Victor K. Lee:
| | Victor K. Lee | Mr. Lee is the audit committee financial expert on the Audit Committee of the Board. He has been the Chief Financial Officer at several public and private companies, and has worked in the semiconductor industry for over 30 years. Mr. Lee is familiar with not only the inner workings of the industry, but also has intimate knowledge of the financial issues that semiconductor companies often face. His experience has allowed him to understand the broad issues, in particular those affecting the financial and accounting aspects of our business, that the Board must consider and to make sound recommendations to management and the Board. Mr. Lee also provides the Board with valuable insight into financial management, disclosure issues and tax matters relevant to our business. Based on the Board’s identification of these qualifications, skills and experiences, the Board has concluded that Mr. Lee should serve as a director of MPS. | | | James C. Moyer | Mr. Lee is the audit committee financial expert on the Audit Committee of the Board. He has been the Chief Financial Officer at several public and private companies, and has worked in the semiconductor industry for over 30 years. Mr. Lee is familiar with not only the inner workings of the industry, but also has intimate knowledge of the financial issues that semiconductor companies often face. His experience has allowed him to understand the broad issues, in particular those affecting the financial and accounting aspects of our business, that the Board must consider and to make sound recommendations to management and the Board. Mr. Lee also provides the Board with valuable insight into financial management, disclosure issues and tax matters relevant to our business. Based on the Board’s identification of these qualifications, skills and experiences, the Board has concluded that Mr. Lee should serve as a director of MPS.
| | | James C. Moyer:
| Mr. Moyer is a technical expert in the design of analog semiconductors. As co-founder of MPS, Mr. Moyer is intimately familiar with us and our products. Mr. Moyer brings insight to the Board because of his cumulative experience gained as an engineer and technical leader in the semiconductor industry. This experience gives him a highly developed understanding of the needs and requirements of the analog market for our complex products and allows him as a director to lead us in the right direction in terms of strategy and business approach. Based on the Board’s identification of these qualifications, skills and experiences, the Board has concluded that Mr. Moyer should serve as a director of MPS. |
Karen A. Smith Bogart: | Dr. Smith Bogart has held senior executive positions at several domestic and multi-national companies in various industries, which has given her significant executive leadership experience. She is a seasoned entrepreneur, which allows her to see issues from the perspective of our investors, and has experience outside of the semiconductor industry. Dr. Smith Bogart has international experience in countries where MPS operates and understands our multi-national culture. Dr. Smith Bogart’s experiences outside of the semiconductor industry have enabled her to bring a different perspective, with creative and different ideas, when addressing issues that the Board faces. Based on the Board’s identification of these qualifications, skills and experiences, the Board has concluded that Dr. Smith Bogart should serve as a director of MPS. |
| | Dr. Jeff Zhou:
| Dr. Zhou is a senior business executive with over 25 years of industry experience at large, multi-national corporations with global footprints. Dr. Zhou has an extensive background in the global manufacturing and electronics industry. This experience allows him to contribute his valuable executive leadership talent and understanding of international business to Board deliberations. Dr. Zhou’s appointment to the Board also allows him to bring a new perspective, new ideas and new outlooks to the Board. Based on the Board’s identification of these qualifications, skills and experiences, the Board has concluded that Dr. Zhou should serve as a director of MPS.
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Dr. Jeff Zhou | Dr. Zhou is a senior business executive with over 30 years of industry experience at large, multi-national corporations with global footprints. Dr. Zhou has an extensive background in the global manufacturing and electronics industry. This experience allows him to contribute his valuable executive leadership talent and understanding of international business to Board Leadership Structure Thedeliberations. Dr. Zhou’s appointment to the Board currently consistsalso allows him to bring a new perspective, new ideas and new outlooks to the Board. Based on the Board’s identification of seven members, five of whichthese qualifications, skills and experiences, the Board has determined are independent..concluded that Dr. Zhou should serve as a director of MPS.
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Board Leadership Structure The Board currently consists of six members, five of which the Board has determined are independent. The Board has designated one of the independent directors, Mr. Chang, as the Lead Director because our President and Chief Executive Officer, Mr. Hsing, also serves as the Chairman of the Board. We believe that the number of independent, experienced directors that make up our Board, along with the independent oversight of our Lead Director, benefits us and our stockholders by providing a counterbalance to the management perspective provided by Mr. Hsing during Board deliberations. We recognize that different board leadership structures may be appropriate for different companies. We believe that our current Board leadership structure is optimal for us. Our leadership structure demonstrates to our employees, suppliers, customers and other stakeholders that we are governed by strong, balanced leadership, with a single person setting the tone for the Board and management and having primary responsibility for managing our day-to-day operations. This message is increasingly important as we continue to seek to achieve business success through new product releases and gaining market share in our industry. At the same time, our leadership structure sends the message that we also value strong, independent oversight of our management operations and decisions in the form of our Lead Director. Further, having a single leader for both MPS and the Board eliminates the potential for strategic misalignment or duplication of efforts, and provides clear leadership for us. As discussed above, the positions of Chairman of the Board, and President and Chief Executive Officer are held by Mr. Hsing, and the Board has appointed a Lead Director, Mr. Herbert Chang. Mr. Chang’s roles and responsibilities as the Lead Director include: | 1. | Reviewing meeting agendas, schedules, and information sent to the Board; |
| 2. | Retaining independent advisors on behalf of the Board, or committees, as the Board may determine is necessary or appropriate; |
| 3. | Ensuring personal availability for consultation and communication with independent directors and with the Chairman of the Board, as appropriate; |
| 4. | Performing such other functions as the independent directors may designate from time to time; |
| 5. | Presiding at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors; |
| 6. | Serving as liaison between the Chairman and independent directors; |
| 7. | Calling meetings of independent directors; and |
| 8.
| Ensuring that the Board is at least two-thirds independent and that key committees are independent.
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Our independent directors meet in executive session during a portion of every regularly scheduled Board meeting, and otherwise as needed. Our Lead Director presides over meetings of our independent directors and we believe that these meetings help to ensure an appropriate level of independent scrutiny of the functioning of the Board.8.
| Board Oversight of Risk
The Board is primarily responsible for the oversight of risks that could affect MPS. Our senior management team, which conducts our day-to-day risk management, is responsible for assisting the Board with its risk oversight function. This oversight is conducted principally through committees of the Board, as disclosed in the descriptions of each of the committees below and in the charters of each of the committees, but the full Board has retained responsibility for general oversight of risk. The Board satisfies its responsibility by requiring each committee chair to regularly report regarding the committee’s considerations and actions, as well as by requiring officers responsible for oversight of particular risks within MPS to submit regular reports. As these reports are submitted independent of review by Mr. Hsing, our President and Chief Executive Officer and the Chairman of the Board, the Board believes that its conduct of its risk oversight function has no impact on the Board’s leadership structure other than to reinforce the involvement of the Board in ongoing management of MPS.
In addition to requiring regular reporting from committees and officers, the Board also hears from third-party advisors in order to maintain oversight of risks that could affect us, including our independent auditors, outside counsel, compensation consultants and others. These advisors are consulted on a periodic basis and as particular issues arise in order to provide the Board with the benefit of independent expert advice and insights on specific risk-related matters.
At its regularly scheduled meetings, the Board also receives management updates on the business, including operational issues, financial results, and business outlook and strategy.
Our Audit Committee also assists the full Board in its oversight of risk by discussing with management our compliance with legal and regulatory requirements, our policies with respect to risk assessment and management of risks that may affect us, and our system of disclosure control and system of controls over financial reporting. Risks related to our company-wide compensation programs are reviewed by our Compensation Committee. For more information on the Compensation Committee’s compensation risk assessment, see the section“Executive Officer Compensation – Compensation Risk Management.” Our Nominating and Governance Committee provides compliance oversight and reports to the full Board on compliance and makes recommendations to our Board on corporate governance matters, including director nominees, the determination of director independence, and board and committee structure and membership.
We believe the division of risk management responsibilities described above is an effective approach for addressing the risks facing us and that the Board leadership structure supports this approach.
Board Meetings and Committees
The Board held a total of five meetings during 2015, and all directors attended at least 75% of the meetings of the Board and the committees upon which such director served.
Audit Committee. The Board has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the 1934 Act, which currently consists of three members: Victor K. Lee, Karen A. Smith Bogart and Jeff Zhou. Mr. Lee is the chairman of the Audit Committee. This committee oversees our financial reporting process and procedures, is responsible for the appointment and terms of engagement of our independent registered public accounting firm, reviews and approves our financial statements, and coordinates and approves the activities of our independent registered public accounting firm. The Board has determined that Mr. Lee is an “audit committee financial expert,” as defined under the rules of the SEC, and all members of the Audit Committee are “independent” in accordance with the applicable SEC regulations and the applicable listing standards of NASDAQ. The Audit Committee held four meetings during 2015. The Audit Committee acts pursuant to a written charter adopted by the Board, which is available in the “Investor Relations” section of our website at http://www.monolithicpower.com by clicking on the name of the applicable committee.
Compensation Committee. The Board has designated a Compensation Committee consisting of three members: Herbert Chang, Eugen Elmiger and Jeff Zhou. Mr. Zhou is the chairman of the Compensation Committee. This committee is responsible for providing oversight of our compensation policies, plans and benefits programs and assisting the Board in discharging its responsibilities relating to (a) oversight of the compensation of our Chief Executive Officer and other executive officers, and (b) approving and evaluating the executive officer compensation plans, policies and programs of MPS. The committee also assists the Board in administering our stock plans and employee stock purchase plan. All members of the Compensation Committee are “independent” in accordance with the applicable listing standards of NASDAQ. The Compensation Committee held six meetings during 2015. The Compensation Committee acts pursuant to a written charter adopted by the Board, which is available in the “Investor Relations” section of our website at http://www.monolithicpower.com.
Nominating and Governance Committee. The Board has designated a Nominating and Governance Committee consisting of three members: Herbert Chang, Eugen Elmiger and Karen A. Smith Bogart. Ms. Smith Bogart is the chairwoman of the Nominating and Governance Committee. This committee is responsible for the development of general criteria regarding the qualifications and selection of Board members, recommending candidates for election to the Board, developing overall governance guidelines and overseeing the overall performance of the Board. All members of the Nominating and Governance Committee are “independent” in accordance with the applicable listing standards of NASDAQ. The Nominating and Governance Committee held four meetings in 2015. The Nominating and Governance Committee acts pursuant to a written charter adopted by the Board, which is available in the “Investor Relations” section of our website at http://www.monolithicpower.com.
Nomination Process
The Board has adopted guidelines for the identification, evaluation and nomination of candidates for director. The Nominating and Governance Committee considers the suitability of each candidate, including any candidates recommended by stockholders holding at least 5% of the outstanding shares of our voting securities continuously for at least 12 months prior to the date of the submission of the recommendation for nomination. If the Nominating and Governance Committee wishes to identify new independent director candidates for Board membership, it is authorized to retain and approve fees of third party executive search firms to help identify prospective director nominees. Our policy on board diversity relates to the selection of nominees for the Board. Our policy provides that while creating a Board with a variety of experiences and viewpoints should always be considered by the Nominating and Governance Committee when considering director nominees, a director nominee should neither be chosen nor excluded because of race, color, gender, national origin or sexual orientation or identity. Instead, in selecting a director nominee, the Nominating and Governance Committee focuses on skills, expertise or background that would complement the existing Board, recognizing that our businesses and operations are diverse and global in nature. While there are no specific minimum qualifications for director nominees, the ideal candidate should (a) exhibit independence, integrity, and qualifications that will increase overall Board effectiveness, and (b) meet other requirements as may be required by applicable rules, such as financial literacy or expertise for audit committee members. The Nominating and Governance Committee uses the same process for evaluating all nominees, regardless of the original source of the nomination. After completing its review and evaluation of director candidates, the Nominating and Governance Committee recommends to the Board the director nominees for selection.
A stockholder that desires to recommend a candidate for election to the Board should direct such recommendation in writing to Monolithic Power Systems, Inc., 79 Great Oaks Boulevard, San Jose, CA 95119, Attention: Corporate Secretary, and must include the candidate’s name, home and business contact information, detailed biographical data and qualifications, information regarding any relationships between the candidate and us within the last three years and evidence of the nominating person’s ownership of our stock. Such stockholder nomination must be made pursuant to the notice provisions set forth in our Bylaws and for each proposed nominee who is not an incumbent director, the stockholder’s notice must set forth all of the information regarding such nominating person and proposed nominee set forth in our Bylaws.
Stockholder Communications
The Board has approved a Stockholder Communication Policy to provide a process by which stockholders may communicate directly with the Board or one or more of its members. You may contact any of our directors by writing to them, whether by mail or express mail, c/o Monolithic Power Systems, Inc., 79 Great Oaks Boulevard, San Jose, CA 95119, Attention: Corporate Secretary. Any stockholder communicationsEnsuring that the Board is at least two-thirds independent and that key committees are independent.
