockholders. As of February 15, 2018, a total of 19,192,997 shares of our common stock were reserved under the Existing Plan, the aggregate number of shares of common stock subject to awards under the Existing Plan was 3,398,169 and a total of 781,833 shares of common stock remained available under the Existing Plan for future issuance.

If our stockholders approve the Restated Plan, an additional 4,350,000 shares will be reserved for issuance under the Restated Plan over the existing share reserve under the Existing Plan for a total share reserve of 23,542,997 shares.

All of the foregoing share numbers may be further adjusted for changes in our capitalization and certain corporate transactions, as described below under the heading “Stock Dividends and Stock Splits” and “Corporate Transactions.”

Extension of Period to Grant Incentive Stock Options and Removal of Fixed Term. The Restated Plan will have no fixed term, but incentive stock options, or ISOs, may only be granted under the Restated Plan through March 2028.

Addition of Minimum Vesting Provision. The Restated Plan adds a minimum vesting period such that awards granted under the Restated Plan will not vest earlier than the first anniversary of the applicable grant date (subject to limited exceptions).

Other Amendments. The Restated Plan makes certain changes to the Existing Plan intended to reflect compensation and governance best practices or to conform the plan to our current practices as follows:

 

    Limitations on Dividend and Dividend Equivalent Payments on Unvested Awards. The Restated Plan provides that dividends and dividend equivalents may not be paid on awards subject to vesting conditions unless and until such conditions are met.

 

26         XPERI - Proxy Statement   
    


Table of Contents
    Tax Withholding. The Restated Plan permits the Committee (as defined below) to allow for the withholding or surrender of shares in satisfaction of tax withholding with respect to awards with a value up to the maximum individual statutory tax rate in the applicable jurisdiction at the time of such withholding (or such other rate as may be required to avoid the liability classification of the applicable award under generally accepted accounting principles in the United States of America).
    Removal of 162(m) Provisions. Section 162(m) of the Internal Revenue Code (the “Code”), prior to the Tax Cuts and Jobs Act of 2017 (the “TCJA”), allowed performance-based compensation that met certain requirements to be tax deductible regardless of amount. This qualified performance based compensation exception was repealed as part of the TCJA. We have removed certain provisions from the Restated Plan which were otherwise required for awards to qualify as performance-based compensation under the Section 162(m) exception prior to its repeal. Awards granted prior to November 2, 2017 may be grandfathered under the old law subject to certain limited transition relief.

The Restated Plan is not being amended in any material respect other than to reflect the changes described above.

 

   XPERI - Proxy Statement         27
      


Table of Contents

 

 

Equity Incentive Awards Are Critical to Long-Term Stockholder Value Creation

 

 

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 Existing Plan, the 2003 Employee Stock Purchase Plan (the “Existing ESPP”) and the International Employee Stock Purchase Plan (the “IESPP”), each at February 15, 2018, and the proposed increase in shares authorized for issuance under the Restated Plan. For information about awards we assumed in connection with our acquisition of DTS on December 1, 2016, see “Equity Compensation Plan Information” below. For more information about our Existing ESPP and the shares remaining available for issuance thereunder, see Proposal 3 below.

 

                  Number of        
Shares(1)
         As a % of Shares  
Outstanding(2)
       Dollar Value(3)     
                   
   

Sixth Amended and Restated 2003 Equity Incentive Plan

             
   

Options outstanding

  792,428     1.6%     $16,918,338    
   

Weighted average exercise price of outstanding options

  $21.01            
   

Weighted average remaining term of outstanding options

  3.06 years            
   

Restricted stock units outstanding (4)

 

2,148,018

    4.4%     $45,860,184    
   

Shares remaining available for grant under the 2003 Equity Incentive Plan

  781,833     1.6%     $16,692,124    
     
   

Existing ESPP

             
   

Shares remaining available for grant under the Existing ESPP

  120,430     0.2%     $2,571,181    
     
   

IESPP

             
   

Shares remaining available for grant under the IESPP

  144,218     0.3%     $3,079,054    
     
   

Restated Plan

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

 

 

4,350,000

      8.8%       $92,872,500    

 

 

(1) For purposes of calculating the shares that remain available for grants, each stock option or SAR is treated as using one available share for each share of our common stock actually subject to the grant and each “full value award” is treated as using 1.5 shares for each share of our common stock delivered in settlement of such “full value award.”

(2) Based on 49,295,293 shares of our common stock outstanding as of February 15, 2018.

(3) Based on the closing price of our common stock on February 15, 2018, of $21.35 per share.

(4) Performance awards are included at “target” levels. Performance awards may be eligible to vest in 200% of the “target” award levels at “maximum” performance.

 

28         XPERI - Proxy Statement   
    


Table of Contents

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

 

    The shares to be initially reserved for issuance under the Restated Plan represents an increase of 4,350,000 shares from the aggregate number of shares reserved for issuance under the Existing Plan.

 

    In determining the size of the share reserve under the Restated Plan over the existing share reserve under the Existing Plan, our Board of Directors considered the number of equity awards granted by our company during the past three calendar years. In calendar years 2015, 2016 and 2017, equity awards representing a total of approximately 0.6 million shares, 0.7 million shares, and 2.0 million shares, respectively, were granted under the Existing Plan, for an annual equity burn rate of 1.2%,1.4% and 4.1%, respectively. This level of equity awards represents a 3-year average burn rate of 2.3% of common shares outstanding. If each equity award is counted as a “full-value” award and multiplied by the “full-value award multiplier” of 1.5 under the Existing Plan, consistent with the methodology employed by certain proxy advisory firms, the “adjusted” equity burn rate was 1.8%, 2.1% and 6.1% for calendar years 2015, 2016 and 2017, respectively. This level of equity awards represents a 3-year average burn rate of 3.3% of common shares outstanding. Equity burn rate is calculated by dividing the number of shares subject to equity awards granted during the year by the number of shares outstanding at the end of the year.

 

    We expect the proposed aggregate share reserve under the Restated Plan to provide us with enough shares for awards for approximately three years, assuming we continue to grant awards consistent with our current practices and historical usage, as reflected in our historical burn rate, and further dependent on the price of our shares and hiring activity during the next few years, forfeitures of outstanding awards, and noting that future circumstances may require us to change our current equity grant practices. We cannot predict our future equity grant practices, the future price of our shares or future hiring activity with any degree of certainty at this time, and the share reserve under the Restated Plan could last for a shorter or longer time.

 

    In fiscal years 2015, 2016 and 2017, the end of year overhang rate (calculated by dividing (1) the sum of the number of shares subject to equity awards outstanding at the end of the calendar year plus shares remaining available for issuance for future awards at the end of the calendar year by (2) the number of shares outstanding at the end of the calendar year) was 12.7%, 14.0%, and 10.2%, respectively. If the Restated Plan is approved, we expect our overhang at the end of 2018 will be approximately 14.4% (excluding the 0.2 million shares that were available for issuance under the Existing ESPP as of December 31, 2017, 0.1 million shares that were available for issuance under our IESPP as of December 31, 2017, assuming no terminations or forfeitures of shares and giving effect to shares intended to vest pursuant to their terms in 2018). If the shares available for issuance under the Existing ESPP and IESPP are included, we expect our overhang at the end of 2018 will be approximately 14.9% (excluding the proposed increase to the ESPP as described in Proposal 3 below and excluding awards we assumed in connection with our acquisition of DTS).

In light of the factors described above, and the fact that the ability to continue to grant equity compensation is vital to our ability to continue to attract and retain employees in the extremely competitive labor markets in which we compete, our Board of Directors has determined that the size of the share reserve under the Restated Plan is reasonable and appropriate at this time. Our Board of Directors will not create a subcommittee to evaluate the risk and benefits for issuing shares under the Restated Plan.

Other Key Features of the Restated Plan

We depend on the performance and commitment of our employees to succeed. The use of equity-based long-term incentives assists us in attracting, retaining, motivating and rewarding talented employees. Providing equity grants creates long-term participation in our company and aligns the interests of our employees with the interests of our stockholders. The use of equity awards as compensation also allows us to conserve cash resources for other important purposes.

 

   XPERI - Proxy Statement         29
      


Table of Contents

The Restated Plan reflects a broad range of compensation and governance best practices, with some of the key features of the Restated Plan as follows:

 

    No Increase to Shares Available for Issuance without Stockholder Approval. Without stockholder approval, the Restated Plan prohibits any alteration or amendment that operates to increase the total number of shares of common stock that may be issued under the Restated Plan (other than adjustments in connection with certain corporate reorganizations and other events).
    No Automatic Vesting for Awards. The Restated Plan does not have automatic accelerated vesting provisions for awards in connection with a change of control (other than in connection with the non-assumption of awards).
    No Repricing of Awards. Awards may not be repriced, replaced or regranted through cancellation or modification without stockholder approval if the effect would be to reduce the exercise price for the shares under the award.
    Limitations on Dividend Payments on Awards. Dividends and dividend equivalents may not be paid on awards subject to vesting conditions unless and until such conditions are met.
    Reasonable Limit on Full Value Awards. For purposes of calculating the shares that remain available for issuance under the Restated Plan, grants of options and SARs will be counted as the grant of one share for each one share actually granted, as described above. However, to protect our stockholders from potentially greater dilutive effect of full value awards, all grants of full value awards will continue be deducted from the Restated Plan’s share pool as 1.5 shares for every one share actually granted. This “full value award multiplier” is unchanged from the multiplier that applies under the Existing Plan.
    Minimum Vesting Provisions. The Restated Plan includes a minimum vesting period such that awards granted under the Restated Plan will not vest earlier than the first anniversary of the applicable grant date (subject to limited exceptions).
    Reasonable Share Counting Provisions. In general, when awards granted under the Restated Plan are forfeited, expire or are settled in cash, or when the shares subject to a restricted stock award are forfeited by the holder or repurchased by us, the shares reserved for those awards will be returned to the share reserve and be available for future awards in an amount corresponding to the reduction in the share reserve previously made with respect to such award. However, the following shares will not be returned to the share reserve under the Restated Plan: shares of common stock that are delivered by the grantee or withheld by us as payment of the exercise price in connection with the exercise of an option or SAR or payment of the tax withholding obligation in connection with any award; shares purchased on the open market with the cash proceeds from the exercise of options or SARs; and shares subject to a SAR that are not issued in connection with the stock settlement of the SAR on its exercise.
    Limitations on Grants. The maximum aggregate number of shares of our common stock that may be subject to one or more awards granted to any participant, pursuant to the Restated Plan during any calendar year cannot exceed 1,500,000 shares. However, this number may be adjusted to take into account equity restructurings and certain other corporate transactions as described below. In addition, the maximum aggregate amount of cash that may be paid in cash to any one person during any calendar year with respect to one or more awards initially payable in cash shall be $1,500,000. The foregoing per-participant limits are unchanged from the Existing Plan.

In addition, the maximum aggregate grant date fair value of awards granted under the Restated Plan to a non-employee director as compensation for services as a non-employee director during any calendar year, as determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto, may not exceed $750,000.

    No In-the-Money Option or Stock Appreciation Right Grants. The Restated Plan prohibits the grant of options or SARs with an exercise or base price less than 100% of the fair market value of our common stock on the date of grant.
   

Independent Administration. The Compensation Committee of our Board of Directors, which consists of two or more non-employee directors, generally will administer the Restated Plan if it is approved by stockholders. Our full Board of Directors will administer the Restated Plan with respect to awards granted to non-employee directors. The Compensation Committee may delegate certain of its duties and authorities to a management committee for awards to certain individuals, within specific guidelines and limitations. However, no delegation of authority is permitted with respect to awards made to individuals

 

30         XPERI - Proxy Statement   
    


Table of Contents
 

who (1) are subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or (2) have been delegated authority to grant, amend or administer awards under the Restated Plan.

Summary of the Restated Plan

Purposes

The purposes of the Restated Plan are to attract and retain the best available personnel for positions of responsibility and to provide additional incentive to our employees, directors and consultants and to promote the success of our business.