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Our independent directors meet in executive session during a portion of every regularly scheduled Board meeting, and otherwise as needed. Our Lead Director presides over meetings of our independent directors and we believe that these meetings help to ensure an appropriate level of independent scrutiny of the functioning of the Board. Board Oversight of Risk The Board is primarily responsible for the oversight of risks that could affect MPS. Our senior management team, which conducts our day-to-day risk management, is responsible for assisting the Board with its risk oversight function. This oversight is conducted principally through committees of the Board, as disclosed in the descriptions of each of the committees below and in the charters of each of the committees, but the full Board has retained responsibility for general oversight of risk. The Board satisfies its responsibility by requiring each committee chair to regularly report regarding the committee’s considerations and actions, as well as by requiring officers responsible for oversight of particular risks within MPS to submit regular reports. As these reports are submitted independent of review by Mr. Hsing, our President, Chief Executive Officer and the Chairman of the Board, the Board believes that its conduct of its risk oversight function has no impact on the Board’s leadership structure other than to reinforce the involvement of the Board in ongoing management of MPS. In addition to requiring regular reporting from committees and officers, the Board also hears from third-party advisors in order to maintain oversight of risks that could affect us, including our independent auditors, outside counsel, compensation consultants and others. These advisors are consulted on a periodic basis, and as particular issues arise, in order to provide the Board with the benefit of independent expert advice and insights on specific risk-related matters. At its regularly scheduled meetings, the Board also receives management updates on the business, including operational issues, financial results, and business outlook and strategy. Our Audit Committee also assists the full Board in its oversight of risk by discussing with management our compliance with legal and regulatory requirements, our policies with respect to risk assessment and management of risks that may affect us, and our system of disclosure control and system of controls over financial reporting. Risks related to our company-wide compensation programs are reviewed by our Compensation Committee. For more information on the Compensation Committee’s compensation risk assessment, see the section “Named Executive Officer Compensation – Compensation Risk Management.” Our Nominating Committee provides compliance oversight and reports to the full Board on compliance and makes recommendations to our Board on corporate governance matters, including director nominees, the determination of director independence, and board and committee structure and membership. We believe the division of risk management responsibilities described above is an effective approach for addressing the risks facing us and that the Board leadership structure supports this approach. Board Meetings and Committees The Board held a total of four meetings during 2019, and all directors attended at least 75% of the meetings of the Board and the committees upon which such director served. Audit Committee. The Board has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the 1934 Act, which currently consists of three members: Herbert Chang, Victor K. Lee and Jeff Zhou. Mr. Lee is the chairman of the Audit Committee. This committee oversees our financial reporting process and procedures, is responsible for the appointment and terms of engagement of our independent registered public accounting firm, reviews our financial statements, and coordinates and approves the activities of our independent registered public accounting firm. The Board has determined that Mr. Lee is an “audit committee financial expert,” as defined under the rules of the SEC, and all members of the Audit Committee are “independent” in accordance with the applicable SEC regulations and the applicable listing standards of NASDAQ. The Audit Committee held four meetings during 2019. The Audit Committee acts pursuant to a written charter adopted by the Board, which is available in the “Investor Relations” section of our website at http://www.monolithicpower.com. Compensation Committee. The Board has designated a Compensation Committee consisting of three members: Herbert Chang, Eugen Elmiger and Jeff Zhou. Mr. Zhou is the chairman of the Compensation Committee. This committee is responsible for providing oversight of our compensation policies, plans and benefits programs and assisting the Board in discharging its responsibilities relating to (a) oversight of the compensation of our Chief Executive Officer and other executive officers, and (b) approving and evaluating the executive officer compensation plans, policies and programs of MPS. The committee also assists the Board in administering our stock plans and employee stock purchase plan. All members of the Compensation Committee are “independent” in accordance with the applicable listing standards of NASDAQ. The Compensation Committee held four meetings during 2019. The Compensation Committee acts pursuant to a written charter adopted by the Board, which is available in the “Investor Relations” section of our website at http://www.monolithicpower.com. Nominating Committee. The Board has designated a Nominating Committee consisting of two members: Herbert Chang and Eugen Elmiger. Mr. Elmiger is the chairman of the Nominating Committee. This committee is responsible for the development of general criteria regarding the qualifications and selection of Board members, recommending candidates for election to the Board, developing overall governance guidelines and overseeing the overall performance of the Board. All members of the Nominating Committee are “independent” in accordance with the applicable listing standards of NASDAQ. The Nominating Committee held four meetings in 2019. The Nominating Committee acts pursuant to a written charter adopted by the Board, which is available in the “Investor Relations” section of our website at http://www.monolithicpower.com. The information contained on our website is not intended to be part of this Proxy Statement and is not incorporated by reference into this Proxy Statement. Nomination Process The Board has adopted guidelines for the identification, evaluation and nomination of candidates for director. The Nominating Committee considers the suitability of each candidate, including any candidates recommended by stockholders holding at least 5% of the outstanding shares of our voting securities continuously for at least 12 months prior to the date of the submission of the recommendation for nomination. If the Nominating Committee wishes to identify new independent director candidates for Board membership, it is authorized to retain and approve fees of third party executive search firms to help identify prospective director nominees. In April 2018, in response to stockholders’ feedback, the Board considered and adopted an amendment to the Nominating Committee Charter (available in the “Investor Relations” section of our website at http://www.monolithicpower.com) on the evaluation of prospective candidates. In addition to the minimum qualifications the Nominating Committee has established for director nominees, the Nominating Committee will also consider whether the prospective nominee will foster a diversity of genders, backgrounds, skills, perspectives and experiences in the process of its evaluation of each prospective nominee. The Nominating Committee also focuses on skills, expertise or background that would complement the existing Board, recognizing that our businesses and operations are diverse and global in nature. While there are no specific minimum qualifications for director nominees, the ideal candidate should (a) exhibit independence, integrity, and qualifications that will increase overall Board effectiveness, and (b) meet other requirements as may be required by applicable rules, such as financial literacy or expertise for audit committee members. The Nominating Committee uses the same process for evaluating all nominees, regardless of the original source of the nomination. After completing its review and evaluation of director candidates, the Nominating Committee recommends to the Board the director nominees for selection. A stockholder that desires to recommend a candidate for election to the Board should direct such recommendation in writing to Monolithic Power Systems, Inc., 5808 Lake Washington Boulevard NE, Kirkland, Washington 98033, Attention: Corporate Secretary, and must include the candidate’s name, home and business contact information, detailed biographical data and qualifications, information regarding any relationships between the candidate and us within the last three years and evidence of the nominating person’s ownership of our stock. Such stockholder nomination must be made pursuant to the notice provisions set forth in our Bylaws and for each proposed nominee who is not an incumbent director, the stockholder’s notice must set forth all of the information regarding such nominating person and proposed nominee set forth in our Bylaws. Stockholder Communications The Board has approved a Stockholder Communication Policy to provide a process by which stockholders may communicate directly with the Board or one or more of its members. You may contact any of our directors by writing to them at c/o Monolithic Power Systems, Inc., 5808 Lake Washington Boulevard NE, Kirkland, Washington 98033, Attention: Corporate Secretary. Any stockholder communications that the Board is to receive will first go to the Corporate Secretary, who will log the date of receipt of the communication as well as the identity of the correspondent in our stockholder communications log. The Corporate Secretary will review, summarize and, if appropriate, draft a response to the communication in a timely manner. The Corporate Secretary will then forward copies of the stockholder communication to the Board member(s) (or specific Board member(s) if the communication is so addressed) for review, provided that such correspondence concerns the functions of the Board or its committees, or otherwise requires the attention of the Board or its members. Attendance at Annual Meetings of Stockholders by the Board of Directors We do not have a formal policy regarding attendance by members of the Board at our annual meetings of stockholders. In 2019, no Board members attended the Annual Meeting. Code of Ethics and Business Conduct We have adopted a Code of Ethics and Business Conduct, which is applicable to our directors and employees, including our principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions. The Code of Ethics and Business Conduct is available in the “Investor Relations – Corporate Governance” section of our website at http://www.monolithicpower.com. We will disclose on our website any amendment to the Code of Ethics and Business Conduct, as well as any waivers of the Code of Ethics and Business Conduct, that are required to be disclosed by the rules of the SEC or NASDAQ. Director Voting Policy The Board has adopted a director voting policy, which can be found in the “Investor Relations – Corporate Governance” section of our website at http://www.monolithicpower.com. The policy establishes that any director nominee who receives more “Withheld” votes than “For” votes in an uncontested election held in an annual meeting of stockholders shall promptly tender his or her resignation. The independent directors of the Board will then evaluate the relevant facts and circumstances and make a decision, within 90 days after the election, on whether to accept the tendered resignation. The Board will promptly publicly disclose its decision and, if applicable, the reasons for rejecting the tendered resignation. 2019 Director Compensation Analysis of 2019 Compensation Elements For 2019, the Board engaged Radford, an independent compensation consultant, to review the non-employee director compensation. In its analysis, Radford gathered the market data on the size and type of compensation paid by our industry peer group for 2019 (see the section “Named Executive Officer Compensation — Peer Group and Use of Peer Data for 2019” for more information on the selection of the peer group). Based on its review of the results of this market review and recommendations by Radford, the Board did not make any changes to the compensation for our non-employee directors for service in 2019, which is summarized as follows: Fee Description | | Amount | Annual board retainer fee | | $50,000 | Lead director fee | | $18,000 | Compensation Committee chairperson fee | | $18,000 | Compensation Committee membership fee (excluding chairperson) | | $8,000 | Nominating Committee chairperson fee | | $13,500 | Nominating Committee membership fee (excluding chairperson) | | $6,000 | Audit Committee chairperson fee | | $25,000 | Audit Committee membership fee (excluding chairperson) | | $10,500 | Initial restricted stock unit (“RSU”) grant to new directors | | Number of RSUs equal to $175,000 | Annual RSU grant to incumbent directors | | Number of RSUs equal to $175,000 |
The initial grant of RSUs to new directors vest as to 50% of the underlying shares of Common Stock on each of the first and second anniversaries of the date of grant. The annual grant of RSUs to incumbent directors vests as to 100% of the underlying shares of Common Stock on the first anniversary of the date of the grant. All awards will become fully vested in the event of a change in control. All of our non-employee directors are subject to stock ownership guidelines that are described below in the section “Named Executive Officer Compensation — Compensation Discussion and Analysis — Stock Ownership Guidelines.” The following table sets forth the total compensation paid to each non-employee director for service in 2019. Mr. Hsing, who is our employee, does not receive additional compensation for his services as a director. Mr. Hsing’s compensation as a named executive officer is reflected in the section “Named Executive Officer Compensation — 2019 Summary Compensation Table.” Name | | Fees Earned or Paid in Cash | | | Stock Awards (1) | | | Total | | Herbert Chang | | $ | 92,500 | | | $ | 175,000 | | | $ | 267,500 | | Eugen Elmiger | | $ | 71,500 | | | $ | 175,000 | | | $ | 246,500 | | Victor K. Lee | | $ | 75,000 | | | $ | 175,000 | | | $ | 250,000 | | James C. Moyer | | $ | 50,000 | | | $ | 175,000 | | | $ | 225,000 | | Jeff Zhou | | $ | 78,500 | | | $ | 175,000 | | | $ | 253,500 | |
| (1) | Reflects the aggregate grant date fair value of the communication as well asawards granted to each director in 2019, computed in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 718, which was calculated using the identity of the correspondent in our stockholder communications log. The Corporate Secretary will review, summarize and, if appropriate, draft a response to the communication in a timely manner. The Corporate Secretary will then forward copies of the stockholder communication to the Board member(s) (or specific Board member(s) if the communication is so addressed) for review, provided that such correspondence concerns the functions of the Board or its committees, or otherwise requires the attention of the Board or its members. Attendance at Annual Meetings of Stockholders by the Board of Directors
We do not have a formal policy regarding attendance by members of the Board at our annual meetings of stockholders. In 2015, two Board members attended the Annual Meeting.
Code of Ethics and Business Conduct
We have adopted a Code of Ethics and Business Conduct, which is applicable to our directors and employees, including our principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions. The Code of Ethics and Business Conduct is available in the “Investor Relations – Corporate Governance” sectionclosing price of our website at http://www.monolithicpower.com. We will discloseCommon Stock on our website any amendment to the Code of Ethics and Business Conduct, as well as any waivers of the Code of Ethics and Business Conduct, that are required to be disclosed by the rules of the SEC or NASDAQ.
Director Voting Policy
The Board has adopted a director voting policy, which can be foundin the “Investor Relations – Corporate Governance” section of our website at http://www.monolithicpower.com. The policy establishes that any director nominee who receives more “Withheld” votes than “For” votes in an uncontested election held in an annual meeting of stockholders shall promptly tender his or her resignation. The independent directors of the Board will then evaluate the relevant facts and circumstances and make a decision, within 90 days after the election, on whether to accept the tendered resignation. The Board will promptly publicly disclose its decision and, if applicable, the reasons for rejecting the tendered resignation.
Director Compensation
Analysis of 2015 Compensation Elements
For 2015, the Compensation Committee engaged Meyercord & Associates to review the non-employee director compensation. In its analysis, Meyercord & Associates gathered the market data on the size and type of compensation paid by our industry peer group for 2015 (see the section“Peer Group and Use of Peer Data for 2015” for more information on the selection of the peer group). Based on the results and recommendations by Meyercord & Associates, the Board approved the following compensation for our non-employee directors for service in 2015, which did not change from 2014:
Fee Description
| | Amount
| Annual board retainer fee
| | $42,000
| Lead director fee
| | $12,000
| Compensation Committee chairperson fee
| | $18,000
| Compensation Committee membership fee (excluding chairperson)
| | $8,000
| Nominating and Governance Committee chairperson fee
| | $13,500
| Nominating and Governance Committee membership fee (excluding chairperson)
| | $6,000
| Audit Committee chairperson fee
| | $22,500
| Audit Committee membership fee (excluding chairperson)
| | $10,500
| Initial grant to new directors
| | 5,000 restricted stock units (“RSUs”)
| Annual grant to incumbent directors
| | Number of RSUs equal to $120,000
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For the initial grant of RSUs to new directors, 50% vests one year from the date of grant and the remaining 50% vests two years from the date of grant. For the annual grant of RSUs to incumbent directors, 100% vests one year from the date of the grant. All awards will become fully vested immediatelyfor such awards. Assumptions used in the eventcalculation of a changethese amounts are included in control.
The following table sets forth the total compensation paid to each non-employee director for service in 2015. Mr. Hsing, who is our employee, did not receive additional compensation for his services as a director. Mr. Hsing’s compensation as a named executive officer is reflected in the section“Summary Compensation Table.”In addition, Mr. Moyer, who was an employee prior to January 5, 2016, did not receive additional compensation for his services as an inside director in 2015.
Name | | Fees Earned or Paid in Cash | | | Stock Awards (1) | | | Total | | Herbert Chang | | $ | 68,000 | | | $ | 120,000 | | | $ | 188,000 | | Eugen Elmiger | | $ | 56,000 | | | $ | 120,000 | | | $ | 176,000 | | Victor Lee | | $ | 64,500 | | | $ | 120,000 | | | $ | 184,500 | | Karen A. Smith Bogart | | $ | 66,000 | | | $ | 120,000 | | | $ | 186,000 | | Jeff Zhou | | $ | 70,500 | | | $ | 120,000 | | | $ | 190,500 | |
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| (1)
| Reflects the aggregate grant date fair value of the awards granted to each director in 2015, computed in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 718, which was calculated using the closing price of our Common Stock on the date of grant for such awards. Assumptions used in the calculation of these amounts are included in Note 1 and Note 7Note 1 and Note 8 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on February 29, 2016.
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The following table summarizes the number of shares of our Common Stock that are subject to outstanding awards held by each of the non-employee directors as of December 31, 2015:
Name | | Stock Awards | | | Option Awards | | Herbert Chang | | | 2,533 | | | | - | | Eugen Elmiger | | | 2,533 | | | | - | | Victor Lee | | | 2,533 | | | | 26,176 | | Karen A. Smith Bogart | | | 2,533 | | | | 1,176 | | Jeff Zhou | | | 2,533 | | | | - | |
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board has appointed Deloitte & Touche, LLP (“Deloitte & Touche”) as the independent registered public accounting firm of MPS for the fiscal year ending December 31, 2016. Deloitte & Touche has audited our financial statements since 1999. Representatives of Deloitte & Touche are expected to be present at the Annual Meeting with the opportunity to make a statement if they desire to do so, and are expected to be available to respond to appropriate questions. Although ratification by stockholders is not required by law, the Board has determined that it is desirable to request ratification of this selection by the stockholders. Notwithstanding its selection, the Audit Committee, in its discretion, may appoint a new independent registered public accounting firm at any time during the year if the Audit Committee believes that such a change would be in the best interest of us and our stockholders. If the stockholders do not ratify the appointment of Deloitte & Touche, the Audit Committee may reconsider its selection.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE, LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2016.
Audit and Other Fees
The following table shows the fees paid by us for the audit and other services provided by Deloitte & Touche for 2014 and 2015 (in thousands):
| | 2014 | | | 2015 | | Audit fees | | $ | 1,210 | | | $ | 1,133 | | Audit-related fees | | | 39 | | | | 99 | | Tax fees | | | - | | | | - | | Total | | $ | 1,249 | | | $ | 1,232 | |
Audit fees consist of fees billed for professional services rendered for the audit of our annual financial statements and review of the interim financial statements included in our quarterly reports and the audit of our internal control over financial reporting.
Audit fees also include services that are normally provided by the independent auditors in connection with foreign statutory and regulatory filings and advice on audit and accounting matters that arise during, or as a result of, the audit or the review of interim financial statements, including the application of proposed accounting rules, statutory audits required by non-U.S. jurisdictions and the preparation of an annual “management letter” containing observations and discussions on internal control matters.
Audit-related feesrepresent assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under "Audit Fees." These services include accounting consultations in connection with attestation services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards.
Tax fees represent professional services for federal, state and international tax compliance, tax advice and tax planning.
Pre-Approval of Audit and Non-Audit Services
The charter of our Audit Committee requires that the Audit Committee pre-approve all audit and non-audit services provided to us by our independent registered public accounting firm or subsequently approve non-audit services in those circumstances where a subsequent approval is necessary and permissible. All such services for 2014 and 2015 were pre-approved by the Audit Committee.
PROPOSAL THREE
ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION
As required under Section 14A of the Securities Exchange Act of 1934, we are asking stockholders to again cast an advisory (non-binding) vote on the following resolution at the Annual Meeting:
RESOLVED, that, on an advisory basis, the compensation of our named executive officers, as disclosed in the Compensation Discussion and Analysis, compensation tables and related narratives and descriptions of this Proxy Statement for the Annual Meeting, is hereby APPROVED.
This advisory vote, commonly known as a “say-on-pay” vote, gives our stockholders the opportunity to express their views about the compensation we paid to our named executive officers in the prior year, as described in this Proxy Statement. Before stockholders vote on this proposal, they should review the Compensation Discussion and Analysis in this Proxy Statement and the tabular and narrative disclosure that follows it. We currently conduct say-on-pay votes every year, and expect we will conduct the next say-on-pay vote at the 2017 Annual Meeting of Stockholders.
We are committed to responsible compensation practices and structures. As described more fully in the Compensation Discussion and Analysis section of this Proxy Statement, the primary goal of our named executive officer compensation program is the same as our goal for operating MPS — to create long-term value for our stockholders. To achieve this goal, we have regularly sought out the feedback of our major stockholders over the past several years to hear their suggestions on how we can better achieve our primary compensation goal. After taking their feedback into consideration, we have continued to update our compensation program for our named executive officers, implementing those recommendations of our stockholders that the Board believes will help us create long-term value for our stockholders. For example, in December 2015, based on feedback we received during 2015 from some of our larger stockholders, we implemented a special performance stock unit plan with stock price performance hurdles and operational goals. We believe these annual reviews of our programs, in coordination with our conversations with our stockholders, allow us to motivate and reward our executives for sustained financial and operating performance and leadership excellence, to align their interests with those of our stockholders, and to encourage them to remain with us for long and productive careers.
Stockholders may vote“for” or“against” the resolution or abstain from voting on the resolution. The result of the say-on-pay vote will not be binding on us or the Board. However, the Board values the views of the stockholders. The Board and the Compensation Committee will review the results of the vote and expect to take them into consideration in addressing future compensation policies and decisions.
The affirmative vote of a majority of the shares of stock entitled to vote thereon which are present in person or represented by proxy at the Annual Meeting is required to approve, on an advisory basis, the compensation of our named executive officers. While this vote is advisory and not binding on us or our Board, the Board and Compensation Committee intend to take into account the outcome of the vote when considering future executive compensation arrangements.
FOR THESE REASONS, THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THE COMPENSATION DISCUSSION AND ANALYSIS, COMPENSATION TABLES AND RELATED NARRATIVES AND DESCRIPTIONS OF THIS PROXY STATEMENT FOR THE ANNUAL MEETING.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 19, 2016, information relating to the beneficial ownership of our Common Stock or securities exchangeable into our Common Stock by: (i) each person known by us to be the beneficial owner of more than five percent (5%) of the outstanding shares of our Common Stock, (ii) each director (or nominee), (iii) each of the named executive officers named in the Summary Compensation Table, and (iv) all directors and executive officers as a group.
Unless otherwise indicated, the address of each beneficial owner listed below is Monolithic Power Systems, Inc., 79 Great Oaks Boulevard, San Jose, CA 95119.
Name of Beneficial Owners | | Number of Shares Beneficially Owned | | | Percent of Shares Beneficially Owned (1) | | | | | | | | | | | Named Executive Officers and Directors: | | | | | | | | | Michael R. Hsing (2) | | | 702,153 | | | | 2 | % | James C. Moyer (3) | | | 956,125 | | | | 2 | % | Maurice Sciammas (4) | | | 105,030 | | | | * | | Deming Xiao (5) | | | 19,626 | | | | * | | Saria Tseng (6) | | | 11,948 | | | | * | | Meera Rao (7) | | | 3,981 | | | | * | | Herbert Chang (8) | | | 6,026 | | | | * | | Eugen Elmiger (9) | | | 11,261 | | | | * | | Victor K. Lee (10) | | | 46,791 | | | | * | | Karen A. Smith Bogart (11) | | | 21,991 | | | | * | | Jeff Zhou (12) | | | 14,815 | | | | * | | All directors and executive officers as a group (13) | | | 1,895,766 | | | | 5 | % | | | | | | | | | | 5% stockholders: | | | | | | | | | FMR LLC (14) (18) | | | 4,139,254 | | | | 10 | % | BlackRock, Inc. (15) (18) | | | 3,554,887 | | | | 9 | % | The Vanguard Group (16) (18) | | | 2,731,287 | | | | 7 | % | RS Investment Management Co. LLC (17) (18) | | | 2,114,648 | | | | 5 | % |
* Represents beneficial ownership of less than 1%.
____________________
(1)
| Based on 40,240,316 shares of our Common Stock outstanding on April 19, 2016. Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage of ownership of that person, stock options held by that person that are currently exercisable or become exercisable within 60 days of April 19, 2016 and RSUs held by that person that are subject to release within 60 days of April 19, 2016 are considered to be outstanding and beneficially owned by such person. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person.
|
(2)
| Includes (i) 500,204 shares held of record by Michael Hsing, (ii) 133,040 shares held of record by Michael Hsing, Trustee of the Michael Hsing 2004 Trust, (iii) 29,000 shares held of record by the Hsing Family Foundation, and (iv) 39,909 shares underlying RSUs scheduled to release within 60 days of April 19, 2016.
|
(3)
| Includes (i) 884,302 shares held of record by James C. Moyer, and (ii) 71,823 shares held in the Moyer Family Revocable Trust.
|
(4)
| Includes (i) 77,836 shares held of record by Maurice Sciammas, (ii) 15,246 shares held of record by Maurice Sciammas and Christina Sciammas, Co-Trustees of the Sciammas Family Living Trust, and (iii) 11,948 shares underlying RSUs scheduled to release within 60 days of April 19, 2016.
|
(5)
| Includes (i) 6,172 shares owned by Julia Chu, Mr. Xiao’s wife, and (ii) 13,454 shares underlying RSUs scheduled to release within 60 days of April 19, 2016.
|
(6)
| Includes 11,948 shares underlying RSUs scheduled to release within 60 days of April 19, 2016.
|
(7)
| Includes 3,981 shares held of record by Meera Rao.
|
(8)
| Includes 6,026 shares held of record by Herbert Chang.
|
(9)
| Includes 11,261 shares held of record by Eugen Elmiger.
|
(10)
| Includes (i) 20,615 shares held of record by Victor K. Lee, and (ii) 26,176 shares underlying stock options exercisable as of April 19, 2016.
| | | (11)
| Includes (i) 20,815 shares held of record by Karan A. Smith Bogart, and (ii) 1,176 shares underlying stock options exercisable as of April 19, 2016.
| | | (12)
| Includes 14,815 shares held of record by Jeff Zhou.
|
(13)
| As a group, includes (i) 27,352 shares underlying stock options exercisable as of April 19, 2016, and (ii) 77,259 shares underlying RSUs scheduled to release within 60 days of April 19, 2016.
|
(14)
| Pursuant to a Schedule 13G/A filed with the SEC on February 12, 2016, FMR LLC beneficially owns 4,139,254 shares, and has sole voting power over 1,937,216 shares and sole dispositive power over 4,139,254 shares. FMR LLC lists its address as 245 Summer Street, Boston, Massachusetts 02210.
|
(15)
| Pursuant to a Schedule 13G/A filed with the SEC on January 26, 2016, BlackRock, Inc. beneficially owns 3,554,887 shares, and has sole voting power over 3,456,269 shares and sole dispositive power over 3,554,887 shares. BlackRock, Inc. lists its address as 55 East 52nd Street, New York, NY 10055.
|
(16)
| Pursuant to a Schedule 13G/A filed with the SEC on February 10, 2016, The Vanguard Group beneficially owns 2,731,287 shares, and has sole voting power over 85,499 shares, shared voting power over 2,200 shares, sole dispositive power over 2,645,888 shares and shared dispositive power over 85,399 shares. The Vanguard Group lists its address as 100 Vanguard Blvd., Malvem, PA 19355.
|
(17)
| Pursuant to a Schedule 13G filed with the SEC on February 12, 2016, RS Investment Management Co. LLC beneficially owns 2,114,648 shares, and has sole voting power over 2,074,168 shares and sole dispositive power over 2,114,648 shares. RS Investment Management Co. LLC lists its address as One Bush Street, Suite 900, San Francisco, CA 94104.
|
(18)
| Represents ownership as of December 31, 2015 obtained from Schedule Form 13G and Schedule 13G/A filings. The ownership as of April 19, 2016 was not publicly available.
|
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the 1934 Act and regulations of the SEC thereunder require our executive officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of initial ownership and changes in ownership with the SEC. Based solely on our review of copies of such forms received by us, or on written representations from certain reporting persons that no other reports were required for such persons, we believe that, during 2015, all of the Section 16(a) filing requirements applicable to our executive officers, directors and 10% stockholders were complied with.