The number of shares of our common stock that may be issued pursuant to awards granted under the Restated Plan (including ISOs) shall not exceed, in the aggregate, 23,542,997 shares. As of February 15, 2018, 781,833 shares remained available for issuance under the Existing Plan, 792,428 shares were subject to outstanding stock options and 2,148,018 shares were subject to outstanding restricted stock unit awards under the Existing Plan (with any performance-based restricted stock units included at “target” levels for such purposes). For purposes of calculating the shares that remain available for grants under the Restated Plan, each stock option or SAR will be treated as using one available share for each share of our common stock actually subject to the grant and each “full value award” will be treated as using 1.5 shares for each share of our common stock delivered in settlement of such “full value award.” For purposes of the Restated Plan, a full value award is an award pursuant to which shares of our common stock are issuable that is granted with a per share exercise or purchase price less than 100% of the fair market value of a share of our common stock on the date of grant. This “full value award multiplier” is unchanged from the ratio that applies under the Existing Plan.

To the extent that an award is forfeited, expires, is settled in cash, any shares subject to the award will be available for awards under the Restated Plan in an amount corresponding to the reduction in the share reserve previously made with respect to such award. Shares subject to a restricted stock award forfeited by a participant or repurchased by us at a price not greater than the price originally paid by the participant will also again be available for awards under the Restated Plan in an amount corresponding to the reduction in the share reserve previously made with respect to such award. Notwithstanding the foregoing, shares tendered or withheld to satisfy the exercise price of an option or SAR granted under the Restated Plan or any tax withholding obligation with respect to an award granted under the Restated Plan, any shares subject to a SAR that are not issued in connection with the stock settlement of such award on exercise, and shares purchased on the open market with the cash proceeds from the exercise of options or SARs granted under the Restated Plan, will not be added to the shares authorized for grant under the Restated Plan. The payment of dividend equivalents in cash in conjunction with any outstanding awards will not be counted against the shares available for issuance under the Restated Plan.

Administration

The Restated Plan may generally be administered by our Board of Directors or a committee appointed by our Board of Directors (the Board of Directors or any such committee, the “Committee”). The Restated Plan is currently being administered by the Compensation Committee of our Board of Directors. The Committee may make any determinations deemed necessary or advisable for the Restated Plan. Specifically, the Committee has the authority to determine the fair market value of our common stock, select the service providers to whom awards will be granted, determine the number of shares subject to each award, approve the forms of agreement for use under the Restated Plan, to determine the terms and conditions of any awards (such terms and conditions include, but are not limited to, the exercise price, the time or times when awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any award, based in each case on such factors as the Committee, in its sole discretion, shall determine), to prescribe, amend and rescind rules and regulations relating to the Restated Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws, and to construe and interpret the terms of the Restated Plan and awards granted pursuant to the Restated Plan. All decisions, determinations and interpretations of the Committee shall be final and binding on all holders. Notwithstanding the foregoing, the full Board of Directors shall conduct the general administration of the Restated Plan with respect to awards granted to non-employee directors.

 

   XPERI - Proxy Statement         31
      


Table of Contents

Eligibility

Our employees, consultants and directors are eligible to receive awards under the Restated Plan. As of February 15, 2018, we had approximately 694 employees, approximately 100 consultants, and 8 directors, 7 of whom were non-employee directors. The Committee determines which of our employees, consultants and directors will be granted awards. No employee or consultant is entitled to participate in the Restated Plan as a matter of right nor does any such participation constitute assurance of continued employment. Only those employees and consultants who are selected to receive grants by the Committee may participate in the Restated Plan. The Restated Plan also provides that certain stock options and restricted stock awards will be automatically granted to our non-employee directors, as described below under “Automatic Option and Restricted Stock Grants to Directors.” The closing price per share of our common stock on February 15, 2018, was $21.35.

Awards Under the Restated Plan

The Restated Plan provides that the Committee may grant or issue stock options, SARs, restricted stock, restricted stock units, dividend equivalents, performance awards and stock payments, or any combination thereof. Each award will be set forth in a separate agreement with the person receiving the award and will indicate the type, terms and conditions of the award.

Nonqualified Stock Options (“NQSOs”) will provide for the right to purchase common shares at a specified price which may not be less than 100% of the fair market value of a share of our common stock on the date of grant, and usually will become exercisable (in the discretion of the Committee) in one or more installments after the grant date, subject to the participant’s continued employment or service with us and/or subject to the satisfaction of performance criteria established by the Committee. NQSOs may be granted for any term specified by the Committee, which term may not exceed ten years from the date of grant.

Incentive Stock Options will be designed to comply with the applicable provisions of the Code and will be subject to certain restrictions contained in the Code. Among such restrictions, ISOs must have an exercise price not less than 100% of the fair market value of a common share on the date of grant, may only be granted to employees, must expire within a specified period of time following the optionee’s termination of employment, and must be exercised within ten years after the date of grant; but may be subsequently modified to disqualify them from treatment as ISOs. The total fair market value of shares with respect to which an ISO is first exercisable by an optionee during any calendar year cannot exceed $100,000. To the extent this limit is exceeded, the options granted are NQSOs. In the case of an ISO granted to an individual who owns (or is deemed to own) at least 10% of the total combined voting power of all of our classes of stock, the Restated Plan provides that the exercise price must be at least 110% of the fair market value of a common share on the date of grant and the ISO must expire no later than the fifth anniversary of the date of its grant.

Restricted Stock Awards may be sold to participants at various prices or granted with a nominal purchase price (which purchase price may not be less than par value) and may be made subject to such conditions or restrictions as may be determined by the Committee. Restricted stock, typically, may be repurchased by us at the original purchase price, or forfeited if no cash consideration was paid by the participant at the time of grant, if the conditions or restrictions are not met. The Committee shall establish the purchase price, if any, and form of payment for each restricted stock award. A restricted stock award is accepted by the execution of a restricted stock purchase agreement between us and the purchaser, accompanied by the payment of the purchase price for the shares. Purchasers of restricted stock, unlike recipients of options, will have voting rights and will receive dividends, if any, prior to the time when the restrictions lapse. Dividends may not be paid on restricted stock awards subject to vesting conditions unless and until such conditions are met.

Restricted Stock Units may be awarded to participants, typically without payment of consideration, but subject to such vesting conditions as may be established by the Committee. Like restricted stock, restricted stock units may not be sold, or otherwise hypothecated or transferred except to certain permitted transferees as set forth in the Restated Plan, until vesting conditions are removed or expire. Unlike restricted stock, restricted stock units will not be issued until the restricted stock unit award has vested, and recipients of restricted stock units generally will have no voting or dividend rights prior to the time when vesting conditions are satisfied.

Stock Appreciation Rights, granted by the Committee typically will provide for payments, if any, to the holder based upon increases in the price of our common stock over the exercise price of the SAR. The exercise price of a SAR

 

32         XPERI - Proxy Statement   
    


Table of Contents

may not be less than 100% of the fair market value of our common stock on the date of grant. The Committee may elect to pay SARs in cash or in ordinary shares or in a combination of both. SARs granted under the Restated Plan may not have a term that exceeds ten years from the date of grant.

Dividend Equivalents represent the value of the dividends, if any, per share paid by us, calculated with reference to the number of shares covered by the awards held by the participant. Dividend equivalents will not be awarded in respect of stock options or SARs. Dividends and dividend equivalents may not be paid on awards subject to vesting conditions unless and until such conditions are met.

Performance Awards may be granted by our Compensation Committee on an individual or group basis. Generally, these awards will be based upon the attainment of specific performance goals that are established by our Compensation Committee and relate to one or more performance criteria on a specified date or dates determined by our Compensation Committee.

Stock Payments may be authorized by the Committee in the form of shares of common stock. Stock payments may be based upon the performance criteria listed below or other specific performance criteria determined appropriate by the Committee, determined on the date such stock payment is made or on any date thereafter.

Performance Criteria

Under the Restated Plan, the Committee may grant awards that are paid, vest or become exercisable upon the attainment of Company performance criteria, which may include, but are not limited to, one or more of the following business criteria with respect to us, any subsidiary or any division or operating unit thereof or an individual:

 

    revenue or billings,
    sales,
    cash flow,
    earnings per share of common stock (including earnings before any one or more of the following: (1) interest, (2) taxes, (3) depreciation, (4) amortization, (5) goodwill impairment charges, or (6) non-cash equity-based compensation expense),
    return on equity,
    total stockholder return,
    return on invested capital,
    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,
    cost reductions or savings or expense management,
    appreciation in the fair market value of a share of common stock,
    research and development expenses (including research and development expenses as a percentage of sales or revenues),
    working capital,
    market share,
    completion of acquisitions and partnerships,
    implementation of new technology by customers or partners,
    completion of settlements and/or licensing arrangements,
    new product or technology development milestones.
    comparisons with various stock market indices,
    capital raised in financing transactions or other financing milestones, and
    financial ratios

 

   XPERI - Proxy Statement         33
      


Table of Contents

These performance criteria may be measured in absolute terms or as compared to any incremental increase or decrease or as compared to results of a peer group or to market performance indicators or indices. The Compensation Committee may provide that one or more adjustments will be made to one or more of the performance goals established for any performance period. Such adjustments may include, but are not limited to, one or more of the following:

 

    items related to a change in accounting principle,
    items relating to financing activities,
    expenses for restructuring or productivity initiatives,
    non-cash charges, including those relating to share-based awards
    other non-operating items,
    items related to acquisitions or other strategic transactions,
    items attributable to the business operations of any entity acquired by us 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,
    items attributable to any stock dividend, stock split, combination or exchange of shares occurring during the performance period,
    any other items of significant income or expense which are determined to be appropriate adjustments,
    items relating to unusual or extraordinary corporate transactions, events or developments,
    items related to amortization of acquired intangible assets,
    items that are outside the scope of our core, on-going business activities, or
    items relating to any other unusual or nonrecurring events or changes in applicable laws, accounting principles or business conditions.

The maximum aggregate number of shares of our common stock that may be subject to one or more awards granted to any participant, other than a non-employee director, pursuant to the Restated Plan during any calendar year cannot exceed 1,500,000 shares. However, this number may be adjusted to take into account equity restructurings and certain other corporate transactions as described below. In addition, the maximum aggregate amount of cash that may be paid to any one person during any calendar year with respect to one or more awards initially payable in cash shall be $1,500,000. The foregoing per-participant limits are unchanged from the Existing Plan.

Forfeiture, Recoupment and Clawback Provisions

Pursuant to its general authority to determine the terms and conditions applicable to awards under the Restated Plan, the Compensation Committee has the right to provide, in an award agreement or otherwise, that an award shall be subject to the provisions of any recoupment or clawback policies implemented by us, including, without limitation, any recoupment or clawback policies adopted to comply with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder.

Automatic Grants to Directors

Each non-employee director who is serving on the Board of Directors as of the date of an annual meeting of our stockholders and who will continue to serve as a non-employee director following the date of such annual meeting is automatically granted equity awards on the date of such annual meeting of our stockholders. The annual equity award to be granted to each non-employee director will have a total dollar value of $150,000 on the date of grant, which value will be allocated among options and restricted stock units by the Committee, so that each director will receive:

 

    options to purchase a number of shares of our common stock determined by dividing (1) the dollar amount of the annual equity award to be paid in options, by (2) the closing price of our common stock on the date of grant divided by two; and
    a restricted stock unit award for a number of restricted stock units determined by dividing (1) the dollar amount of the annual equity award to be paid in restricted stock, by (2) the closing price of our common stock on the date of grant.

During the term of the Plan, a person who is initially elected or appointed to the Board of Directors other than on the date of an annual meeting and who is a non-employee director at the time of such initial election or

 

34         XPERI - Proxy Statement   
    


Table of Contents

appointment automatically shall be granted a pro-rated annual award (which pro-ration will reflect the non-employee director’s partial year of service, as calculated by dividing the number of days from the date of such initial election or appointment through the first anniversary of the date of the preceding annual meeting, by 365) on the date of such initial election or appointment in the same form(s) and proportion of options to restricted stock units as the annual awards were granted to continuing non-employee directors on the date of the annual meeting preceding such initial election or appointment.

Members of our Board of Directors who are our employees who subsequently retire from employment but remain on the Board of Directors will receive an initial annual equity award as described above pro-rated to reflect such members’ partial year of service as a non-employee director, and, to the extent they are eligible, will receive subsequent annual awards on the date of each annual meeting of our stockholders.

The exercise price of the options automatically granted to directors is equal to 100% of the fair market value of a share of our common stock on the date of grant. Annual awards grants are subject to forfeiture if a non-employee director’s service terminates for any reason. Annual option grants and annual restricted stock unit awards vest on the first to occur of (1) the first anniversary of the date of grant or (2) the day prior to the next occurring annual meeting of stockholders following the date of grant. 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 is exercisable after the termination of the director’s services under certain circumstances.