Certain Relationships and Related Transactions
We have a written policy on related party transactions, as defined in our Code of Ethics and Business Conduct and the Audit Committee Charter. In accordance with our Code of Ethics and Business Conduct, it is the responsibility of our employees and directors to disclose any significant financial interest in a transaction between us and a third party, including an indirect interest, through, for example, a relative or significant other. It is also the responsibility of our Audit Committee, as described in the Audit Committee Charter, to review on an ongoing basis all related party transactions and approve these transactions before they are entered into.
Mr. Deming Xiao is a named executive officer of MPS. Mr. Xiao’s spouse, Julia Chu, is employed by MPS as Director of Quality Improvement and Failure Analysis. In 2015, Ms. Chu received a base salary of $88,000 as a part-time employee and a non-equity incentive award of $29,000. In 2015, Ms. Chu was granted 569 shares of RSUs, which were approved by the Compensation Committee and had a grant date fair value of $28,000.
EXECUTIVE OFFICER COMPENSATION
Compensation Discussion and Analysis
This Compensation Discussion and Analysis describes our compensation philosophy and programs, compensation decisions made under those programs, and factors considered in making these decisions for our “named executive officers” (“NEOs”) who, for 2015, were:
| ●
| Michael R. Hsing, Chief Executive Officer, President and Chairman of the Board;
|
| ●
| Meera Rao, Chief Financial Officer (1);
|
| ●
| Deming Xiao, President of Asia Operations;
|
| ●
| Maurice Sciammas, Senior Vice President, Worldwide Sales and Marketing; and
|
| ●
| Saria Tseng, Vice President, Strategic Corporate Development, General Counsel and Corporate Secretary.
|
_____________
| (1)
| Ms. Rao retired from MPS effective March 31, 2016. Mr. Bernie Blegen, our Corporate Controller, serves as our interim Chief Financial Officer until a successor is found. Ms. Rao remains available in an advisory capacity until the transition is complete. All of Ms. Rao’s unvested equity awards were cancelled on March 31, 2016.
|
For further information regarding our NEOs’ professional background, please refer to the section “Executive Officers of the Registrant”under Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2015,2019, filed with the SEC on February 29, 2016.28, 2020.
|
The following table summarizes the number of shares of our Common Stock that are subject to unvested awards held by each of the non-employee directors as of December 31, 2019: Name | | Stock Awards | | Herbert Chang | | | 1,339 | | Eugen Elmiger | | | 1,339 | | Victor K. Lee | | | 1,339 | | James C. Moyer | | | 1,339 | | Jeff Zhou | | | 1,339 | |
PROPOSAL TWO RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Audit Committee of the Board has appointed Ernst & Young LLP (“Ernst & Young”) as our independent registered public accounting firm for the year ending December 31, 2020. Ernst & Young has served as our independent registered public accounting firm since March 18, 2019. Prior to March 18, 2019, Deloitte & Touche LLP (“Deloitte & Touche”) served as our independent registered public accounting firm. Representatives of Ernst & Young are expected to be present at the Annual Meeting with the opportunity to make a statement if they desire to do so, and are expected to be available to respond to appropriate questions. Although ratification by stockholders is not required by law, the Board has determined that it is desirable to request ratification of this selection by the stockholders. Notwithstanding its selection, the Audit Committee, in its discretion, may appoint a new independent registered public accounting firm at any time during the year if the Audit Committee believes that such a change would be in the best interest of us and our stockholders. If the stockholders do not ratify the appointment of Ernst & Young, the Audit Committee may reconsider its selection. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2020. Audit and Other Fees The following table summarizes the fees for services provided by our independent registered public accounting firms for 2019 and 2018 (in thousands):
| | FY 2019 | | | FY 2018 | | | | (Ernst & Young) | | | (Deloitte & Touche) | | Audit fees | | $ | 1,099 | | | $ | 2,002 | | Audit-related fees | | | - | | | | - | | Tax fees | | | 5 | | | | 79 | | Total | | $ | 1,104 | | | $ | 2,081 | |
Audit fees consist of fees billed for professional services rendered for the audit of our annual financial statements and review of the interim financial statements included in our quarterly reports and the audit of our internal control over financial reporting. Audit fees also include services in connection with foreign statutory and regulatory filings, and audit and accounting matters that arise during, or as a result of, the audit or the review of interim financial statements, including the application of proposed accounting rules, statutory audits required by non-U.S. jurisdictions and the preparation of an annual “management letter” containing observations and discussions on internal control matters. Audit-related fees represent assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under "Audit Fees." These services include accounting consultations in connection with attestation services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards. Tax fees represent professional services for federal, state and international tax compliance, tax advice and tax planning. Pre-Approval of Audit and Non-Audit Services The charter of our Audit Committee requires that the Audit Committee pre-approve all audit and non-audit services provided to us by our independent registered public accounting firm or subsequently approve non-audit services in those circumstances where a subsequent approval is necessary and permissible. All such services for 2019 and 2018 were pre-approved by the Audit Committee. Change in Independent Registered Public Accounting Firm As previously reported in our Current Report on Form 8-K (the “Current Report”) dated March 22, 2019, following a comprehensive process, the Audit Committee dismissed Deloitte & Touche as our independent registered public accounting firm on March 18, 2019. Deloitte & Touche’s reports on our consolidated financial statements as of and for the years ended December 31, 2018 and December 31, 2017 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. In addition, the audit reports of Deloitte & Touche on the effectiveness of internal control over financial reporting as of December 31, 2018 and December 31, 2017 did not contain any adverse opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. During the years ended December 31, 2018 and December 31, 2017, and the subsequent interim period through March 18, 2019, there were (i) no “disagreements” as that term is defined in Item 304(a)(1)(iv) of Regulation S-K, between us and Deloitte & Touche on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Deloitte & Touche, would have caused Deloitte & Touche to make reference to the subject matter of the disagreement in their reports, and (ii) no “reportable events” as that term is defined in Item 304(a)(1)(v) of Regulation S-K. We provided Deloitte & Touche with a copy of the disclosures made in the Current Report. In addition, we requested that Deloitte & Touche furnish a letter addressed to the SEC stating whether or not it agreed with the statements made in the Current Report. A copy of Deloitte & Touche’s letter dated March 22, 2019 was attached as Exhibit 16.1 to the Current Report. During the fiscal years ended December 31, 2018 and December 31, 2017, and the subsequent interim period through March 18, 2019, neither we nor anyone acting on our behalf has consulted with Ernst & Young with respect to (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, and neither a written report nor oral advice was provided to us that Ernst & Young concluded was an important factor considered by us in reaching a decision as to any accounting, auditing, or financial reporting issue or (ii) any matter that was either the subject of a “disagreement” or “reportable event” as those terms are defined in Item 304(a)(1) of Regulation S-K. PROPOSAL THREE ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION As required under Section 14A of the Securities Exchange Act of 1934, we are asking stockholders to again cast an advisory (non-binding) vote on the following resolution at the Annual Meeting: RESOLVED, that, on an advisory basis, the compensation of our named executive officers, as disclosed in the Compensation Discussion and Analysis, compensation tables and related narratives and descriptions of this Proxy Statement for the Annual Meeting, is hereby APPROVED. This advisory vote, commonly known as a “say-on-pay” vote, gives our stockholders the opportunity to express their views about the compensation we paid to our named executive officers in the prior year, as described in this Proxy Statement. Before stockholders vote on this proposal, they should review the Compensation Discussion and Analysis in this Proxy Statement and the tabular and narrative disclosure that follows it. We currently conduct say-on-pay votes every year. The next say-on-pay vote is expected to occur at the 2021 annual meeting of stockholders. We are committed to responsible compensation practices and structures. As described more fully in the Compensation Discussion and Analysis section of this Proxy Statement, the primary goal of our executive compensation program is the same as our goal for operating MPS — to create long-term value for our stockholders. To achieve this goal, we have regularly sought out the feedback of our major stockholders over the past several years to hear their suggestions on how we can better achieve our primary compensation goal. After taking their feedback into consideration, we have continued to update our compensation program for our named executive officers, implementing those recommendations of our stockholders that the Compensation Committee believes will help us create long-term value for our stockholders. We believe these annual reviews of our programs, in coordination with our conversations with our stockholders, allow us to motivate and reward our executives for sustained financial and operating performance and leadership excellence, to align their interests with those of our stockholders, and to encourage them to remain with us for long and productive careers. Stockholders may vote “for” or “against” the resolution or abstain from voting on the resolution. The affirmative vote of a majority of the shares of stock entitled to vote thereon which are present in person via attendance at the virtual Annual Meeting or represented by proxy at the Annual Meeting is required to approve, on an advisory basis, the compensation of our named executive officers. The result of the say-on-pay vote will not be binding on us, the Board or the Compensation Committee. However, we value the views of the stockholders. The Board and the Compensation Committee will review the results of the vote and expect to take them into consideration in addressing future compensation policies and decisions. FOR THESE REASONS, THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THE COMPENSATION DISCUSSION AND ANALYSIS, COMPENSATION TABLES AND RELATED NARRATIVES AND DESCRIPTIONS OF THIS PROXY STATEMENT FOR THE ANNUAL MEETING. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of the Record Date on April 20, 2020, information relating to the beneficial ownership of our Common Stock or securities exchangeable into our Common Stock by: (i) each person known by us to be the beneficial owner of more than five percent (5%) of the outstanding shares of our Common Stock, (ii) each director (or nominee), (iii) each of the named executive officers in the 2019 Summary Compensation Table, and (iv) all directors and named executive officers as a group. Unless otherwise indicated, the address of each beneficial owner listed below is Monolithic Power Systems, Inc. at 5808 Lake Washington Boulevard NE, Kirkland, WA 98033. Name of Beneficial Owner | | Number of Shares Beneficially Owned | | | Percent of Shares Beneficially Owned (1) | | | | | | | | | | | Named Executive Officers and Directors: | | | | | | | | | Michael Hsing (2) | | | 608,159 | | | | 1 | % | James C. Moyer (3) | | | 400,131 | | | | 1 | % | Maurice Sciammas (4) | | | 184,961 | | | | * | | Deming Xiao (5) | | | 46,658 | | | | * | | Saria Tseng (6) | | | 57,953 | | | | * | | Bernie Blegen (7) | | | 37,230 | | | | * | | Herbert Chang (8) | | | 11,750 | | | | * | | Eugen Elmiger (9) | | | 17,937 | | | | * | | Victor K. Lee (10) | | | 27,291 | | | | * | | Jeff Zhou (11) | | | 14,711 | | | | * | | Total (12) | | | 1,406,781 | | | | 3 | % | | | | | | | | | | 5% Stockholders: | | | | | | | | | BlackRock, Inc. (13) | | | 4,585,196 | | | | 10 | % | The Vanguard Group (14) | | | 3,838,037 | | | | 9 | % |
* Represents beneficial ownership of less than 1%.