Pursuant to the terms of the Restated Plan, the maximum aggregate grant date fair value of awards granted under the Restated Plan to a non-employee director as compensation for services as a non-employee director during any calendar year, as determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto, shall be $750,000.

Awards Not Transferable

Awards may generally not be sold, pledged, transferred or disposed of in any manner other than by will or by the laws of descent and distribution. The Committee may allow awards other than ISOs to be transferable pursuant to qualified domestic relations orders. ISOs may not be transferable. If the Committee makes an award transferable, such award shall contain such additional terms and conditions as the Committee deems appropriate.

Adjustments Upon Changes in Capitalization

In the event of any dividend, stock split, combination or exchange of shares, merger, consolidation, spin-off, recapitalization or other distribution (other than normal cash dividends) of assets to our stockholders or any other change affecting our common stock (other than an equity restructuring), the Committee may make appropriate adjustments in the number and type of shares of stock subject to the Restated Plan, the terms and conditions of any award outstanding under the Restated Plan, and the grant or exercise price of any such award. In the event of an equity restructuring, the number and type of securities subject to each outstanding award and the grant or exercise price per share for each outstanding award, if applicable, will be proportionately adjusted. Adjustments in the event of an equity restructuring will not be discretionary.

In the event of a change of control, each outstanding award may be assumed or an equivalent option or right may be substituted by the successor corporation. The vesting of each outstanding award shall be subject to accelerated vesting such that 100% of the awards will become vested and exercisable or payable, as applicable, if the successor corporation refuses to assume the awards, or to substitute substantially equivalent awards.

Under the Restated Plan, a change of control is generally defined as:

 

    a transaction or series of related transactions (other than an offering of our common stock to the general public through a registration statement filed with the Securities and Exchange Commission (the “SEC”)) whereby any person or entity or related group of persons or entities (other than us, our subsidiaries, an employee benefit plan maintained by us or any of our subsidiaries or a person or entity that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, us) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of 50% or more of the total combined voting power of our securities outstanding immediately after such acquisition; or
   

our consummation (whether we are directly or indirectly involved through one or more intermediaries) of (1) a merger, consolidation, reorganization, or business combination or (2) the sale or other disposition of

 

   XPERI - Proxy Statement         35
      


Table of Contents
 

all or substantially all of our assets in any single transaction or series of transactions or (3) the acquisition of assets or stock of another entity, in each case other than a transaction:

    which results in our voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into our voting securities or the voting securities of the person that, as a result of the transaction, controls us, directly or indirectly, or owns, directly or indirectly, all or substantially all of our assets or otherwise succeeds to our business (we or such person being referred to as a successor entity)) directly or indirectly, at least a majority of the combined voting power of the successor entity’s outstanding voting securities immediately after the transaction; and
    after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the successor entity; provided, however, that no person or group is treated as beneficially owning 50% or more of combined voting power of the successor entity solely as a result of the voting power held in us prior to the consummation of the transaction.

Minimum Vesting Requirement

The Restated Plan contains a minimum vesting period which provides that Awards will be subject to a minimum vesting period of one year from the date of grant. This required vesting period will not apply: (i) to awards involving an aggregate number of shares not in excess of 5 percent of the Restated Plan’s share reserve or (ii) as determined by the Committee, upon the holder’s death, disability or termination as a service provider or in connection with a change of control. For purposes of awards made to nonemployee directors, a vesting period will be deemed to be one year if it runs from the award grant date to the date of the next annual meeting of the company’s stockholders.

Amendment and Termination of the Restated Plan

The Committee may suspend or terminate the Restated Plan, or any part thereof, at any time and for any reason. The Committee may also amend the Restated Plan from time to time, except that the Committee may not, without prior stockholder approval, amend the Restated Plan in any manner that would increase the maximum number of shares issuable pursuant to awards granted under the Restated Plan, increase the individual award limits, or that would require stockholder approval to comply with any applicable laws, regulations or rules. No action by our Board of Directors, the Committee or our stockholders may alter or impair any award previously granted under the Restated Plan without the consent of the holder. The Restated Plan will continue until terminated by the Committee. No ISOs may be granted under the Restated Plan after March 12, 2028.

No Repricing of Awards

The Restated Plan does not permit our Board of Directors or the Committee, without stockholder approval, to amend the terms of any outstanding option or SAR award under the Restated Plan to reduce its exercise price or cancel and replace any outstanding option or SAR award for cash or another award when the exercise price per share exceeds the fair market value of the underlying shares.

U.S. Federal Income Tax Consequences

The following is a general summary under current law of the material federal income tax consequences to participants in the Restated Plan. This summary deals with the general tax principles that apply and is provided only for general information. Some kinds of taxes, such as state, local and foreign income taxes and federal employment taxes, are not discussed. Tax laws are complex and subject to change and may vary depending on individual circumstances and from locality to locality. The summary does not discuss all aspects of federal income taxation that may be relevant in light of a holder’s personal investment circumstances and a participant receiving an award should rely on the advice of his or her legal and tax advisors. This summarized tax information is not tax advice.

Non-Qualified Stock Options. For federal income tax purposes, if an optionee is granted NQSOs under the Restated Plan, the optionee will not have taxable income on the grant of the option, nor will we be entitled to any deduction. Generally, on exercise of NQSOs the optionee will recognize ordinary income, and we will be entitled to a deduction, in an amount equal to the difference between the option exercise price and the fair market value of a common share on the date each such option is exercised. The optionee’s basis for the stock for purposes of determining gain or loss on subsequent disposition of such shares generally will be the fair market value of the common stock on the date the optionee exercises such option. Any subsequent gain or loss will be generally taxable as capital gains or losses.

 

36         XPERI - Proxy Statement   
    


Table of Contents

Incentive Stock Options. There is no taxable income to an optionee when an optionee is granted an ISO or when that option is exercised. However, the amount by which the fair market value of the shares at the time of exercise exceeds the option price will be an “item of adjustment” for the optionee for purposes of the alternative minimum tax. Gain realized by the optionee on the sale of an ISO is taxable at capital gains rates, and no tax deduction is available to us, unless the optionee disposes of the shares within (1) two years after the date of grant of the option or (2) within one year of the date the shares were transferred to the optionee. If the common shares are sold or otherwise disposed of before the end of the two-year and one-year periods specified above, the difference between the option exercise price and the fair market value of the shares on the date of the option’s exercise will be taxed at ordinary income rates, and we will be entitled to a deduction to the extent the optionee must recognize ordinary income. If such a sale or disposition takes place in the year in which the optionee exercises the option, the income the optionee recognizes upon sale or disposition of the shares will not be considered income for alternative minimum tax purposes. Otherwise, if the optionee sells or otherwise disposes of the shares before the end of the two-year and one-year periods specified above, the maximum amount that will be included as alternative minimum tax income is the gain, if any, the optionee recognizes on the disposition of the shares.

An ISO exercised more than three months after an optionee terminates employment, other than by reason of death or disability, will be taxed as a NQSO, and the optionee will have been deemed to have received income on the exercise taxable at ordinary income rates. We will be entitled to a tax deduction equal to the ordinary income, if any, realized by the optionee.

Stock Appreciation Rights. In the case of SARs granted with an exercise price equal to the fair market value of our common stock on the date of grant, no taxable income is realized upon the receipt of the SAR, but upon exercise of the SAR, the fair market value of the shares received, determined on the date of exercise of the SAR, or the amount of cash received in lieu of shares, must be treated as compensation taxable as ordinary income to the recipient in the year of such exercise. We will be entitled to a deduction for compensation paid in the same amount which the recipient realized as ordinary income.

Restricted Stock and Restricted Stock Units. An employee to whom restricted stock or restricted stock units is issued generally will not recognize taxable income upon such issuance and we generally will not then be entitled to a deduction unless, with respect to restricted stock, an election is made by the participant under Section 83(b) of the Code. However, when restrictions on shares of restricted stock lapse, such that the shares are no longer subject to a substantial risk of forfeiture, the employee generally will recognize ordinary income and we generally will be entitled to a deduction for an amount equal to the excess of the fair market value of the shares at the date such restrictions lapse over the purchase price. If a timely election is made under Section 83(b) with respect to restricted stock, the participant generally will recognize ordinary income on the date of the issuance equal to the excess, if any, of the fair market value of the shares at that date over the purchase price therefore, and we will be entitled to a deduction for the same amount. Similarly, when restricted stock units vest and the underlying shares of common stock are issued to the participant, the participant generally will recognize ordinary income and we generally will be entitled to a deduction for the amount equal to the fair market value of the shares at the date of issuance. A Section 83(b) election is not permitted with regard to the grant of restricted stock units.

Dividend Equivalents. A recipient of a dividend equivalent award generally will not recognize taxable income at the time of grant, and we will not be entitled to a deduction at that time. When a dividend equivalent is paid, the participant generally will recognize ordinary income, and we will be entitled to a corresponding deduction.

Performance Awards. A participant who has been granted a performance award generally will not recognize taxable income at the time of grant, and we will not be entitled to a deduction at that time. When an award is paid, whether in cash or common shares, the participant generally will recognize ordinary income, and we will be entitled to a corresponding deduction.

Stock Payments. A participant who receives a stock payment will generally be taxed as if the cash payment has been received, and we generally will be entitled to a deduction for the same amount.

Section 409A. Certain types of awards under the Restated Plan may constitute, or provide for, a deferral of compensation subject to Section 409A of the Code. Unless certain requirements set forth in Section 409A of the Code are complied with, holders of such awards may be taxed earlier than would otherwise be the case (e.g., at the time of vesting instead of the time of payment) and may be subject to an additional 20% penalty tax (and,

 

   XPERI - Proxy Statement         37
      


Table of Contents

potentially, certain interest penalties and additional state taxes). To the extent applicable, the Restated Plan and awards granted under the Restated Plan are intended to be structured and interpreted in a manner intended to either comply with or be exempt from Section 409A of the Code and the Department of Treasury regulations and other interpretive guidance that may be issued under Section 409A of the Code. To the extent determined necessary or appropriate by the Committee, the Restated Plan and applicable award agreements may be amended to further comply with Section 409A of the Code or to exempt the applicable awards from Section 409A of the Code.

Section 162(m) Limitation. In general, under Section 162(m), income tax deductions of publicly-held corporations may be limited to the extent total compensation (including base salary, annual bonus, stock option exercises and non-qualified benefits paid) for certain executive officers exceeds $1 million in any one calendar year. Prior to the TCJA, covered employees generally consisted of our Chief Executive Officer and each of the next three highest compensated officers serving at the end of the taxable year other than our Chief Financial Officer, and compensation that qualified as “performance-based” under Section 162(m) was exempt from this $1 million deduction limitation. As part of the TCJA, the ability to rely on this exemption was, with certain limited exceptions, eliminated; in addition, the definition of covered employees was expanded to generally include all named executive officers. Certain awards under the Existing Plan granted prior to November 2, 2017 may be grandfathered from the changes made by the TCJA under certain limited transition relief, however, for grants after that date and any grants which are not grandfathered, we will no longer be able to take a deduction for any compensation in excess of $1 million that is paid to a covered employee. There is no guarantee that any awards will be eligible for the transition relief or that we will be able to take a deduction for any compensation in excess of $1 million that is paid to a covered employee under the Existing Plan or the Restated Plan.

New Plan Benefits

The following table sets forth the awards granted to the individuals and groups identified below under the Existing Plan since its inception through February 15, 2018. No awards have been granted to date under the Restated Plan as it does not become effective until stockholder approval.

 

Name and Position

 

  

Number of Options  

 

  

Number of Restricted
Stock Units(1)

 

Jon Kirchner

   —     

529,104

Chief Executive Officer

     

Thomas Lacey

Former Chief Executive Officer

   468,000      372,500

Robert Andersen

Chief Financial Officer

   52,000     

111,500

Murali Dharan

President, Tessera

   70,000     

120,000

Geir Skaaden

   —      20,000

Chief Products and Services Officer

     

All executive officers as a group (4 persons)

   590,000     

780,604

All non-executive directors as a group (7 persons)(2)

   50,000      205,063

All non-executive employees as a group (1,066 persons)

   18,249,078      6,118,976

 

  (1) Performance awards are included at “target” levels. Performance awards may be eligible to vest in 200% of the “target” award levels at “maximum” performance.