| (1) | Based on 44,715,000 shares of our Common Stock outstanding as of the Record Date on April 20, 2020. Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage of ownership of that person, RSUs held by that person that are subject to release within 60 days of April 20, 2020 are considered to be outstanding and beneficially owned by such person. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. |
| (2) | Includes (i) 412,152 shares held of record by Michael Hsing, (ii) 133,040 shares held of record by Michael Hsing, Trustee of the Michael Hsing 2004 Trust, (iii) 29,000 shares held of record by the Hsing Family Foundation, and (iv) 33,967 shares underlying RSUs scheduled to release within 60 days of April 20, 2020. |
| (3) | Includes (i) 328,308 shares held of record by James C. Moyer, and (ii) 71,823 shares held in the Moyer Family Revocable Trust. |
| (4) | Includes (i) 160,388 shares held of record by Maurice Sciammas, (ii) 15,246 shares held of record by Maurice Sciammas and Christina Sciammas, Co-Trustees of the Sciammas Family Living Trust, and (iii) 9,327 shares underlying RSUs scheduled to release within 60 days of April 20, 2020. |
| (5) | Includes (i) 36,876 shares held of record by Deming Xiao, (ii) 455 shares owned by Julia Chu, Mr. Xiao’s wife, and (iii) 9,327 shares underlying RSUs scheduled to release within 60 days of April 20, 2020. |
| (6) | Includes (i) 48,626 shares held of record by Saria Tseng, and (ii) 9,327 shares underlying RSUs scheduled to release within 60 days of April 20, 2020. |
| (7) | Includes (i) 31,731 shares held of record by Bernie Blegen, and (ii) 5,499 shares underlying RSUs scheduled to release within 60 days of April 20, 2020. |
| (8) | Includes 11,750 shares held of record by Herbert Chang. |
| (9) | Includes 17,937 shares held of record by Eugen Elmiger. |
| (10) | Includes 27,291 shares held of record by Victor K. Lee. |
| (11) | Includes 14,711 shares held of record by Jeff Zhou. |
| (12) | As a group, includes 67,447 shares underlying RSUs scheduled to release within 60 days of April 20, 2020. |
| (13) | Pursuant to a Schedule 13G/A filed with the SEC on February 4, 2020, BlackRock, Inc. beneficially owns 4,585,196 shares, and has sole voting power over 4,425,529 shares and sole dispositive power over 4,585,196 shares. BlackRock, Inc. lists its address as 55 East 52nd Street, New York, NY 10055. |
| (14) | Pursuant to a Schedule 13G/A filed with the SEC on February 12, 2020, the Vanguard Group beneficially owns 3,838,037 shares, and has sole voting power over 23,583 shares, shared voting power over 8,665 shares, sole dispositive power over 3,810,884 shares and shared dispositive power over 27,153 shares. The Vanguard Group lists its address as 100 Vanguard Blvd., Malvern, PA 19355. |
Delinquent Section 16(a) Reports Section 16(a) of the 1934 Act and regulations of the SEC thereunder require our executive officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of initial ownership and changes in ownership with the SEC. Based solely on our review of copies of such forms received by us, or on written representations from certain reporting persons that no other reports were required for such persons, we believe that, during 2019, all of the Section 16(a) filing requirements applicable to our executive officers, directors and 10% stockholders were made on a timely basis. Certain Relationships and Related Transactions We have a written policy on related party transactions, as defined in our Code of Ethics and Business Conduct and the Audit Committee Charter. In accordance with our Code of Ethics and Business Conduct, it is the responsibility of our employees and directors to disclose any significant financial interest in a transaction between us and a third party, including an indirect interest, through, for example, a relative or significant other. It is also the responsibility of our Audit Committee, as described in the Audit Committee Charter, to review on an ongoing basis all related party transactions and approve these transactions before they are entered into. For 2019, we did not enter into any transactions with related persons that are required to be disclosed under Item 404(a) of Regulation S-K. NAMED EXECUTIVE OFFICER COMPENSATION Compensation Discussion and Analysis This Compensation Discussion and Analysis describes our compensation philosophy and programs, compensation decisions made under those programs, and factors considered in making these decisions for our “named executive officers” (“NEOs”) who, for 2019, were: | ● | Michael Hsing, Chief Executive Officer, President and Chairman of the Board; |
| ● | Bernie Blegen, Chief Financial Officer; |
| ● | Deming Xiao, President of Asia Operations; |
| ● | Maurice Sciammas, Senior Vice President, Worldwide Sales and Marketing; and |
| ● | Saria Tseng, Vice President, Strategic Corporate Development, General Counsel and Corporate Secretary. |
For further information regarding each current NEO’s professional background, please refer to the section “Information About Executive Officers”under Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 28, 2020. Executive Summary Executive Summary
Compensation Philosophy The primary objective in designing our compensation program for our NEOs is the same as setting the primary objective for operating MPS — to create long-term value for our stockholders. To achieve this goal, we have designed and implemented our compensation programs for our NEOs to: | ● | motivateMotivate and reward them for sustained financial and operating performance and leadership excellence;
|
| ● | alignAlign their interests with those of our stockholders;
|
| ● | encourageEncourage our NEOs to focus on achieving both short-term goals as well as long-term developmental goals; and
|
| ● | encourageEncourage our NEOs to remain with us for long and productive careers.
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Each one of our executive compensation elements fulfills one or more of our performance, alignment and retention objectives. These elements primarily consist of salary, long-term equity awards and short-term cash incentive compensation, as well as severance benefits and broad-based employee benefits. In deciding on the type and amount of compensation for each executive, we focus on both current pay and the opportunity for future compensation. We believe that maintaining a balance of short-term and long-term compensation elements encourages decision-making that optimizes short-term results and, at the same time, advances our long-term goals. We combine the compensation elements for each NEO in a manner we believe optimizes the executive’s overall contribution to us and our stockholders. InOur Compensation Practices Are Built on Stockholder Feedback and Requests
At the 2014 Annual Meeting of Stockholders, approximately 90% of the votes cast by 95% of our stockholders were in favor of our executive compensation program, and in the 20152019 Annual Meeting of Stockholders, approximately 99% of the votes cast by 94%96% of our stockholders were in favor of our executive compensation program. At the 2018 Annual Meeting of Stockholders, approximately 97% of the votes cast by 96% of our stockholders were in favor of our executive compensation program. At the 2017 Annual Meeting of Stockholders, approximately 98% of the votes cast by 95% of our stockholders were in favor of our executive compensation program. While these say-on-pay votes are only advisory and not binding on us, the Board and the Compensation Committee discussdiscusses the vote results each year with our independent compensation consultant. Our Compensation Practices Are Built on Stockholder Feedback and Requests
Our management team continued the practice of reaching out to our most significant stockholders from time to time to discuss how those stockholders view our executive compensation program, and what kind of changes they would like to see implemented in future years. As a result, whileBased on the Board andoverwhelming multi-year support by the stockholders in favor of our pay-for-performance compensation structure, the Compensation Committee decided to maintaincontinue to grant equity awards based on performance conditions under the general framework of our executive compensation program in 2015 and 2016, they also made important adjustments, including extending2019. In the time-based vesting period for our equity awards, decreasing the portion of our equity compensation awards that can be earned solely based on continued service, and adopting an additional market-based performance stock unit program that focuses on stock price performance and operational metrics over the next four years. Since 2012,past several years, we have continued to work to improve our executive compensation policies and programs, incorporating the suggestions of our stockholders. We believe these improvements, as highlighted below, have supported our financial and strategic successes in the last several years.
1. | 1. | Commitment to short-term profit-based cash incentives, mid-term performance-based equity awards, and cash incentiveslong-term market-based equity awards, and alignment of executive compensation with stockholder interests. | | | |
| A. | In 2015, we2019, 100% of the bonus earned by the NEOs was tied to specific, pre-established non-GAAP operating income metrics. In 2019, 100% of the total equity awards granted to our NEOs were tied to the achievement of performance conditions. We granted performance-based equity awardsrestricted stock units (“PSUs”) based on achievement of an average revenue growth rate as measured against the analog industry’s average revenue growth rate over the two-year performance period of 20152019 and 2016. In addition,2020. No stock awards were granted to the NEOs solely based on our investor feedback, we granted special market and performance-based equity awards using a combination of stock price performance and achievement of long-term operating goals over a four-year period. Approximately 80% of the total equity awards granted to our NEOs were tied to relative revenue growth, stockholder return performance and achievement of operational metrics.continued service. |
| | | | B. | In 2015, 92% - 94% of the cash incentives earned by the NEOs was tied to specific, pre-established operating income metrics.
| | | | | | In 2016, 100% of the equity compensation awards granted to our NEOs at the start of the year are tied to the achievement of performance criteria.
| | | | | B. | Our executive compensation program is designed to align our executives’ short-, mid- and long-term interests to those of our stockholders. For example, inexample: |
| ● | In 2013, we granted market-based restricted stock units (“MSUs”) to our NEOs that contained price hurdles requiring sustained increases in our stock price of 26%with a five-year performance period and a ten-year vesting period. |
| ● | In 2015, we granted market and performance-based restricted stock units (“MPSUs”) to 80% for theour NEOs to be eligible to vestthat combined operating goals and price hurdles requiring sustained increases in those units, combined with time-based vesting through 2023, so that the value of this equity compensation depends on long-term sustainedour stock price performance. with a four-year performance and vesting period. |
| ● | In addition, since2018, we granted MSUs to our NEOs that contained price hurdles requiring sustained increases in our stock price with a five-year performance and vesting period. |
| ● | Since 2014, we have granted performance-based stock unitsPSUs to our NEOs that require significant outperformance against our peers in sustained revenue growth. We believe the significant increase in our stock pricegrowth with a two-year performance period and year-over-year outperformance in revenue growth in 2014 and 2015 demonstrate the effectiveness of our performance-based compensation program in motivating our NEOs to build a sustainable business model and to focus on long-term value creation for our stockholders. | | | | | | Stock Performance:
Our one-year total stockholder return was approximately 30% and our three-year total stockholder return was approximately 190%. Over both of those periods, our total stockholder return has outperformed our peer group and the PHLX Semiconductor Sector Index, as shown in the graphs below:four-year vesting period.
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We believe the significant increase in our stock price and year-over-year outperformance in revenue growth in the past several years demonstrate the effectiveness of our performance-based compensation program in motivating our NEOs to build a sustainable business model and to focus on long-term value creation for our stockholders. Stock Performance: Our one-year total stockholder return was approximately 55% and our three-year total stockholder return was approximately 124%, as shown in the graphs below in comparison to our peer group and the PHLX semiconductor sector index: _________________
| (1) | Represents our 20152019 peer group approved by the Compensation Committee in February 2015.Committee. See the section “Peer Group and Use of Peer Data for 2015”2019” for further discussion. |
Market Capitalization: | | Market Capitalization:
Our strong financial performance in the past several years has led to a significant increase in our market capitalization, surpassing $1 billion in 2013 for the first time in our history and reaching $2 billion in 2015. Because a portion of our NEOs’ total target compensation has been in the form of equity compensation which contains stock price performance components, the value of our NEOs’ compensation is closely tied to our market performance. The following table illustrates the increase in our market capitalization compared to our CEO’s compensation in the past three years:
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Our strong financial performance in the past several years has led to a significant increase in our market capitalization, surpassing $7 billion in 2019. Because a significant portion of our NEOs’ total compensation in the past several years has been in the form of market-based stock units with stock price performance components, the value of our NEOs’ compensation is closely tied to our market performance. The following table illustrates our CEO’s compensation (as reported in the 2019 Summary Compensation Table) compared to our market capitalization in the past three years: | 2. | Capping payouts under our non-equity incentive plans. |
Since 2014, ourOur Compensation Committee has capped maximum payouts under our annual non-equity incentive plans at 250% of target for the CEO and 175% of target for the remaining NEOs.
| 3. | Selection of performance goals. |
In the past several years, our stockholders indicated a preference for the use of different performance metrics across plans, so that not all performance-based plans relied on the same metric. In addition, our stockholders told us they wanted to see a greater connection between stock price performance and executive compensation. Therefore, we use non-GAAP operating income for our short-term cash incentive plan, and, to balance that metric, a mix of revenue, stock price performance and operating goals for our long-term performance equity incentive plan. By using a non-GAAP operating income metric in our short-term incentive plan and various performance and stock price appreciation metrics in our long-term incentive plan, we can reward our executives for achieving our short-term financial objectives while at the same time planning for long-term growth, without encouraging excessive risk taking. The following table shows the three-year history of our performance in revenue, GAAP operating income and non-GAAP operating income, which demonstrates a balance of our overall financial health, compared to our CEO’s total compensation. compensation:
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| (1) | The reconciliation of the GAAP operating income to the non-GAAP operating income and related disclosures are provided in Annexure A. |
In 2011, we heard investors tell us that compensation recovery policies, or clawbacks, were a best practice and should be adopted. In February 2012, we adopted our Compensation Recoupment Policy, which permits the Board to recoup any excess performance-based cash compensation paid to key members of our executive team if the financial results on which the performance-based compensation awards were based are restated due to fraud or intentional misconduct by the executive. | 5. | Stock ownership guidelines. |
In 2011, we heard investors tell us that board members and officers should have ownership interests that are aligned with stockholders, and encouraged us to adopt stock ownership guidelines. In 2012, we adopted significant stock ownership guidelines for our officersNEOs and directors, requiring ownership levels by our officers of two to five times of base salary, and by our directors of two times of annual retainer. In 2016, we amended the stock ownership guideline by increasing the required levels for our directors from two times to three times of annual retainer.