 

  (2) Our non-employee directors as a group are eligible to receive automatic grants under the Restated Plan, as described above under “Automatic Grants to Directors.” Pursuant to our automatic grant policy for our non-employee directors, each non-employee director receives a combination of options and/or restricted stock unit awards on the date of each annual meeting of our stockholders, as described above. The dollar value of these future grants to be made in 2018 pursuant to our automatic grant policy for our non-employee directors will be based on the closing price of our common stock as reported by the Nasdaq Global Select Market on the date of our 2018 Annual Meeting.

All other future grants under the Restated Plan are within the discretion of our Board of Directors or the Committee and the benefits of such grants are, therefore, not determinable.

 

38         XPERI - Proxy Statement   
    


Table of Contents

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 proposed amendment and restatement of the Restated Plan.

The Board of Directors recommends a vote “FOR” the approval of the Seventh Amended and Restated 2003 Equity Incentive Plan.

 

   XPERI - Proxy Statement         39
      


Table of Contents

Proposal 3—Approval of the Company’s Amended and Restated 2003 Employee Stock Purchase Plan

Introduction

Our stockholders are being asked to approve our Amended and Restated 2003 Employee Stock Purchase Plan (the “Restated ESPP”). Our Board of Directors approved the Restated ESPP on March 12, 2018, subject to stockholder approval. The Restated ESPP is being submitted for stockholder approval in order to ensure that the Restated ESPP meets the requirements of Section 423 of the Code. The Restated ESPP will become effective immediately upon stockholder approval at the Annual Meeting. If the Restated ESPP is not approved by our stockholders, the Restated ESPP will not become effective, the existing 2003 Employee Stock Purchase Plan (the “Existing ESPP”) will continue in full force and effect, and we may continue to grant purchase rights under the Existing ESPP, subject to its terms, conditions and limitations, using the shares available for issuance thereunder.

The principal features of the Restated ESPP are summarized below, but the summary is qualified in its entirety by reference to the Restated ESPP itself, which is attached to this proxy statement as Appendix B.

Description of Proposed Amendments

We strongly believe that an employee stock purchase program is a necessary and powerful incentive and retention tool that benefits all stockholders. As of February 15, 2018, a total of 2,500,000 shares of our common stock were reserved under the Existing ESPP and a total of 120,430 shares of common stock remained available under the Existing ESPP for future issuance.

If our stockholders approve the Restated ESPP, an additional 1,000,000 shares will be reserved for issuance under the Restated ESPP over the existing share reserve under the Existing ESPP for a total share reserve of 3,500,000 shares.

All of the foregoing share numbers may be further adjusted for changes in our capitalization and certain corporate transactions, as described below under the heading “Stock Dividends and Stock Splits” and “Corporate Transactions.”

The Restated ESPP is not being amended in any material respect other than to reflect the changes described above.

 

40         XPERI - Proxy Statement   
    


Table of Contents

 

Determination to Approve Restated ESPP

 

 

The table below presents information about the number of shares remaining available for issuance under the Existing ESPP and the proposed increase in shares authorized for issuance under the Restated ESPP, each at February 15, 2018. The table below does not include information about the number of shares that were subject to outstanding equity awards or that may be available for future issuance under our other equity compensation plans. Information related to our other equity compensation plans is further described in the table under the heading “Equity Incentive Awards Are Critical to Long-Term Stockholder Value Creation” in Proposal 2 to this proxy statement.

 

              

        Number of        

Shares

      

  As a % of Shares  

Outstanding(1)

       Dollar Value(2)     
     
     

Existing ESPP

             
     

Shares available for issuance

  120,430     0.2%     $2,571,181    
     
     

Restated ESPP

             
       

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

 

  1,000,000       2.0%       $21,350,000    

 

 

(1) Based on 49,295,293 shares of our common stock outstanding as of February 15, 2018.

(2) Based on the closing price of our common stock on February 15, 2018, of $21.35 per share.

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

 

    The shares to be initially reserved for issuance under the Restated ESPP represents an increase of 1,000,000 shares from the aggregate number of shares reserved for issuance under the Existing ESPP. The increase in the share reserve under the Restated ESPP will enable us to continue our policy of equity ownership by employees as an incentive to contribute to our success.

 

    We expect the proposed aggregate share reserve under the Restated ESPP to provide us with enough shares for approximately three years, assuming employee participation in the Restated ESPP consistent with historical levels, as reflected in our three-year burn rate for the Existing ESPP, and further dependent on the price of our shares and hiring activity during the next few years. We cannot predict our future share usage under the Restated ESPP, the future price of our shares or future hiring activity with any degree of certainty at this time, and the share reserve under the Restated ESPP could last for a shorter or longer time.

 

    In fiscal years 2015, 2016 and 2017, the end of year overhang rate attributable to the Existing ESPP (calculated by dividing (1) the shares remaining available for issuance for future awards at the end of the calendar year under the Existing ESPP by (2) the number of shares outstanding at the end of the calendar year) was 0.9%, 0.8% and 0.5%, respectively. If the Restated ESPP is approved, we expect our overhang at the end of 2018 attributable to the Restated ESPP will be approximately 2.0%.

 

    In determining the size of the share reserve under the Restated ESPP, our Board of Directors considered the number of shares issued by our Company during the past three calendar years under our Existing ESPP. In calendar years 2015, 2016 and 2017, our annual equity burn rates under the Existing ESPP (calculated by dividing the number of shares issued under the Existing ESPP by the weighted-average number of shares outstanding during the applicable year) were 0.1%, 0.1% and 0.3%, respectively.

 

   XPERI - Proxy Statement         41
      


Table of Contents

In light of the factors described above, and the fact that the ability to continue to offer eligible employees the ability to participate in the Restated ESPP is vital to our ability to continue to attract and retain employees in the extremely competitive labor markets in which we compete, our Board of Directors has determined that the size of the share reserve under the Restated ESPP is reasonable and appropriate at this time. Our Board of Directors will not create a subcommittee to evaluate the risk and benefits for issuing shares under the Restated ESPP.

 

 

Purpose of the Restated ESPP

 

 

The primary purpose of the Restated ESPP is to assist employees of the Company and its designated subsidiaries in acquiring a stock ownership interest in the Company pursuant to a plan which is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code, and to help employees provide for their future security and to encourage them to remain in the employment of the Company and its designated subsidiaries.

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

Share Reserve. The maximum number of shares of the Company’s common stock reserved for issuance under the Existing ESPP is currently limited to 2,500,000 shares. As of February 15, 2018, a total of 120,430 shares of common stock remained available under the Existing ESPP for future issuance.

If our stockholders approve the Restated ESPP, an additional 1,000,000 shares will be reserved for issuance under the Restated ESPP over the existing share reserve under the Existing ESPP for a total share reserve of 3,500,000 shares.

Eligibility. Only employees of the Company and any of its majority-owned subsidiaries which have been designated by the Board of Directors as participating companies under the Restated ESPP may participate in the Restated ESPP. For this purpose, an “employee” is any person who is regularly employed at least 20 hours per week and five months per calendar year by the Company or any of its designated subsidiaries. No employee will be permitted to subscribe for shares under the Restated ESPP 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 ESPP 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.

If the grant of a purchase right under the Restated ESPP to any employee of a designated subsidiary who is a citizen or resident of a foreign jurisdiction would be prohibited under the laws of such foreign jurisdiction or the grant of a purchase right to such employee in compliance with the laws of such foreign jurisdiction would cause the Restated ESPP to violate the requirements of Section 423 of the Internal Revenue Code, as determined by the Compensation Committee in its sole discretion, such employee will not be permitted to participate in the Restated ESPP.

As of February 1, 2018 (the last enrollment date under the Existing ESPP), there were 694 employees of the Company and its designated subsidiaries eligible to participate in the Existing ESPP, of whom 423 were participants.

Offering Periods. The Existing ESPP is implemented by a series of consecutive, overlapping 24-month offering periods, commencing February 1 and August 1 of each year, and the Restated ESPP will maintain this same structure. The Compensation Committee may change the duration and timing of offering periods under the Restated ESPP, but in no event may an offering period exceed twenty-seven months.

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 currently set for the last trading day in each six-month purchase period during an offering period and will

 

42         XPERI - Proxy Statement   
    


Table of Contents

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). The Compensation Committee may change the frequency or duration of the purchase periods in the future.

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.

Subject to the eligibility requirements described above and completion of all required enrollment documentation, an employee will be able to participate in the Restated ESPP 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 ESPP is 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 our common stock on February 15, 2018, was $21.35.

Payment of Purchase Price; Payroll Deductions. Participants may contribute up to 20% of their eligible compensation (after tax) through payroll deductions, 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 ESPP and are included with the general funds of the Company. Funds received upon purchase of stock under the Restated ESPP will be used for general corporate purposes. An employee may purchase up to 8,000 shares during an offering period under the Restated ESPP 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.

Withdrawal. A participant may withdraw from the Restated ESPP by signing and delivering a notice of withdrawal from the Restated ESPP 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 ESPP 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 ESPP.

Share Proration. If the number of shares to be purchased exceeds either the number of shares available under the Restated ESPP on either the first day of an offering period or the purchase date, then the available shares may 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 ESPP 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 ESPP 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 ESPP 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.

 

   XPERI - Proxy Statement         43
      


Table of Contents

Amendment and Termination of the Restated ESPP. The Restated ESPP 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 Section 423 of the Code or any other applicable law, regulation or stock exchange rule. The Restated ESPP will be in effect until the share reserve is exhausted, unless our Board of Directors terminates the Restated ESPP at an earlier date.

 

 

U.S. Federal Income Tax Consequences

 

 

The following is a general summary under current law of the material federal income tax consequences to an employee who participates in the Restated ESPP. This summary deals with the general federal income tax principles that apply and is provided only for general information. Some kinds of taxes, such as state, local and foreign income taxes and federal employment taxes, are not discussed. Tax laws are complex and subject to change and may vary depending on individual circumstances and from locality to locality. The summary does not discuss all aspects of federal income taxation that may be relevant in light of a participant’s personal circumstances. This summarized tax information is not tax advice and a participant in the Restated ESPP should rely on the advice of his or her legal and tax advisors.

The Restated ESPP, and the right of participants to make purchases thereunder, is intended to qualify under the provisions of Section 423 of the Code. Under the applicable Code provisions, no income will be taxable to a participant until the sale or other disposition of the shares purchased under the Restated ESPP. Upon such sale or disposition, the participant will generally be subject to tax in an amount that depends upon the length of time such shares are held by the participant prior to disposing of them. If the shares are sold or disposed of more than two years from the first day of the offering period during which the shares were purchased and one year from the date of purchase, or if the participant dies while holding the shares, the participant (or his or her estate) will recognize ordinary income measured as the lesser of (1) the excess of the fair market value of the shares at the time of such sale or disposition over the purchase price or (2) an amount equal to 15% of the fair market value of the shares as of the first day of the offering period. Any additional gain will be treated as long-term capital gain. If the shares are held for the holding periods described above but are sold for a price that is less than the purchase price, there is no ordinary income and the participating employee has a long-term capital loss for the difference between the sale price and the purchase price.

If the shares are sold or otherwise disposed of before the expiration of the holding periods described above, the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price. Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on how long the shares were held following the date they were purchased by the participant prior to disposing of them.

We are not entitled to a deduction for amounts taxed as ordinary income or capital gain to a participant except to the extent of ordinary income recognized upon a sale or disposition of shares prior to the expiration of the holding periods described above.

 

44         XPERI - Proxy Statement   
    


Table of Contents

 

New Plan Benefits

 

 

Because the number of shares that may be purchased under the Restated ESPP 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 ESPP during the 2017 fiscal year, and (2) the aggregate purchase price paid, for the individuals and groups identified below.

 

Name and Position

 

  

Number of
Shares
Purchased
(#)

 

    

Aggregate
Purchase
Price ($)

 

 

Jon Kirchner

Chief Executive Officer

     455        11,312  

Thomas Lacey

Former Chief Executive Officer

     617        14,984  

Robert Andersen

Chief Financial Officer

     985        23,920  

Murali Dharan

President, Tessera

             

Geir Skaaden

Chief Products and Services Officer

     215        5,345  

All executive officers as a group (4 persons)

     2,272        40,577  

All non-executive directors as a group (7 persons)(1)

             

All non-executive employees as a group (690 persons)

     126,208        3,177,925  

 

  (1) Directors who are not Company employees are not eligible to participate in the Existing ESPP.