Since 2008, we have not adopted any new employment agreements (or modified any existing employment agreements) to provide for tax gross-ups to our officers. | 7. | Responsible share ownership. |
We have adopted a policy prohibiting our directors, and officers (including our NEOs), and other employees from engaging in certain hedging and monetization transactions with respect to our securitiesstock that they hold without prior Board approval. The policy also prohibits our directors and officers (including our NEOs) from engaging in any short sales of our securities.stock. In short,summary, we regularly engage with our stockholders to exchange ideas on our existing executive compensation programs and potential future programs. We listen to their feedback and carefully consider it. Our engagement with stockholders does not begin and end with the “say-on-pay”say-on-pay vote – that vote is just one part of a larger dialogue and partnership we have with our investors. 20192015 Financial and Business Performance Highlights As noted above, the Compensation Committee has focused our executives on accountability in revenue, operating income and earnings, andas well as maximizing stockholder return through the structure of our executive compensation program. We believe our 2015Despite a significant downturn experienced by the semiconductor industry in 2019, we achieved record results in revenue and other key financial resultsmetrics on a non-GAAP basis show the benefit of these compensation decisions.basis. Our financial results are summarized as follows (in millions, except per shareper-share amounts and percentages): | | GAAP | | | Non-GAAP | | | GAAP | | | Non-GAAP (1) | | | | 2014 | | | 2015 | | | Change | | | 2014 | | | 2015 | | | Change | | | FY 2019 | | | FY 2018 | | | Change | | | FY 2019 | | | FY 2018 | | | Change | | Revenue | | $ | 282.5 | | | $ | 333.1 | | | | 18 | % | | $ | 282.5 | | | $ | 333.1 | | | | 18 | % | | $ | 627.9 | | | $ | 582.4 | | | | 8 | % | | $ | 627.9 | | | $ | 582.4 | | | | 8 | % | Operating income (2) | | $ | 35.3 | | | $ | 41.1 | | | | 16 | % | | $ | 70.1 | | | $ | 81.7 | | | | 17 | % | | $ | 102.6 | | | $ | 113.5 | | | | (10 | )% | | $ | 185.4 | | | $ | 174.3 | | | | 6 | % | Net income (2) | | $ | 35.5 | | | $ | 35.2 | | | | (1 | )% | | $ | 65.8 | | | $ | 77.2 | | | | 17 | % | | $ | 108.8 | | | $ | 105.3 | | | | 3 | % | | $ | 177.7 | | | $ | 166.8 | | | | 7 | % | Diluted EPS (2) | | $ | 0.89 | | | $ | 0.86 | | | | (3 | )% | | $ | 1.65 | | | $ | 1.89 | | | | 15 | % | | $ | 2.38 | | | $ | 2.36 | | | | 1 | % | | $ | 3.88 | | | $ | 3.74 | | | | 4 | % |
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| (1) | The GAAP and non-GAAP financial results in 2014 included a one-time income of $9.5 million related to the resolution of a patent litigation judgment. See Note 13 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on February 29, 2016, for further discussion.
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| (2)
| The reconciliation of the GAAP financial measures to the non-GAAP financial measures and related disclosures are provided in Annexure A. |
Our revenue growth rate of 18%8% in 20152019 outperformed the analog industry’s 2% growth rate determinednegative 8% reported by the Semiconductor Industry Association (the “SIA”). OurWe also achieved significant success in our targeted market segment performanceend markets in 2015 is summarized2019 as follows: | ● | Automotive sales grew 13% from prior year primarily driven by increased sales of products for infotainment, safety and connectivity applications. |
| ● | Computing and storage sales grew 19% from prior year primarily due to strong sales growth for cloud computing and high-end notebooks. |
| ● | Industrial sales grew 35%12% from prior year primarily fueled by product sales for applications in automotive, smart meters,power sources, security and power sources.industrial meters. |
| ● | ConsumerCommunications sales grew 18%20% from prior year driven by high-value consumer applications such as battery management, home appliances, gaming and LED lighting.primarily due to initial ramping of 5G infrastructure sales.
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| ●
| Storage and computing sales grew 23% from prior year due to growth in cloud computing, high-end personal computers and storage networks.
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Stock Buyback:Cash Dividends:
In 2015,February 2019, our Board of Directors approved an increase in our quarterly cash dividends to $0.40 per share and we repurchased 645,000 shares of our Common Stock forpaid a total of $32.3 million.$67.3 million of dividends to our stockholders in 2019. In February 2016, the2020, our Board of Directors approved a new stock repurchase program that authorizes us to repurchase up to $50 million of our Common Stock through December 31, 2016. Cash Dividends:
In 2015, we increasedan increase in our quarterly dividend rate to $0.20 per common share from $0.15 per common share in 2014, which represents a 33% increase. In 2015, we paid approximately $30.0 million of cash dividends to our stockholders.$0.50 per share.
The Roles of the Compensation Committee and Our Officers in Setting Compensation The Compensation Committee, which is comprised solely of independent directors, has primary responsibility for overseeing the design, development and implementation of the compensation program for our CEO and other NEOs. The Compensation Committee Charter, which is available in the “Investor Relations” section of our website at http://www.monolithicpower.com, was originally adopted on October 26, 2007, and is updated periodically. Pursuant to the Compensation Committee Charter, the Compensation Committee reviews and approves the compensation arrangements for our NEOs, including the CEO, and administers our equity compensation plans. The Compensation Committee meets on no less thanat least once a quarterly basis.quarter. In 2015,2019, the Compensation Committee met sixfour times. The Compensation Committee reviews the performance of each officer taking into account the evaluations provided by the CEO for all officers other than himself. The Compensation Committee makes the final determination of performance achievement for each officer. The CEO, Chief Financial Officer and General Counsel present information to the Compensation Committee as requested from time to time, including financial results, future budget information, business operations and legal developments. The Compensation Committee regularly meets in closed sessions without the CEO or other management personnel present. Our officers also provide information to the Compensation Committee’s independent compensation consultant, if requested to do so, to help the consultant perform its duties for the Compensation Committee. Our officers are responsible for implementing the decisions made by the Compensation Committee. Compensation Consultants In 2015,2019, the Compensation Committee engaged Meyercord & Associates and Radford an Aon Hewitt company, as the compensation consultantsconsultant with respect to our non-employee director and executive compensation programs. Both firmsRadford did not perform any other work for us. In 2015,2019, the Compensation Committee assessed the independence of both firmsRadford pursuant to SEC rules and concluded that no conflict of interest exists that would prevent them from serving as independent consultantsconsultant to the Compensation Committee for 2015.2019. In 2015,2019, the Compensation Committee requested and received the following services from Meyercord & Associates and/or Radford: (1) updates on evolving compensation trends, (2) recommendations for additions or deletions to the peer group used for 2015,2019, (3) compensation data for officers and directors (gathered from public filings for our peers and broader surveys), and (4) general advice on analyzing and responding to stockholder feedback on our compensation programs. Executive Compensation Components
The table below summarizes the core elements, objectives and key features of our 2015 compensation program for our NEOs:
Compensation Components
| Objectives
| | Key Features
| Base salary
| Designed to reward individual effort associated
| ●
| Paid in cash.
| | with job-related duties and to attract and retain | ● | Reviewed annually. | | talented executive officers. | ● | Peer data used as reference. | Short-term cash
| Designed to encourage outstanding individual and
| ● | Paid in cash.
| incentive compensation | MPS performance by motivating the NEOs to | ● | Weighting between individual and | | achieve short-term financial and individual goals. | | corporate goals reflects the scope of | | | | each NEO’s role. | | | ● | Subject to clawback policy. | Long-term incentive
| Designed to align the interests of our executives
| ● | Consists of time-based RSUs, RSUs
| compensation | with the interests of the stockholders by focusing | | with performance conditions, and | | on our long-term revenue growth compared to the | | RSUs containing both performance | | industry, long-term stock price appreciation and | | and market conditions. | | achievement of operating goals. | ● | Approximately 80% of total target | | | | award size is subject to achieving | | | | performance and market-based | | | | metrics. | | | ● | Size of award is a multiple of target | | | | cash compensation. | Cash dividend equivalents | Designed to treat equity award holders equally with | ● | Paid in cash and equal to the | | stockholders under our dividend program. | | dividend declared and paid on a | | | | share of Common Stock. | | | ● | Accumulate during the vesting
| | | | period of the underlying equity | | | | awards. | | | ● | Subject to forfeiture if the underlying | | | | equity awards do not vest.
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Peer GroupGroup and Use of Peer Data for 20152019 In February 2015, Meyercord & Associates2019, Radford reviewed the peer group of companies selected by the Compensation Committeemanagement and recommended that the industry peer group continue to be determined by reference to publicly traded companies in the semiconductor industry with revenue primarily between 50% and 200%300% of our revenue for the most recent four quarters. In addition, Meyercord & AssociatesRadford took into account that the market capitalization should be in similar range of us primarily from 50% to 200%. Guided by this set of parameters, and taking into account the recommendations of Radford, management Meyercord & Associates proposed the following peer group, which was reviewed and approved by the Compensation Committee approved as presented.Committee. The peer group consisted of the following companies: Applied Micro Circuits Corporation
| Mellanox Technologies, Ltd. (1)
| Cavium,Ambarella, Inc.
| Microsemi Corporation
| Cirrus Logic, Inc.
| PMC-Sierra, Inc. (2)
| Entropic Communications, Inc. (2)
| Power Integrations, Inc. | Exar CorporationCree, Inc.
| QLogic Corp. (1)Rambus Inc.
| Integrated Device Technology, Inc.Cypress Semiconductor Corporation
| Semtech Corporation | Intersil Corporation MACOM Technology Solutions Holdings, Inc. | Silicon Laboratories, Inc. | Lattice Semiconductor Corporation (1)
| Tessera Technologies, Inc.
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| (1)
| New in February 2015.
| Mellanox Technologies, Ltd. | (2)Synaptics Incorporated
| MKS Instruments, Inc. | These companies were acquired subsequent to February 2015.Teradyne, Inc.
| ON Semiconductor Corporation | Xperi Corporation |
The following companies wereWe removed Integrated Device Technology, Inc. from the peer group in February 2015for 2019 because these companies ceasedit was acquired during the year. In addition, we added Rambus Inc. and Xperi Corporation to fit within the desired parameters or have been acquired: Hittite Microwave Corporation, International Rectifier Corporation, and RF Micro Devices, Inc.
Analysis of 2015 Compensation Elementsour peer group for 2019.
NEO Compensation Components The table below summarizes the core elements, objectives and key features of our 2019 compensation program for our NEOs: Compensation Components | Objectives | Key Features | Base salary | Designed to reward individual effort associated with job-related duties and to attract and retain talented executive officers. | ● Paid in cash. ● Reviewed annually. | Short-term cash incentive compensation | Designed to encourage outstanding MPS performance by motivating the NEOs to achieve short-term financial goals. | ● Paid in cash. ● 100% of the compensation is subject to corporate performance goals. ● Maximum payouts at 250% of target. ● Subject to clawback policy. | Long-term incentive compensation | Designed to align the interests of our executives with the interests of the stockholders by focusing on our long-term revenue growth compared to the industry. | ● 100% of the awards is subject to performance conditions. ● Maximum payouts at 300% of target. ● Awards contain a purchase price feature, which requires the NEOs to pay MPS $30 per share upon vesting of the shares. | Dividend equivalents | Designed to treat equity award holders equally with stockholders under our dividend program. | ● Equal to the dividend declared and paid on a share of Common Stock. ● Accumulate during the vesting period of the underlying equity awards. ● Subject to forfeiture if the underlying equity awards do not vest. ● Paid in cash. |
Analysis of 2019 Compensation Elements Base Salaries.Salaries: We provide base salary as a stable source of compensation for the NEOs’ day-to-day duties, and seek to set base salaries at levels that will attract and retain talented executive officers. To attract and retain talent, we have to understand the levels of salary offered by our peers. Accordingly, our Compensation Committee considers peer data as one key factor in reviewing base salary each year. Our Compensation Committee also considers each individual executive’s role and the scope of his or her responsibilities, the executive’s experience, his or her tenure with us, and size of recent salary changes. For 2015,2019, our Compensation Committee considered all of these factors and approved the following salaries for our NEOs: NEOs | | 2014 | | | 2015 | | | Change | | | Name | | | FY 2019 | | | FY 2018 | | | Change | | Michael Hsing | | $ | 600,000 | | | $ | 600,000 | | | | 0 | % | | $ | 650,000 | | | $ | 650,000 | | | | 0 | % | Meera Rao | | $ | 280,000 | | | $ | 310,000 | | | | 11 | % | | Bernie Blegen | | | $ | 320,000 | | | $ | 300,000 | | | | 7 | % | Deming Xiao | | $ | 340,000 | | | $ | 340,000 | | | | 0 | % | | $ | 340,000 | | | $ | 340,000 | | | | 0 | % | Maurice Sciammas | | $ | 300,000 | | | $ | 340,000 | | | | 13 | % | | $ | 340,000 | | | $ | 340,000 | | | | 0 | % | Saria Tseng | | $ | 300,000 | | | $ | 340,000 | | | | 13 | % | | $ | 340,000 | | | $ | 340,000 | | | | 0 | % |
In 2015,2019, based on the recommendation of the compensation consultant, the Compensation Committee approved an increase of Ms. Rao, Mr. Sciammas and Ms. Tseng’sBlegen’s base salariessalary to better align theirhis pay with increased responsibilities, given that the base salaries for Mr. Sciammas and Ms. Tseng had not been increased in the last six and three years, respectively.our peer group.