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 ESPP.

The Board of Directors recommends a vote “FOR” the approval of the Restated ESPP.

 

   XPERI - Proxy Statement         45
      


Table of Contents

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 “Existing ESPP”) and the Amended and Restated International Employee Stock Purchase Plan (the “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, 2017:

 

       

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

   3,020,876(1)    $21.30(2)    1,135,273(3) 
   

Equity compensation plans not approved by security holders

   0    0   
       

Totals

 

  

3,020,876

 

       

1,135,273 

 

 

  (1) The number under column (a) includes 813,253 shares issuable upon the exercise of outstanding options with a weighted average exercise price of $21.30 and 2,207,623 shares issuable upon the vesting of outstanding restricted stock unit awards and performance-based restricted stock unit awards at “target” levels under our Sixth Amended and Restated 2003 Equity Incentive Plan.

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, DTS, Inc. 2008 DLL Share Option Plan, DTS, Inc. 2003 Equity 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, 2017, (i) options for 8,594 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 87,662 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 49,464 shares underlying awards of restricted stock units were outstanding under the SRS Labs, Inc. 2006 Stock Incentive Plan; (iii) options for 2,000 shares of our common stock were outstanding under the DTS, Inc. 2008 DLL Share Option Plan with a weighted-average exercise price of $42.59; (iv) options for 152,867 shares of our common stock were outstanding under the DTS, Inc. 2003 Equity Incentive Plan with a weighted-average exercise price of $43.49; (v) options for 154,757 shares of our common stock were outstanding under the DTS, Inc. 2012 Equity Incentive Plan with a weighted-average exercise price of $19.43 and 330,927 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 692,308 shares remaining available for future issuance under the Sixth Amended and Restated 2003 Equity Incentive Plan, 255,450 shares remaining available for future issuance under the Existing ESPP, and 187,515 shares remaining available for future issuance under the IESPP as of December 31, 2017.

 

46         XPERI - Proxy Statement   
    


Table of Contents

Executive Officers

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

 

  Name   Age   Position(s)

  Jon Kirchner

  50  

Chief Executive Officer, Director

  Robert Andersen

  54  

Chief Financial Officer

  Murali Dharan

  56  

President of Tessera Intellectual Property Corp.

  Geir Skaaden

  51  

Chief Products and Services Officer

The following are biographical summaries of our executive officers other than Mr. Kirchner, 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. Mr. Andersen previously served as CFO at Phoenix Technologies Ltd. and 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. Mr. Andersen served on the board of directors of publicly traded Quantum Corporation through March 2017. He currently serves on the board of directors of the Alameda County Community Food Bank, and is a member of the oversight committee. Mr. Andersen 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.

Murali Dharan has served as president of Tessera Intellectual Property Corp. (“Tessera”) since October of 2017 and is responsible for the strategic direction, management and growth of the Tessera intellectual property licensing business. He has extensive leadership experience, most recently as CEO of IPVALUE, guiding the company from a start-up to an industry leader and helping partners to generate more than $1.6 billion in IP revenue. Prior to joining IPVALUE in 2002, Mr. Dharan held executive roles at various technology companies, including executive vice president at Preview Systems, vice president and general manager at Silicon Graphics, and vice president and general manager at NEC. Mr. Dharan holds an electrical engineering degree from Anna University in India, a master’s degree in computer science from Indiana University, and an MBA from Stanford University.

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.

 

   XPERI - Proxy Statement         47
      


Table of Contents

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, 2017, except that one Form 4 was filed late in February 2018 for Mr. Skaaden.

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 February 28, 2018.

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 February 28, 2018, and common stock underlying RSUs held by the person or entity that will vest within 60 days of February 28, 2018, but excludes common stock underlying options and RSUs held by any other person or entity. Percentage of beneficial ownership is based on 49,431,216 shares of common stock outstanding as of February 28, 2018.

 

   

Name of Beneficial Owner

 

 

Number of Shares

 

 

Percentage Ownership

 

   
 

Five Percent Stockholders

     
 

BlackRock, Inc. (1)

  6,074,523   12.3%  
 

Entities affiliated with Vanguard Group, Inc. (2)

  4,641,989   9.4%  
 

Janus Henderson Group PLC (3)

  3,688,506   7.5%  
  DePrince, Race & Zollo, Inc. (4)   3,513,028   7.1%  
 

Directors and Executive Officers

     
 

Jon Kirchner (5)

  385,619   *  
 

Robert Andersen (6)

  82,591   *  
 

Richard S. Hill

  60,854   *  
 

Geir Skaaden (7)

  35,040   *  
 

Tudor Brown

  34,250   *  
 

Christopher Seams

  33,002   *  
 

George A. Riedel

  21,839   *  
 

John Chenault

  19,250   *  
 

David Habiger

  7,304   *  
 

Murali Dharan

  3,224   *  
 

Sue Molina

  1,558   *  
   

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

  684,531   1.4%    
       

 

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

 

48         XPERI - Proxy Statement   
    


Table of Contents
  (1) The address for BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055. Black Rock, Inc. has sole voting power as to 5,972,951 shares and sole dispositive power as to 6,074,523 shares. The information in this table and footnote is based on solely on information contained in Schedule 13G filed with the SEC on January 17, 2018 by Black Rock, Inc.

 

  (2) The address for Vanguard Group, Inc. is 100 Vanguard Blvd., Malvern, PA, 19355. Vanguard Group, Inc. has sole voting power as to 96,037 shares, shared voting power as to 6,601 shares, sole dispositive power as to 4,543,473 shares and shared dispositive power as to 98,516 shares. The information in this table and footnote is based on solely on information contained in Schedule 13G filed with the SEC on February 7, 2018 by Vanguard Group, Inc.

 

  (3) The address for Janus Henderson Group PLC is 201 Bishopsgate, London, United Kingdom, E2CM 3AE. Janus Henderson Group PLC has shared voting power as to 3,688,506 shares and shared dispositive power as to 3,688,506 shares. The information in this table and footnote is based on solely on information contained in Schedule 13G filed with the SEC on February 12, 2018 by Janus Henderson Group PLC.

 

  (4) The address for DePrince, Race & Zollo, Inc. is 250 Park Ave. South, Suite 250, Winter Park, FL 32789. DePrince, Race & Zollo, Inc. has sole voting power as to 2,634,293 shares and sole dispositive power as to 3,513,028 shares. The information in this table and footnote is based solely on information contained in Schedule 13G filed with the SEC on February 13, 2018 by DePrince, Race & Zollo, Inc.

 

  (5) Includes 129,707 shares issuable upon exercise of outstanding options held by Mr. Kirchner, exercisable within 60 days of February 28, 2018.

 

  (6) Includes 39,000 shares issuable upon exercise of outstanding options held by Mr. Andersen, exercisable within 60 days of February 28, 2018.

 

  (7) Includes 16,909 shares issuable upon exercise of outstanding options held by Mr. Skaaden, exercisable within 60 days of February 28, 2018.

 

  (8) Includes 184,916 shares issuable upon exercise of outstanding options held by current officers and directors as a group, exercisable within 60 days of February 28, 2018.

 

   XPERI - Proxy Statement         49
      


Table of Contents

Executive Compensation and Related Information

COMPENSATION DISCUSSION AND ANALYSIS

 

 

Introduction

 

 

The following discussion and analysis contains statements regarding 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 Compensation Discussion and Analysis (CD&A) describes the Company’s executive compensation philosophy, objectives and programs, as well as the compensation-related actions taken in 2017. Our named executive officers, or NEOs, for fiscal year 2017 are identified as follows:

 

    Jon Kirchner – Chief Executive Officer (CEO)
    Thomas Lacey – former Chief Executive Officer
    Robert Andersen – Chief Financial Officer (CFO)
    Murali Dharan – President, Tessera Intellectual Property Corporation (Tessera)
    Geir Skaaden – Chief Product and Services Officer

The titles above reflect positions held by the NEOs as of the end of 2017. These titles remain unchanged as of the date of this proxy statement. Mr. Lacey retired as the Company’s Chief Executive Officer effective June 1, 2017 but continued to serve in a consultant advisory role until December 31, 2017. As explained under section “Executive Leadership & Compensation Highlights,” through May 31, 2017, Mr. Kirchner served as the Company’s President until he assumed the role of Chief Executive Officer effective June 1, 2017.

This CD&A provides an overview of our executive compensation philosophy, the overall objectives of our executive compensation program, and each compensation component that we provide. In addition, we explain how and why the Compensation Committee of our Board of Directors arrived at specific compensation policies and decisions for our executive officers, including the NEOs, during 2017.

 

 

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 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

 

50         XPERI - Proxy Statement   
    


Table of Contents

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 impact of our compensation program on our financial results. While the Compensation Committee considers all factors in its deliberations, it places no formal weighting on any one factor.

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

 

 

Performance and Financial Highlights

 

 

2017 was a year of change for our Company, and despite some challenges, we achieved a number of significant milestones, which we believe will drive meaningful long-term stockholder value.

 

    We successfully completed the integration of Tessera and DTS, meeting our synergy targets, and now operate as one company.

 

    We launched new innovative technologies such as Virtual:X, Connected Radio, and DMS, our Driver Monitoring System, that will drive increased penetration and ASPs in the home, mobile and automotive markets.

 

    We accelerated certain investments in machine learning and next generation smart technologies that we believe will provide avenues for greater growth in the mid-term.

 

    We completed the first major step in our long-term IP licensing strategy by successfully settling our litigation with Broadcom and entering into a multi-year license agreement.

 

    We updated and refined our Company’s long-term strategy, adjusting it to reflect key market trends and better position us to drive long-term growth, increased cash flow and enhanced stockholder value.

Importantly, despite some challenges, we generated $147 million in operating cash flow, returned approximately $55 million to stockholders in the form of dividends and stock repurchases, and paid down $100 million of debt just after year-end. Our total revenues and recurring revenues for 2017 showed strong growth over 2016 as well, as reflected in the table below:

 

                          2017 (1)                                  2016                                  2015                  % Increase
(Decrease) 2017  to
2016
   
   

Total Revenue (1)

  $373.7 million     $259.6 million     $273.3 million     44%  
   

Total Recurring Revenue (2)

  $333.9 million     $243.8 million     $242.3 million     37%  
   

GAAP Operating Expenses

  $405.2 million     $170.2 million     $111.1 million     138%  
                       
  (1) Includes a full year of DTS operations and the impact of purchase accounting.
  (2) 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.

 

 

2017 Executive Leadership & Compensation Highlights

 

 

Our executive compensation program plays an important role in attracting, retaining and rewarding individuals with the ability and vision to lead our business, drive our long-term success and deliver stockholder value. We had several key leadership developments in 2017.

 

    CEO Transition. On May 3, 2017, the Company announced Mr. Lacey’s retirement as Chief Executive Officer, and that the Board of Directors appointed Mr. Kirchner as the next Chief Executive Officer. Mr. Kirchner, who had been serving as our President, assumed the new role on June 1, 2017. Also on that date, Mr. Lacey retired from the Board, and Mr. Kirchner was appointed as a member of the Board, filling the seat vacated by Mr. Lacey.

 

   XPERI - Proxy Statement         51
      


Table of Contents

In connection with his appointment as our Company’s Chief Executive Officer, the Company entered into a new employment agreement with Mr. Kirchner. The Compensation Committee designed a market competitive compensation package reflective of Mr. Kirchner’s expertise and domain knowledge in broad IP and product / technology licensing as well as the competitive landscape for such talent. This compensation package design includes approximately 65% of his target annual compensation structured as at-risk, performance-based pay (comprised of his annual cash incentive compensation and performance-based equity awards). The compensation package structure included an initial equity grant intended by the Compensation Committee to represent his long-term incentive opportunities for the duration of the initial three-year term of his employment agreement as CEO a substantial portion of which will be subject to annual performance-based vesting milestones. The Compensation Committee does not intend to grant Mr. Kirchner additional equity awards during that period. We believe the market competitive compensation package and structure aligns Mr. Kirchner’s interests with stockholders in the pursuit of long term-value creation. For more information about Mr. Kirchner’s promotional compensation package, please see “Chief Executive Officer Compensation Package” below.

 

    Hiring of Murali Dharan as President, Tessera. On October 18, 2017, Mr. Dharan was named president of Tessera. Mr. Dharan is responsible for the strategic direction and management of the Tessera intellectual property licensing business.  