Short-Term Cash Incentive Compensation. Compensation: We provide a short-term cash incentive opportunity to each of our NEOs to encourage them to achieve our corporate short-term operating income goals as well as individual management business objectives within their area of expertise and role.goals. Consistent with 2014,2018, the Compensation Committee used non-GAAP operating income as the sole corporate performance metric in 20152019 for determining the company performance element of the short-term cash incentive compensation. The Compensation Committee believed that non-GAAP operating income would best reflect our short-term performance. Please refer toSee Annexure A fora reconciliation of the GAAP operating income to the non-GAAP operating income and related disclosures.used in the short-term cash incentive plan. 100% of the short-term cash incentives were tied to a specific, pre-established non-GAAP operating income metric for all the NEOs. Our CEO’s target bonus was 100% of his annual base salary, and 100% of his bonus was tied to the achievement of the corporate performance metric due to the importance of his role in achieving this goal.salary. The remaining NEOs’ target bonus was 80% of their annual base salary, with 50% of their target bonus tied to the achievement of the corporate performance metric and the other 50% tied to their individual performance as determined at the end of 2015 in the judgment of the Compensation Committee after consultation with the CEO.salary. For the individual performance component, an NEO could earn a maximum of 100% of the target bonus. For the corporate performance metric, achievement of non-GAAP operating income determined the maximum award size that each executive could earn, with achievement of 120% of the non-GAAP operating income target resulting in the maximum 250% award level, achievement of 100% of the non-GAAP operating income target resulting in the 100% award level, and performance at or below 80% of the non-GAAP operating income target resulting in no bonus being earned. For 2015,2019, our non-GAAP operating income target was $66.4$181.6 million as established in the annual operating plan approved by the Board. Achievement of 120% of the non-GAAP operating income target would result in the maximum 250% bonus payout for each NEO, achievement of 100% of the non-GAAP operating income target would result in the 100% bonus payout, and performance below 80% of the non-GAAP operating income target would result in no bonus payout. For performance withinbetween the minimum, target and maximum and threshold range,level, the percentage achievementof payout would be determined based on a linear interpolation.
For 2015,2019, we achieved non-GAAP operating income of $187.8 million (see Annexure A), which exceeded 120%was equal to a payout of 117.1% of the target resulting in the achievement of the maximum 250% payout for the corporate performance metricbonus for each NEO. In addition, our Compensation Committee reviewed the NEOs’ individual performance based on the CEO’s feedback as well as our operational and financial performance in a holistic manner and determined the level of achievement was 100%. The following table summarizes the bonus payout approved by the Compensation Committee for our NEOs: NEOs | | Target | | | Achieved | | | | | | Bonus Amount | | | | | | Name | | | Minimum | | | Target | | | Maximum | | | Earned | | Michael Hsing | | $ | 600,000 | | | $ | 1,500,000 | | | $ | - | | | $ | 650,000 | | | $ | 1,625,000 | | | $ | 761,269 | | Meera Rao | | $ | 248,000 | | | $ | 434,000 | | | Bernie Blegen | | | $ | - | | | $ | 256,000 | | | $ | 640,000 | | | $ | 299,823 | | Deming Xiao | | $ | 272,000 | | | $ | 476,000 | | | $ | - | | | $ | 272,000 | | | $ | 680,000 | | | $ | 318,562 | | Maurice Sciammas | | $ | 272,000 | | | $ | 476,000 | | | $ | - | | | $ | 272,000 | | | $ | 680,000 | | | $ | 318,562 | | Saria Tseng | | $ | 272,000 | | | $ | 476,000 | | | $ | - | | | $ | 272,000 | | | $ | 680,000 | | | $ | 318,562 | |
Furthermore, after determining the performance under our short-term cash incentive program, our Compensation Committee reflected on the overall company performance in 2015, including revenue, earnings and stock price appreciation in addition to non-GAAP operating income. In recognition of MPS’s exceptional performance beyond the maximum target that was set initially in 2015, the Compensation Committee decided to use its authority to approve a discretionary cash bonus equal to 15% of the target bonus, which was the maximum payout guideline for the discretionary bonus under the plan, to each NEO, ranging from $37,000 to $90,000.
Long-Term Equity Incentive Compensation.Compensation: We provide long-term equity compensation awards to reward and retain our valued executives, to help us effectively compete for executives who can strategically position us for future growth and financial success, and to encourage our executives to focus on achieving long-term development goals for the future. In determining the number of RSUslong-term equity compensation awards granted to each of the NEOs, the Compensation Committee establishes the aggregate value of RSUssuch awards to be granted as a multiple of each NEO’s target cash compensation. The Compensation Committee believes these multiples properly reflect the relative position and responsibility of each NEO as well as the officer’s ability to develop the vision, drive the strategy and affecteffect certain cost savings for us. Over the past several years, we have regularly engaged with our stockholders to take into account their opinions in setting performance metrics. In response to their recommendations, we have significantly increased the executive equity awards that are tied to performance from 50% in 2012 to over 80% in 2015, and 100% beginning in 2016. In February 2015, the Board granted a target dollar amount of long-term equity compensation awards comprised of RSUs based on a three-year continued service requirement (“Time-Based RSUs”) and RSUs with performance conditionsbased on revenue achievement as measured against the performance of the analog industry over a two-year period, with a total vesting period of four years (“PSUs”). Time-Based RSUs comprised 25% of the target value of awards, and PSUs comprised the remaining 75% of the target value of such awards. In December 2015, the Board granted an additional award opportunity as RSUs with market and performance conditions based on the achievement of stock price targets and operating goals over a four-year period (“MPSUs”). The following table summarizes the target number of Time-Based RSUs, PSUs and MPSUs granted to our NEOs in 2015:
| | Time-Based RSUs | | | PSUs | | | MPSUs | | | | | | | | | | NEOs | | Target Number of Shares | | | Percentage of Total Awards | | | Target Number of Shares | | | Percentage of Total Awards | | | Target Number of Shares | | | Percentage of Total Awards | | | Total Target Awards | | | Total Target Value | | Michael Hsing | | | 26,581 | | | | 20 | % | | | 79,745 | | | | 59 | % | | | 27,749 | | | | 21 | % | | | 134,075 | | | $ | 6,359,128 | | Meera Rao | | | 6,439 | | | | 17 | % | | | 19,317 | | | | 50 | % | | | 12,613 | | | | 33 | % | | | 38,369 | | | $ | 1,794,985 | | Deming Xiao | | | 8,071 | | | | 17 | % | | | 24,213 | | | | 51 | % | | | 15,136 | | | | 32 | % | | | 47,420 | | | $ | 2,220,816 | | Maurice Sciammas | | | 8,071 | | | | 17 | % | | | 24,213 | | | | 51 | % | | | 15,136 | | | | 32 | % | | | 47,420 | | | $ | 2,220,816 | | Saria Tseng | | | 8,071 | | | | 17 | % | | | 24,213 | | | | 51 | % | | | 15,136 | | | | 32 | % | | | 47,420 | | | $ | 2,220,816 | |
Time-Based RSUs:
In 2015, in response to investor feedback the Compensation Committee lengthened the vesting period of the Time-Based RSUs from two years to three years, subject to continued employment on each vesting date. We provide these Time-Based RSUs as a relatively small portion of the overall equity compensation package to attract and retain executives, consistent with the market practices of our peers, and to provide for some consistency and stability in the total compensation package, given the extent to which the vast majority of the executive’s pay is subject to performance conditions.
In February 2016, to further align the NEOs’ long-term compensation with our performance and stockholders’ interests, the Compensation Committee decided that 100% of the equity compensation awards granted to our NEOs in the first quarter of 2016 will be tied to2019 would vest based on the achievement of performanceperformance-based criteria. No equity awards were granted to our NEOs in 2019 that would vest solely based on continued service.
PSUs:
In February 2015,2019, the Compensation Committee granted the NEOs a target dollar value of long-term equity compensation awards which included PSUs based on revenue achievement as measured against the performance of the analog industry over a two-year period, with a total vesting period of four years. The following table summarizes the number of shares subject to the 2019 PSUs that can be earned by the NEOs at the minimum, target and maximum performance levels. The number of shares earned will be linearly interpolated for actual achievement between the minimum, target and maximum performance levels. | | Number of Shares | | Name | | Minimum | | | Target | | | Maximum | | Michael Hsing | | | - | | | | 77,481 | | | | 232,443 | | Bernie Blegen | | | - | | | | 13,732 | | | | 41,196 | | Deming Xiao | | | - | | | | 20,062 | | | | 60,186 | | Maurice Sciammas | | | - | | | | 20,062 | | | | 60,186 | | Saria Tseng | | | - | | | | 20,062 | | | | 60,186 | |
The PSUs contain a purchase price feature, which requires the NEOs to pay MPS $30 per share upon vesting of the shares. Shares that do not vest will not be subject to the purchase price payment to MPS. The target number of shares granted to each NEO was determined based on the target dollar value for such PSUs, divided by our closing stock price on the date of grant less the purchase price.
A Balanced Approach to Our Equity Compensation Program: Our Compensation Committee is committed to establish a balanced equity compensation program with medium-term and long-term performance periods, by overlapping a revenue-based PSU program over a two-year performance period and a long-term stock-based MSU award over a longer performance period. The Compensation Committee determined that two years is the most optimal performance period for the revenue-based PSU awards because of the cyclical nature of the semiconductor industry. A revenue-based performance period that is longer than two years is difficult for the Compensation Committee to determine the appropriate performance goals due to the volatility from macro-economic and industry-specific conditions. Accordingly, for 2019, the Compensation Committee set a two-year (2015(2019 and 2016) revenue2020) revenue-based performance period as the basis to grant each NEO a target number of RSUs.PSUs. The Compensation Committee did not grant a new MSU award because an MSU program based on the achievement of five stock price hurdles over a five-year performance period was already in place in 2018. PSUs: For 2019, the number of sharesPSUs that can ultimately be earned at the end of the two-year performance period in 2016on December 31, 2020 is based on the average two-year revenue growth rate as measured against the average two-year revenue growth rate for the analog industry published by the SIA. In selecting the minimum, target and maximum performance levels, the Compensation Committee carefully considered our historical and projected performance and the fundamentals of the analog industry at that time. The Compensation Committee took into account SIA’s projections which are updated twice a year in May and November, for the anticipated revenue growth in the analog industry for the two-year performance period. Instead of benchmarking against the broad semiconductor sector, the Compensation Committee elected to focus solely on the analog industry in setting the performance objectives, which are measured against our closest and most relevant peers within the semiconductor sector. In addition, the Compensation Committee chose the revenue projections reported by SIA as a baseline because the SIA report is well-respected in the analogsemiconductor industry and used by Wall Street financial analysts in preparing their analyses, forecasts and recommendations. Based on the Compensation CommitteeCommittee's evaluation, the performance criteria and the threshold,minimum, target and maximum levels of the PSUs that can be earned are as follows: MPS's Average Two-Year Revenue | | | Growth Rate Exceeds the Analog Industry by: | | Percentage of Target PSUs Earned | less than 3% | | 0% | 3% | | 50% | 5% | | 100% | 15% | | 300% |
MPS's Average Two-Year Revenue | | | Growth Rate Exceeds the Analog Industry by: | | Percentage of PSU Earn-Out | less than 3% | | 0% | 3% | | 50% of Target | 5% | | 100% of Target | 15% and above | | 300% of Target |
We have granted these PSUs annually with aThe two-year performance period which provides a long-term incentive for our NEOs through overlapping cycles so that each year of performance is equally critical as we work toward meeting our two-year goals. The Compensation Committee sets what it believes to bethe revenue goals are challenging performance goals for revenue. Furthermore, we believe ourand that performance metrics measured relative to our peers will provide objectivity when setting long-term goals while minimizing uncertainties caused by external economic factors that are beyond our control.
The following table summarizes the number of shares subject to the 2015 PSUs that can be earned by the NEOs at the threshold, target and maximum performance levels. The number of shares earned will be linearly interpolated for actual achievement between the threshold, target and maximum performance levels.
NEOs | | Threshold | | | Target | | | Maximum | | Michael Hsing | | | - | | | | 79,745 | | | | 239,235 | | Meera Rao | | | - | | | | 19,317 | | | | 57,951 | | Deming Xiao | | | - | | | | 24,213 | | | | 72,639 | | Maurice Sciammas | | | - | | | | 24,213 | | | | 72,639 | | Saria Tseng | | | - | | | | 24,213 | | | | 72,639 | |
At the end of the performance period in 2016on December 31, 2020 and upon certification of performance by ourthe Compensation Committee, 50% of the actual award earned will become vested in February 2017,2021, and the remaining 50% vest quarterly over the following two years thereafter, for a total vesting period of four years, subject to continued employment.
MPSUs:
In 2013, as part of our long-term performance-based equity compensation program, we implemented a one-time market-based award program based on the achievement of stock price targets ranging from 26% The NEOs will be required to 80% from the grant date over a five-year performance period. Within a two-year period, all the pre-determined price targets have been accomplished. Subsequently, several of our key institutional shareholders asked our Board to consider implementing another similar program. As a result, the Board, with the assistance of an independent compensation consultant (Radford, an Aon Hewitt company), approved a special MPSU program in December 2015 to a group of key employees, including our NEOs, that can only be earned if our Common Stock sustains an average trading stock price at levels substantially higher than our historical trading prices. To make the performance criteria more rigorous, approximately 70%pay MPS $30 per share upon vesting of the MPSUs are also subject to the achievement of long-term operating goals in addition to the stock price appreciation. Our Board believes that the MPSU program emphasizes sustainable stockholder value creation and attainment of long-term strategic business objectives.shares.