 

      Mr. Dharan’s compensation package was designed at a competitive market level with approximately 70% of his target compensation structured as at-risk, performance-based pay (comprised of his cash incentive compensation and performance-based equity awards).

 

      Mr. Dharan’s initial total cash compensation was established at approximately the 65th percentile of similarly-situated executives based on the comparable company data reviewed by the Compensation Committee, while his new hire equity awards were designed to provide an annual target long-term incentive opportunity at approximately the median level of the market.

 

    Annual Compensation Review and Update of Peer Group to Reflect Evolving Business. The Compensation Committee annually assesses the competitiveness of the Company’s executive compensation program compared to that of similar companies, as described below under the heading “Compensation Setting Process.” Annually, the Compensation Committee engages its independent compensation consultant to evaluate the Company’s peer group to ensure that it is appropriate. Particularly in light of the DTS acquisition, the review in 2016 resulted in a number of changes in the composition of the peer group and the results were used in the Compensation Committee’s review of executive compensation in December 2016 in making fiscal year 2017 executive compensation decisions.  

 

    Executive Pay Targeted at Competitive Market Levels. The Compensation Committee believes that the current named executive officers should be paid at competitive market levels and, as discussed below, took steps to align the target total direct compensation of certain of our named executive officers with the market median in light of their changed roles and responsibilities. These pay actions taken in 2017 and 2018, were considered important to maintaining a fairly compensated, committed senior management team capable of growing the Company’s business and executing on our long-term strategy.  

Chief Executive Officer Compensation Package

With the appointment of Mr. Kirchner as our Chief Executive Officer, the Board of Directors approved and entered into an employment agreement with him that included a competitive package primarily consisting of a performance-based equity award that will be earned over the next four years. The design and size of this compensation package was determined by the Compensation Committee following consultation with the Compensation Committee’s external compensation consultant, an analysis of the competitive market data, including data drawn from the compensation peer group as described under the “Compensation-Setting Process” below, an evaluation of industry practices and consideration of the appropriate mix of short-term and long-term incentives.

 

52         XPERI - Proxy Statement   
    


Table of Contents
    Annual Cash Compensation: Pursuant to the terms of his employment agreement effective June 1, 2017, Mr. Kirchner’s initial annual base salary was set at $600,000 and he is eligible for an annual bonus equal to 100% of his annual base salary, up to a maximum bonus of 200% of his annual base salary for over-performance. As a result, Mr. Kirchner’s annual target cash compensation is generally at the median of our peer group for chief executives.  

 

    Promotional Equity Awards: In addition, Mr. Kirchner was granted promotional equity awards in connection with his appointment as CEO. Mr. Kirchner’s initial equity awards are intended by the Compensation Committee to represent his long-term incentive opportunities for the duration of the initial three-year term of his employment agreement as CEO. Thus, the Compensation Committee does not intend to grant Mr. Kirchner additional equity awards during that period.

The Compensation Committee determined that Mr. Kirchner’s award would be aligned to the market median level for a new hire award and annual awards covering a total of three years in total target long-term incentive award value. The award is divided into 70% performance-based RSUs and 30% time-based RSUs. The Compensation Committee believed it was important to establish a long-term incentive award mix heavily weighted towards performance awards, as follows:

 

      Performance-Based
Restricted Stock Unit Award
(“target” number of RSUs)  (1)
   Time-Based Restricted
Stock Unit Award
(number of RSUs) 
   Aggregate Grant Date Fair
Value (2) ($)
Jon Kirchner    310,873    133,231    $13,811,190

(1)  Of these performance-based RSUs, 77,718 may be earned each calendar year (commencing in 2017) at the “target” performance level and up to 155,436 may be earned each year at “maximum” performance.

 

(2)  In accordance with SEC rules and FASB Topic 718, due to the annual setting of performance goals under the performance-based RSUs granted to Mr. Kirchner, one-fourth of the grant date fair value of Mr. Kirchner’s promotional performance-based awards (at “target” performance levels) plus the full grant date value of the time-based RSUs is presented in the “Summary Compensation Table,” while the Compensation Committee approved full grant value of all of the promotional awards that will be eligible to be earned by Mr. Kirchner over four years (at “target” performance, with respect to the performance-based RSUs) based on the closing price per share of our common stock on the date of grant is included in the table above.

 

    Time-Based Equity Awards: Mr. Kirchner’s time-based RSU vests in equal installments on each of the first four anniversaries of the date of grant, subject to his continued employment on each vesting date.  

 

    Performance-Based Equity Awards: His performance-based RSUs may be earned over four years with 25% of the shares of our common stock eligible to be earned each year (commencing with 2017) at the “target” level based on the Company’s performance for such year, with up to 200% of the “target” RSUs for each year eligible to be earned at the “maximum” performance level. The performance objectives for each year are to be determined by mutual agreement of Mr. Kirchner and the Compensation Committee.

The vesting of Mr. Kirchner’s performance-based RSUs is tied to a series of four one-year performance measurement periods. The Compensation Committee believes that successive annual objectives are most effective given the Company’s ongoing transformation and evolution following the acquisition of DTS. The Compensation Committee is committed to setting rigorous performance goals and believes that annual goal setting will allow the Compensation Committee to establish challenging performance objectives carefully tailored to incentivize performance as we refine and evolve our strategic plan as a newly-combined organization and avoid the potential risk of windfalls or retention issues that could be associated with setting a less precise longer-term goal.

Since profitability and growth are of paramount importance, the Compensation Committee established performance targets for 2017 and 2018 that are tied to these metrics. These are measurements that our Compensation Committee believes to be critical since they are directly aligned with stockholder value creation. Specifically, vesting of the portion of the performance-based RSU award eligible to be earned based on 2017 performance was based upon 10% revenue growth (as determined for purposes of our annual bonus plan, and described below) from the previous year and non-GAAP net income of 23% (expressed as a percentage of revenue for annual bonus plan purposes).1 Based upon our results of 64.5% year over year revenue growth and 11.9% non-GAAP net income, 86% of the “target” RSUs eligible to be earned for 2017 performance (or 74,363 RSUs) vested based on 2017 performance.

 

   XPERI - Proxy Statement         53
      


Table of Contents

With respect to the portion of the performance-based RSU award eligible to be earned based on 2018 performance, Mr. Kirchner and the Compensation Committee have agreed that such RSUs will be eligible to vest at target upon achieving 10% billings growth2 and 41% adjusted non-GAAP operating income 3. The Compensation Committee determined to move from a non-GAAP net income performance objective to non-GAAP operating income for this purpose to better align and provide comparability with both internal and external measures of company performance.

 

    Severance and Change in Control Benefits: Lastly, Mr. Kirchner’s employment agreement also contains market-based severance and change in control provisions; details are outlined in section “Employment Contracts, Termination of Employment Arrangements and Change of Control Arrangements.”  

As illustrated in the graphic below, the annual total target compensation for our CEO for 2017 is heavily weighted towards at-risk pay incentives (comprised of annual cash incentive compensation and performance-based equity awards):4

 

LOGO

 

  (1) For a description of how revenue and non-GAAP net income are determined for purposes of these awards and our annual bonus plan, please see the footnotes provided under “Annual Performance-Based Cash Incentive Bonuses” below. For a reconciliation of GAAP to non-GAAP financial results, please see Appendix C.
  (2) For purposes of Mr. Kirchner’s performance-based RSUs eligible to vest based on 2018 performance, billings include customer billings recorded during 2018.
  (3) For purposes of Mr. Kirchner’s performance-based RSUs eligible to be earned based on 2018 performance, non-GAAP operating income excludes SBC, restructuring and one-time charges, other income/expense, amortization, and the impact of any acquisitions or divestitures. In addition, non-GAAP operating income replaces revenue under GAAP with billings as discussed in footnote (2) above.
  (4) The calculation in the graphic above includes the CEO annualized base salary, annual target bonus, and the grant date fair value of that portion of the time-based RSUs and performance-based RSUs that were eligible to vest during 2017 or to be earned based on 2017 performance.

 

54         XPERI - Proxy Statement   
    


Table of Contents

 

Summary of Certain Executive Compensation Practices

 

 

We endeavor to maintain sound corporate governance standards consistent with our executive compensation policies and practices. During 2017, 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 direct compensation to the achievement of strong financial performance and a balanced mix of performance metrics established in advance by the Compensation Committee.        LOGO   No Tax Gross-Ups: We do not provide tax gross-ups to our named executive officers for excess parachute payments or other benefits.
   LOGO   Independent Compensation Advisor: The Compensation Committee selects and engages its own independent advisor.        LOGO   No “Single Trigger” Severance Payments: We do not generally have “single trigger” severance payments payable solely on account of the occurrence of a change of control event.
   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 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: Our employees, including our executives and directors 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 executives and directors are prohibited from pledging Company securities.
   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: We do not provide guaranteed minimum bonuses or uncapped incentives under our annual bonus plan.

 

   XPERI - Proxy Statement         55
      


Table of Contents
   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 Dividends Paid or Accrued on Awards Prior to Vesting

Executive Compensation Components

 

LOGO

The Compensation Committee oversees our executive compensation program. Our executive compensation program is designed to attract, motivate and retain talented executives that will drive our financial performance, 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 NEOs’ 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 functional 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 significant portion of total compensation opportunities for our executive officers in the form of direct ownership in our company through long-term equity incentive awards.

 

56         XPERI - Proxy Statement   
    


Table of Contents

The principal elements of our executive compensation program are base salary, annual cash incentive bonus awards and long-term incentive compensation in the form of equity 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 our NEOs’ total compensation opportunities, tie compensation directly to the achievement of corporate and/or functional objectives. Each element of our executive compensation program is discussed in greater detail below.

Base Salary

The base salary for each executive officer is initially established through negotiation at the time the executive is hired, taking into account the executive’s qualifications, experience, competitive market data, overall compensation arrangements, internal equity and relevant survey data. In determining whether to make subsequent adjustments to the base salaries of our executive officers, the Compensation Committee reviews information regarding compensation paid to individuals holding comparable positions at our peer group companies as well as relevant market data from the applicable Radford Executive Compensation survey. In addition, each year the Compensation Committee determines whether to approve increases to our executive officers’ base salaries based upon the Company’s performance, their individual performance in accomplishing functional or team goals, changes in duties and responsibilities and the recommendations of our CEO (except with respect to his own base 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 of $550,000 and $302,000, respectively. As part of the annual executive compensation review, on March 1, 2017, base salaries for Messrs. Andersen and Skaaden were increased to $351,000 and $325,008 respectively. As described above, Mr. Kirchner’s base salary was increased to $600,000 effective June 1, 2017 in connection with his appointment as Chief Executive Officer.

The annual base salaries of the NEOs for 2017, which were effective on March 1, 2017 (other than as noted below for Messrs. Kirchner and Dharan), were as follows:

 

Named Executive Officer    2017 Base
Salary
           2016 Base
Salary
     %
Adjustment
       

Jon Kirchner

   $  600,000        (1   $ 550,000        9.1%    

Thomas Lacey

   $  500,000        $ 500,000        0%    

Robert Andersen

   $  351,000        $ 335,000        4.8%    

Murali Dharan

   $  400,000        (2     N/A        --      

Geir Skaaden

   $  325,008              $ 302,000        7.6%          
(1)

Effective June 1, 2017.

(2)

Mr. Dharan joined the Company on October 16, 2017.

The actual base salaries paid to the NEOs during 2017 are set forth in the “2017 Summary Compensation Table.”

In February 2018, the Compensation Committee reviewed the target annual base salaries of the NEOs in a process similar to the one described above and determined to make a 4% increase to the base salary of Mr. Andersen (bringing his annual base salary to $365,000) and an 11% increase to the base salary of Mr. Skaaden (bringing his annual base salary to $360,000), effective March 1, 2018. There was no increase to the base salaries of Messrs. Kirchner and Dharan for 2018.

Annual Performance-Based Cash Incentive Bonuses

Our NEOs are eligible to receive an annual cash incentive bonus under our annual bonus plan, which we refer to as our MBO Plan.

 

   XPERI - Proxy Statement         57
      


Table of Contents

Annual Cash Incentive Bonus Targets

At the beginning of each year, the Compensation Committee approves the target and maximum annual cash incentive bonus opportunities for each NEO in the MBO Plan. These target and maximum bonus opportunities are expressed as a percentage of base salary as follows:

 

Named Executive Officer   Target                       Maximum            

Jon Kirchner

  100%   200%

Thomas Lacey (1)

  100%   200%

Robert Andersen

  75%   150%

Murali Dharan (2)

  --     --  

Geir Skaaden

  55%   110%
(1)

Mr. Lacey retired from the Company effective June 1, 2017 and did not receive a payment from the 2017 MBO Plan.

(2)

Mr. Dharan joined the Company on October 16, 2017 and therefore did not participate in the 2017 MBO Plan. His target bonus for purposes of the 2018 MBO Plan will be equal to 100% of his base salary (with a maximum bonus opportunity equal to 200% of his base salary).

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.

In February 2018, the Compensation Committee reviewed target bonuses of the NEOs in a process similar to the one described above and determined, based on job scope expansion, market factors, and recommendation of the CEO to increase Mr. Skaaden’s target annual cash incentive to 65% of his base salary effective March 1, 2018. The target bonus percentages for the other NEOs remain unchanged for 2018.

Performance Goals

Bonuses paid to our NEOs under our MBO Plan are based on our achievement of specific pre-established corporate performance goals and upon an evaluation of the individual officer’s performance for their efforts tied to the corporate and strategic goals for the year. The Compensation Committee also selects one or more corporate performance goals applicable to the annual bonuses for that year and sets the target performance level for each such goal and a threshold performance level below which no annual bonus will be paid. 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 for 2017 were a combination of financial goals, integration metrics, 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 weighted goal categories for each NEO are set forth below.

 

NAME

 

 

Financial Goals

 

    Integration
Goals
    Operational
Excellence
 
  MBO Plan
Revenue
Growth (3)
    Non-GAAP
Operating
Income (3)
     

Jon Kirchner (1)

    60     20     20%       --  

Thomas Lacey

    60     40     --       --  

Robert Andersen

    60     40     --       --  

Geir Skaaden (2)

    40     20     20%       20%  
  (1) For measuring Mr. Kirchner’s performance against financial goals, 67% was weighted on the audio business and 33% was weighted on the full Company performance relative to these metrics.
  (2) For measuring Mr. Skaaden’s performance against financial goals, 75% was weighted on the audio business and 25% was weighted on the imaging business.
  (3) MBO Plan Revenue and non-GAAP operating income are described below. For a reconciliation of GAAP to non-GAAP financial results, please see Appendix C.

 

58         XPERI - Proxy Statement   
    


Table of Contents

Annual Performance Goals and Achievement

For purposes of the MBO Plan, the Compensation Committee set a threshold financial goal or “gate” that had to be achieved before any annual bonuses were paid. For purposes of the 2017 MBO Plan, this financial goal was for the Company to achieve positive non-GAAP operating income for 2017 (the “Threshold Goal”). The Threshold Goal was achieved for 2017and the actual bonuses for the NEOs were then determined based on the corporate goal achievement as described below.

For purposes of the 2017 MBO Plan, the threshold and target performance goals selected and set by the Compensation Committee (as well as the Company’s actual results for each such goal) were as follows (with the achievement percentage for performance between threshold and target determined by linear interpolation):

 

  Category    Target    Threshold    Achievement
Financial Goals (3)    $501.1 million in total MBO Plan Revenue (1)    $400.8 million total MBO Plan Revenue    85% achieved with $426.7 million in MBO Plan Revenue
   $272.9 million in non-GAAP operating income (2)    $218.3 million in non-GAAP operating income    0% achieved with $184.6 million in non-GAAP operating income

Integration Goals

(Mr. Kirchner and Mr. Skaaden)

   Synergy target of $15M, integrated imaging and audio technology roadmap plans, product management cross selling outcomes, deploy new company and division branding and retention of key employees    Minimum of synergy target of $15M    The synergy target was exceeded and 90% of the goals were achieved based on management and Compensation Committee review of performance against targets

Operational Excellence Goals

(Mr. Skaaden only)

   Non-quantifiable goals for Mr. Skaaden were agreed upon between the CEO and Mr. Skaaden for 2017. Mr. Skaaden’s overall performance against these objectives was assessed by the CEO at year-end         85% achievement as assessed and measured by the CEO

 

  (1) Revenue for purposes of the MBO Plan (MBO Plan Revenue) includes customer billings that would have been recorded as revenue if not for the impact of purchase accounting as a result of the DTS acquisition and other acquisitions. Refer to Appendix C for a reconciliation of revenue in accordance with U.S. GAAP to MBO Plan Revenue.
  (2) For purposes of calculating non-GAAP operating income, we use the calculation of MBO Plan Revenue as described in footnote (1) above, and stock-based compensation expenses, acquisition-related expenses and amortization of intangibles are excluded. For a reconciliation of GAAP to non-GAAP financial results, please see Appendix C.
  (3)

For measuring Messrs. Kirchner and Skaaden’s performance against financial goals, (a) the threshold and target revenue performance levels for the audio business performance were set at 42.5% of the threshold and target performance levels respectively for full Company MBO Plan Revenue for 2017, (b) the threshold and target performance non-GAAP operating income levels for the audio business performance were set at 31.5% of the threshold and target performance levels respectively for full Company non-GAAP operating income, (c) the threshold and target revenue performance levels for the imaging business performance were set at 7.7% of the threshold and target performance levels

 

   XPERI - Proxy Statement         59
      


Table of Contents
 

respectively for full Company MBO Plan Revenue for 2017, and (d) the threshold and target performance non-GAAP operating income levels for the imaging business performance were set at 6.3% of the threshold and target performance levels respectively for full Company non-GAAP operating income.

Revenue for our audio business and revenue for our imaging business are calculated consistent with MBO Plan Revenue as described in footnote (1) above, and further delineated within the product licensing segment based on whether the license falls under the former DTS or Tessera entity, respectively. For purposes of calculating non-GAAP operating income for the audio business and imaging business, we use the MBO Plan Revenue; GAAP operating expenses within the product licensing segment are delineated between the audio business and imaging business based on which subsidiaries are historically part of the DTS or Tessera entity, respectively; stock-based compensation expenses, acquisition-related expenses and amortization of intangibles are excluded; and selling, general and administrative expenses that are excluded from our segment reporting are included and allocated between businesses based on which subsidiaries are historically part of the DTS or Tessera entity, respectively. For a reconciliation of GAAP to non-GAAP financial results, please see Appendix C.

Multiplier

The bonuses to be paid to our NEOs who participated in the 2017 MBO Plan were able to be increased or decreased based on the matrix set forth below. The matrix (“2017 MBO Matrix”) was structured as a combination of year over year MBO Plan Revenue (excluding the impact of purchase accounting throughout this paragraph) growth for the Company and annual non-GAAP net income achievement (expressed as a percentage of MBO Plan Revenue). For 2017 year over year MBO Plan Revenue growth was 64.5% and non-GAAP net income was 11.9% of MBO Plan Revenue. Therefore, the multiplier for 2017 was 0.86 and all bonuses were multiplied by 0.86. The maximum multiplier under the MBO Plan is 2.0. The Compensation Committee also has the right to exercise its discretion to reduce any bonus payment, but it did not choose to exercise that discretion with respect to the 2017 bonus payouts.

 

60         XPERI - Proxy Statement   
    


Table of Contents
  (1) For purposes of calculating non-GAAP net income, we use the calculation of MBO Plan Revenue as described above, stock-based compensation expenses and acquisition-related expenses are excluded, amortization of intangibles is included and taxes are included at an assumed thirty percent tax rate.

 

      Revene       Growth%                                                                                                                                                  
      456.6       76%       0.00       0.29       0.59       0.88       1.18       1.47       1.77       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00  
      451.2       74%       0.00       0.29       0.58       0.87       1.16       1.44       1.73       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00  
      446.0       72%       0.00       0.28       0.57       0.85       1.13       1.42       1.70       1.98       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00  
      440.8       70%       0.00       0.28       0.56       0.83       1.11       1.39       1.67       1.94       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00  
      435.6       68%       0.00       0.27       0.54       0.82       1.09       1.36       1.63       1.91       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00  
      430.4       66%       0.00       0.27       0.53       0.80       1.07       1.33       1.60       1.87       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00  
      425.3       64%       0.00       0.26       0.52       0.78       1.04       1.31       1.57       1.83       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00  
      420.1       62%       0.00       0.26       0.51       0.77       1.02       1.28       1.53       1.79       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00  
      414.9       60%       0.00       0.25       0.50       0.75       1.00       1.25       1.50       1.75       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00  
      409.7       58%       0.00       0.24       0.49       0.73       0.98       1.22       1.47       1.71       1.96       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00  
      404.5       56%       0.00       0.24       0.48       0.72       0.96       1.19       1.43       1.67       1.91       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00       2.00  
      290.4       12%       0.00       0.12       0.23       0.35       0.47       0.58       0.70       0.82       0.93       1.05       1.13       1.21       1.29       1.38       1.46       1.54       1.62       1.70  
      285.2       10%       0.00       0.11       0.22       0.33       0.44       0.56       0.67       0.78       0.89       1.00       1.08       1.15       1.23       1.30       1.38       1.45       1.53       1.60  
      280.0       8%       0.00       0.11       0.21       0.32       0.42       0.53       0.63       0.74       0.84       0.95       1.02       1.09       1.16       1.23       1.29       1.36       1.43       1.50  
      274.9       6%       0.00       0.10       0.20       0.30       0.40       0.50       0.60       0.70       0.80       0.90       0.96       1.03       1.09       1.15       1.21       1.28       1.34       1.40  

R

    269.7       4%       0.00       0.09       0.19       0.28       0.38       0.47       0.57       0.66       0.76       0.85       0.91       0.96       1.02       1.08       1.13       1.19       1.24       1.30  

e

    264.5       2%       0.00       0.09       0.18       0.27       0.36       0.44       0.53       0.62       0.71       0.80       0.85       0.90       0.95       1.00       1.05       1.10       1.15       1.20  

v

    259.3       0%       0.00       0.06       0.11       0.17       0.23       0.29       0.34       0.40       0.46       0.55       0.62       0.69       0.76       0.83       0.89       0.96       1.03       1.10  

e

    254.1       -2%       0.00       0.05       0.10       0.16       0.21       0.26       0.31       0.36       0.42       0.50       0.56       0.63       0.69       0.75       0.81       0.88       0.94       1.00  

n

    248.9       -4%       0.00       0.05       0.09       0.14       0.19       0.23       0.28       0.33       0.38       0.45       0.51       0.56       0.62       0.68       0.73       0.79       0.84       0.90  

u

    243.7       -6%       0.00       0.04       0.08       0.13       0.17       0.21       0.25       0.29       0.33       0.40       0.45       0.50       0.55       0.60       0.65       0.70       0.75       0.80  

e

    238.6       -8%       0.00       0.04       0.07       0.11       0.15       0.18       0.22       0.26       0.29       0.35       0.39       0.44       0.48       0.53       0.57       0.61       0.66       0.70  
      233.4       -10%       0.00       0.03       0.06       0.09       0.13       0.16       0.19       0.22       0.25       0.30       0.34       0.38       0.41       0.45       0.49       0.53       0.56       0.60  

G

    228.2       -12%       0.00       0.03       0.05       0.08       0.10       0.13       0.16       0.18       0.21       0.25       0.28       0.31       0.34       0.38       0.41       0.44       0.47       0.50  

r

    223.0       -14%       0.00       0.02       0.04       0.06       0.08       0.10       0.13       0.15       0.17       0.20       0.23       0.25       0.28       0.30       0.33       0.35       0.38       0.40  

o

    217.8       -16%       0.00       0.02       0.03       0.05       0.06       0.08       0.09       0.11       0.13       0.15       0.17       0.19       0.21       0.23       0.24       0.26       0.28       0.30  

w

    212.6       -18%       0.00       0.01       0.02       0.03       0.04       0.05       0.06       0.07       0.08       0.10       0.11       0.13       0.14       0.15       0.16       0.18       0.19       0.20  

t

    207.4       -20%       0.00       0.00       0.00       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  

h

    202.3       -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       0.00       0.00       0.00  
        Company:       5%       7%       9%       11%       13%       15%       17%       19%       21%       23%       25%       27%       29%       31%       33%       35%       37%       39%  
******************************************************** Non-GAAP Net Income % ********************************************************  

 

   XPERI - Proxy Statement         61
      


Table of Contents

2017 Annual Cash Incentive Bonuses

Based on the above matrix, the annual cash incentive bonuses paid under the 2017 MBO Plan paid to Messrs. Kirchner, Andersen and Skaaden, our only NEOs who were eligible to receive a payout for 2017 under the MBO Plan, were calculated as follows:

 

Name  

Achievement of
MBO Plan
Revenue
Growth Goal

 

(A) (1)

 

Company
Achievement
of Non-GAAP
Operating
Income Goal

 

(B) (2)

 

Achievement
of Integration
Goals

 

(3)

 

Achievement
of Operational
Excellence
Goals

 

 

 

 

Multiplier

 

(C)

 

Base Pay

 

(D)

   

MBO at
Target

 

(E)

    [(DxE)x
(A+B)]xC
 

Jon Kirchner

 

  54% of 60%

 

  0% of 20%

 

  18% out of 20%

 

  N/A

 

  0.86

 

   

 

$600,000

 

 

 

   

 

100%

 

 

 

   

 

$371,520

 

 

 

Robert Andersen

 

  51% of 60%

 

  0% of 40%

 

  N/A

 

  N/A

 

  0.86

 

   

 

$351,000

 

 

 

   

 

75%

 

 

 

   

 

$115,477

 

 

 

Geir Skaaden

 

  27% of 40%

 

 

  0% of 20%

 

 

  18% out of 20%

 

 

  18% out of 20%

 

 

  0.86

 

 

   

 

 

$325,000

 

 

 

 

 

   

 

 

55%

 

 

 

 

 

   

 

 

$96,849

 

 

 

 

 

 

(1)    Represents (a) 85% achievement relative to the full Company MBO Plan Revenue objective (with $426.7 million in MBO Plan Revenue), (b) 91% achievement relative to the audio business MBO Plan Revenue objective (with $194.3 million in audio business MBO Plan Revenue), and (c) 0% achievement relative to the imaging business MBO Plan Revenue objective (with $25.2 million in imaging business MBO Plan Revenue), which achievement results were weighted for the NEOs as described above.
(2) Represents (a) 0% achievement relative to the full Company non-GAAP operating income objective (with $184.6 million in non-GAAP operating income), (b) 0% achievement relative to the audio business non-GAAP operating income objective (with $59.7 million in audio business non-GAAP operating income), and (c) 0% achievement relative to the imaging business non-GAAP operating income objective (with $6.8 million in imaging business non-GAAP operating income), which achievement results were weighted for the NEOs as described above.

Long-Term Compensation

Our long-term equity incentive compensation program is intended to provide our executive officers 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:

 

    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. Mr. Dharan is our only NEO to whom we granted stock option awards in 2017.

 

    Restricted Stock Unit Awards (“RSU”): RSUs are used primarily in new hire executive packages and as part of our annual compensation review process. RSUs increase or decrease in value just as a traded share of common stock will, aligning executives’ interests with stockholders’ interest.

 

    Performance-Based Restricted Stock Unit Awards: Performance-based RSUs are provided to our CEO and select NEOs. These awards are earned upon the achievement of certain strategic pre-established milestones and / or specific annual financial goals and are intended to align a significant portion of these executives’ compensation to company performance.

Stock Option Awards

Generally, stock options have a four-year vesting schedule in order to provide an incentive for continued employment and expire ten years from the date of the grant, subject to earlier forfeiture 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 stock options granted under the stock plans is 100% of the fair

 

62         XPERI - Proxy Statement   
    


Table of Contents

market value of the underlying common stock on the date of grant. Under our 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 2017, Mr. Dharan received stock options in connection with his appointment as our President, Tessera Intellectual Property Corporation. These stock option awards are described below in the “2017 Grants of Plan-Based Awards” table.

Time-Based Restricted Stock Unit Awards

As discussed above, we typically grant 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 2017, as a result of our annual executive compensation review, the Compensation Committee granted Messrs. Kirchner, Andersen and Skaaden awards for 15,000, 30,000 and 20,000 RSUs, respectively. In June 2017, Mr. Kirchner also received 133,231 RSUs in connection with his appointment as Chief Executive Officer. In October 2017, Mr. Dharan received 18,000 RSUs in connection with his commencement of employment. The foregoing RSUs have a four-year vesting schedule from the grant date in order to provide an incentive for continued employment.

For a discussion of the methodology for determining the time-based RSUs granted to Mr. Kirchner during 2017, please see the discussion under “Chief Executive Officer Compensation Package” above. With respect to the other NEOs, the Compensation Committee determined the size of such awards by targeting the median level of our peer group.

Performance-Based Restricted Stock Unit Awards

The Compensation Committee grants performance-based RSUs to selected new hires and, on certain occasions, as part of the annual award program. The Compensation Committee believes that performance-based RSUs are an important component of the NEOs’ compensation program and strives to establish a long-term incentive award mix for our NEOs heavily weighted towards performance awards. In general, since 2013, the Compensation Committee has granted performance-based RSUs that are tied to a series of four one-year performance measurement periods, with up to 200% of the “target” RSUs eligible to be earned each year at the “maximum” performance level. The performance objectives for each year are generally to be determined by mutual agreement of the NEO and the Compensation Committee, and vesting of such awards requires continued employment until the certification of the applicable performance requirements by the Compensation Committee. Any performance-based RSUs that do not vest in a given year will be forfeited.

The Compensation Committee believes that successive annual objectives are the most effective incentive mechanism for the NEOs and our Company, as such a design allows the Compensation Committee to more carefully tailor the performance objectives that will lead to vesting of these awards as the Company grows and those objectives change. The Compensation Committee believes that setting annual performance objectives continues to be appropriate given the Company’s ongoing transformation and evolution following the acquisition of DTS. The Compensation Committee is committed to setting rigorous performance goals and believes that annual goal setting will allow the Compensation Committee to establish challenging performance objectives carefully tailored to incentivize performance as we refine and evolve our strategic plan as a newly-combined organization and avoid the potential risk of windfalls or retention issues that could be associated with setting a less precise longer-term goal.

The Compensation Committee also, on occasion, grants performance-based RSUs that are structured differently, as may be appropriate from time to time. The performance-based RSUs granted to the NEOs during 2017, or granted during previous years but eligible to be earned based on 2017 performance, are described below. In general, except as described below with respect to Mr. Andersen, the performance-based RSUs eligible to vest based on 2017 performance were tied to the Company’s financial goals for MBO Plan Revenue growth and non-GAAP net income under the multiplier matrix under the 2017 MBO Plan, as described above. These profitability and growth objectives were used by the Compensation Committee for both annual bonus purposes

 

   XPERI - Proxy Statement         63
      


Table of Contents

and vesting of the performance-based RSUs for 2017 as they are measurements that our Compensation Committee believes to be critical since they are directly aligned with stockholder value creation. Specifically, except as described below for Mr. Andersen, vesting of the portion of the performance-based RSU awards eligible to be earned based on 2017 performance was based upon 10% MBO Plan Revenue growth from the previous year and non-GAAP net income of 23% (expressed as a percentage of MBO Plan Revenue). Based upon our results of 64.5% year over year MBO Plan Revenue growth and 11.9% non-GAAP Net Income, 86% of the “target” RSUs eligible to be earned for 2017 performance vested in March 2018.

 

    Mr. Kirchner. As a result of our annual compensation review, in March 2017, Mr. Kirchner received 35,000 “target” performance-based RSUs. Of these performance-based RSUs, 8,750 may vest each calendar year (commencing in 2017) at target performance and up to 17,500 may vest each year at maximum performance. These performance-based RSUs will be eligible to be earned based on annual performance objectives to be determined as described above. The portion eligible to vest based on 2017 performance was tied to the profitability and growth objectives described above and the number of RSUs that actually vested for 2017 performance is summarized in the table below.

In June 2017, Mr. also Kirchner received 310,873 “target” performance-based RSUs in connection with his appointment as our Chief Executive Officer. Of these performance-based RSUs, 77,718 may be earned each calendar year (commencing in 2017) at the target performance level and up to 155,436 may be earned each year at maximum performance. These performance-based RSUs will be eligible to be earned based on annual performance objectives to be determined as described above. The portion eligible to vest based on 2017 performance was tied to the profitability and growth objectives described above and the number of RSUs that actually vested for 2017 performance is summarized in the table below.

For a discussion of the methodology for determining the performance-based RSUs granted to Mr. Kirchner during 2017, please see the discussion under “Chief Executive Officer Compensation Package” above.

 

    Mr. Lacey. In December 2013 and again in July 2014, Mr. Lacey, received 125,000 “target” performance-based RSUs (for a total of 250,000 “target” performance-based RSUs). Of these performance-based RSUs, 62,500 were eligible to be earned in each calendar year (commencing in 2014 and continuing through 2017) at target performance and up to 125,000 were eligible to be earned each year at maximum performance. The portion eligible to vest based on 2017 performance, which represented the final tranche of these awards, was tied to the profitability and growth objectives described above and the number of RSUs that actually vested for 2017 performance is summarized in the table below. Mr. Lacey’s employment with the Company ended on June 1, 2017. Pursuant to Mr. Lacey’s separation and consulting agreement, a prorated portion of Mr. Lacey’s performance-based RSUs that were eligible to vest during 2017 vested based on actual performance for 2017.

 

    Mr. Andersen. In January 2014 and again in July 2014, Mr. Andersen, received 14,700 “target” performance-based RSUs (for a total of 29,400 “target” performance-based RSUs). Of these performance-based RSUs, 7,350 were eligible to be earned in each calendar year (commencing in 2014 and continuing through 2017) at target performance and up to 14,700 were eligible to be earned each year at maximum performance. These performance-based RSUs were eligible to be earned based on annual performance objectives determined as described above. The portion eligible to vest based on 2017 performance, which represented the final tranche of these awards, was tied to the profitability and growth objectives described above and the number of RSUs that actually vested for 2017 performance is summarized in the table below.

As a result of our annual compensation review, in March 2017, Mr. Andersen received 11,500 performance-based RSUs of which were eligible to vest with respect to 2017 performance. The performance requirements were tied to integration goals agreed upon by Mr. Andersen and our CEO, and approved by the Compensation Committee, and required continued employment until certification of the applicable performance requirements by the Compensation Committee. The number of RSUs that actually vested with respect to this award is summarized in the table below.

 

64         XPERI - Proxy Statement   
    


Table of Contents
    Mr. Dharan. In October 2017, in connection with his commencement of employment Mr. Dharan received 42,000 “target” performance-based RSUs. Of these performance-based RSUs, 10,500 may vest each calendar year (commencing with 2018) at target performance and up to 21,000 may vest each year at maximum performance. These performance-based RSUs will be eligible to be earned based on annual performance objectives to be determined as described above.

Mr. Dharan also received 60,000 deal performance-based RSUs that are eligible to vest based on achievement of deal performance goals over a three year performance period. The deal performance goals are the closing of two new revenue opportunities, with 50% of the RSUs eligible for vesting upon achieving each of two deals.

With respect to the performance-based RSUs granted to Mr. Dharan in connection with his commencement of employment, the Compensation Committee determined the size of such awards to be aligned with long-term incentive opportunity at approximately the median level of the market while his new hire equity awards were designed to provide an annual target long-term incentive opportunity at approximate the median level of the market.

 

   XPERI - Proxy Statement         65
      


Table of Contents

For 2017 performance, the performance-based RSUs granted to our NEOs (either during 2017 or, in the case of Messrs. Lacey and Andersen, in previous years) and eligible to vest based on 2017 performance were released in March 2018. The following table summarizes the performance-based RSUs granted to our NEOs that were eligible to vest during 2017 and the number of RSUs that ultimately vested based on 2017 performance, as described above:

 

  NEO   Grant Date  

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

 

 

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

  Release Conditions  

Performance

Achieved

  Shares
Released        
  Jon   Kirchner   3/1/17   8,750   17,500  

100% based on financial targets for revenue growth and non-GAAP net income in accordance with 2017 MBO multiplier matrix

 

  86%   7,525
  6/1/17   77,719   155,438  

100% based on financial targets for revenue growth and non-GAAP net income in accordance with 2017 MBO multiplier matrix

 

  86%   66,838
  Thomas   Lacey (1)   12/9/14   31,250   62,500  

100% based on financial targets for revenue growth and non-GAAP net income in accordance with 2017 MBO multiplier matrix

 

  86%