The MPSUs consist of four separate tranches with four, three, two and one-year performance periods all ending on December 31, 2019. The first tranche contains market conditions only, which require the achievement of five MPS stock price hurdles ranging from $71.36 to $95.57 over a four-year period. The second, third and fourth tranches contain both market conditions and performance conditions. Each tranche requires the achievement of five MPS stock price hurdles to be measured against a base price equal to the greater of: (1) the weighted average closing stock price during the 20 consecutive trading days immediately before the start of the performance period for that tranche, or (2) the closing stock price immediately before the start of such performance period. An individual price hurdle is deemed achieved if the average of the closing prices of our Common Stock over a 20-consecutive day trading period equals or exceeds that price hurdle.
In addition to the price hurdles, each of the second, third and fourth tranches requires the achievement of one of following six operating metrics during the four-year performance period:
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| Successful implementation of full digital solutions vs. current analog topology for certain products.
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| Successful implementation and adoption by a key player of an integrated, software-based, field-oriented-control with3D hall sensor to motor driver.
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| Successful implementation of certain advanced power analog processes.
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| Successful design wins and achievement of a specific level of revenue with a global networking customer.
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| Achievement of a specific level of revenue with a global electronics manufacturer.
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| Achievement of a specific level of market share with certain core power products.
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A specific operational objective may not be deemed achieved more than once for purposes of determining performance in any performance period.
The following table summarizes the number of shares that can be earned by the NEOs under the 2015 MPSU program, subject to the achievement of the performance criteria described above.
NEOs | | Price Hurdle 1 | | | Price Hurdle 2 | | | Price Hurdle 3 | | | Price Hurdle 4 | | | Price Hurdle 5 | | | Total | | Michael Hsing | | | 27,749 | | | | 27,749 | | | | 27,749 | | | | 27,749 | | | | 27,749 | | | | 138,745 | | Meera Rao | | | 12,613 | | | | 12,613 | | | | 12,613 | | | | 12,613 | | | | 12,613 | | | | 63,065 | | Deming Xiao | | | 15,136 | | | | 15,136 | | | | 15,136 | | | | 15,136 | | | | 15,136 | | | | 75,680 | | Maurice Sciammas | | | 15,136 | | | | 15,136 | | | | 15,136 | | | | 15,136 | | | | 15,136 | | | | 75,680 | | Saria Tseng | | | 15,136 | | | | 15,136 | | | | 15,136 | | | | 15,136 | | | | 15,136 | | | | 75,680 | |
Any MPSUs that satisfy the stock price and operational goals (as applicable) described above will fully vest on January 1, 2020, subject to continued employment on that date. In addition, the MPSUs contain a post-vesting sales restriction for up to an additional two years. This post-vesting holding period encourages executives to consider the long-term risk of their business decisions now, as well as lowers the accounting costs of our equity compensation program due to the discount for lack of liquidity resulting from the holding period.
Dividend Equivalents. In connection with our quarterly cash dividend program, all outstanding and unvested RSUtime and performance-based full value awards granted to employees, including the NEOs, have the right to receive dividend equivalents in order to maintain the economic alignment between the value of an RSUsuch awards and the value of a share of our Common Stock. The dividend equivalents are accumulated during the vesting periods of the shares underlying RSUssuch awards and are paid in cash to employees only if and when the underlying RSUsshares vest. Dividend equivalents accrued on the underlying RSUsshares are forfeited if the employees do not fulfill their service requirement during the vesting periods. Dividend equivalents paid to the NEOs in 20152019 are included in the section“2019 Option Exercises and Stock Vested”below.
Certifications of Prior-Year Performance-Based Awards As previously disclosed in our proxy statement for the 20152019 Annual Meeting of Stockholders, the Compensation Committee granted each NEO a PSU award opportunity in February 20142018 that could be earned basedonbased on the average two-year (2014(2018 and 2015)2019) revenue growth rate as measured against the average two-year revenue growth rate for the analog industry published by the SIA. The PSU award opportunity consisted of a target award, as well as a maximum award equal to 300% of the target grant. The actual results at the end of the two-year performance period in 2015,on December 31, 2019, as approved by the Compensation Committee, were as follows: MPS's Average Two-Year Revenue | MPS's Average Two-Year Revenue | | | MPS's Average Two-Year Revenue | | | | | | Growth Rate Exceeds the Analog Industry by: | Growth Rate Exceeds the Analog Industry by: | | Percentage of Target | Growth Rate Exceeds the Analog Industry by: | | | Percentage of | | Target | | Actual | | PSUs Earned | | Maximum | | Actual Achievement | | | PSU Earn-Out | | 3% | | 12% | | 275% | | 5% | | | 15% and above | | | 14.5% | | | | 296.7 | % |
The following table shows the target and actual shares earned under the program for each NEO:the NEOs: NEOs | | Target | | | Earned | | Michael Hsing | | | 122,546 | | | | 337,002 | | Meera Rao | | | 26,812 | | | | 73,733 | | Deming Xiao | | | 37,208 | | | | 102,322 | | Maurice Sciammas | | | 32,831 | | | | 90,284 | | Saria Tseng | | | 32,831 | | | | 90,284 | |
Name | | Earned | Michael Hsing | | 289,250 | Bernie Blegen | | 44,055 | Deming Xiao | | 74,894 | Maurice Sciammas | | 74,894 | Saria Tseng | | �� 74,894 |
50% of the actual awards earned will vest in February 2016,2020, with the remaining 50% vesting quarterly over the following two years through February 2018,2022, for a total vesting period of four years, subject to continued employment. The NEOs are required to pay MPS a purchase price of $30 per share upon vesting of the actual awards earned. In addition, as previously disclosed in our proxy statement for the 20142019 Annual Meeting of Stockholders, the Compensation Committee granted each NEO a market-basedan MSU award (“MSU”) in December 2013 that could be earned in five tranches if the average closing prices of our Common Stock over a 20-consecutive day trading period exceed five different price levels (the “Price Hurdles”) over a five-year performance period from January 1, 2014 to December 31,October 2018. The MSU award opportunity consisted of a target award, as well as a maximum award equal to 500% of the target grant. In 2015,grant based on the achievement of five MPS stock price hurdles ranging from $140 to $172 during a four-year performance period. During 2019, we achieved the final two Price Hurdlesall of the program.five stock price hurdles, which were approved by the Compensation Committee. The table below shows the target and actual shares earned under the program for each NEO in 2015:the NEOs: NEOs | | Target | | | Earned | | Michael Hsing | | | 110,000 | | | | 220,000 | | Meera Rao | | | 36,000 | | | | 72,000 | | Deming Xiao | | | 43,200 | | | | 86,400 | | Maurice Sciammas | | | 43,200 | | | | 86,400 | | Saria Tseng | | | 43,200 | | | | 86,400 | |
Name | | Earned | Michael Hsing | | 108,000 | Bernie Blegen | | 48,000 | Deming Xiao | | 48,000 | Maurice Sciammas | | 48,000 | Saria Tseng | | 48,000 |
The actual awards earned will fully vest quarterly over a five-year period fromon January 1, 2019 to December 31, 2023,2024, subject to continued employment. Therefore, no executive hasIn addition, the Compensation Committee imposed a post-vesting holding period which prohibits the sale of a portion of the vested in any of these MSUs at this time, as the service-based vesting period is still on-going.shares for up to an additional two years.
Broad-Based Benefits Our NEOs are eligible to participate in our broad-based employee benefit programs on the same terms offered to our employees. These benefit programs include the employee stock purchase plan,Employee Stock Purchase Plan, medical, dental and vision insurance, long-term and short-term disability insurance, life and accidental death and dismemberment insurance, and health and dependent care flexible spending accounts. We do not provide pension arrangements or post-retirement health coverage for our NEOs or other employees. In addition, we do not provide contributions on the 401(k) plan or the deferred compensation plan for our NEOs or other employees. Severance and Change-in-ControlChange in Control Arrangements We offer severance benefits to our NEOs, including severance in connection with a change-in-control.change in control of MPS. In general, severance does not exceed six to twelve months of base salary, target bonus and other benefits, and is conditioned on a release of claims and compliance with ongoing obligations. We believe these modest benefits balance the costs to MPS with the retention benefits that are commonly understood to come from offering severance and change-in-controlchange in control benefits. For all change-in-controlchange in control arrangements, the NEO is entitled to benefits if his or her employment is terminated without cause or if he or she leaves for good reason within one year following a change-in-control. change in control. This approach is commonly referred to as a “double-trigger” arrangement and is favored by many institutional investors and their advisors. We believe the size and conditions to receipt of these severance benefits are consistent with market practices. These arrangements are discussed in more detail in the section “Named Executive Officer Compensation — Potential Payments Upon Termination or Termination Upon Change-in-Control.Change in Control.” Stock Ownership Guidelines In February 2012, the Board established stock ownership guidelines for our executive officersNEOs and directors. These guidelines reinforce the importance of aligning the interests of our executive officersNEOs and directors with the interests of our stockholders. For the NEOs, the guidelines are determined as a multiple of each NEO’s base salary, and then converted to a fixed number of shares. Currently, the multiple for our CEO is five times his base salary, while the multiples for other NEOs are two times each NEO’s base salary. Equity interests that count toward the satisfaction of the ownership guideline include shares owned directly or indirectly by the executive, including restricted or unrestricted shares or stock units (excluding restricted shares or stock units that remain subject to achievement of performance goals), and any shares owned in our savings plans, such as our 401(k), or acquired through the Employee Stock Purchase Plan. Executives have five years from the date of adoption of the guidelines or their appointment as an executive officer, as applicable, to attain these ownership levels.As of December 31, 2015,2019, all of the NEOs met the stock ownership guidelines. For the non-employee directors, the stock ownership guidelines are determined as a multiple of the annual retainer paid to the non-employee director and then converted to a fixed number of shares. The guideline for the non-employee directors is set at two times each of the non-employee director’s annual retainer. These guidelines are initially determined as of the later of the date these stock ownership guidelines were adopted and the date the non-employee director was elected to the Board. As of December 31, 2015, all of the directors met the stock ownership guidelines. In February 2016, based on our compensation consultant’s best practice recommendation, we amended the stock ownership guidelines to increase the required level for our non-employee directors from two times to three times of each such director’s annual retainer. As of December 31, 2019, all of the directors met the stock ownership guidelines. Policy Regarding Clawback of Incentive Compensation In February 2012, the board of directorsBoard adopted a Compensation Recoupment Policy, which requires the Board of Directors to recoup any excess performance-based cash compensation paid to key members of our executive team, including the NEOs, if the financial results on which the incentive compensation awards were based are restated due to fraud or intentional misconduct by the executive, if the Board determines, in its sole discretion, that it is in the best interests of us and our stockholders for the executive to repay or forfeit all or any portion of the subject performance-based cash compensation. Anti-Hedging and Monetization Transactions and Short Sales We prohibit our directors, officers (including our NEOs), and officers, including our NEOs,other employees from engaging in hedging or monetization transactions with respect to our securitiesstock that they obtained through our plans or otherwise, including transactions involving the use of financial instruments such as prepaid variable forwards, equity swaps, collars, forward sale contracts and exchange funds, without prior Board approval. We also prohibit our directors and officers, including our NEOs, from engaging in any short sales of our securities.stock. Tax and Accounting Impacts of Equity Grants Section 162(m) of the Internal Revenue Code (the “Code”) disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1 million in any taxable year for “covered employees.” Prior to the 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”) enacted in December 2017, covered employees 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 a result of the 2017 Tax Act, this exemption was, with certain limited exceptions, eliminated. In addition, the definition of covered employees was expanded to include all NEOs, including the Chief Financial Officer. Our Compensation Committee is aware of current rules governing the taxation and accounting for cash and equity compensation as applicable to public companies. Our Compensation Committee appreciatesbelieves that, in establishing the benefits that can result – both to MPS and to the individual – in complying with tax rules such as Section 162(m) of the Internal Revenue Code or Section 409A of the Internal Revenue Code. Our Compensation Committee is mindful of the effect that the accounting value of our cash and equity incentive compensation has onplans and arrangements for our financial results. However, ourNEOs, the potential deductibility of the compensation payable under those plans and arrangements should be only one of a number of relevant factors taken into consideration, and not the sole governing factor. The Compensation Committee retains the discretion to structure compensation in ways that may result in less than full deductibility, that may not maximize tax savings, and that may not minimize the accounting cost to MPS. Our Compensation Committee may choose to do this if it believes it is reasonableimportant to do somaintain cash and equity incentive compensation at the requisite level to achieveattract and retain the objectivesindividuals essential to our financial success, even if all or part of ourthat compensation program or ifmay not be deductible by reason of the administrative burdens of maximizing tax or accounting results are greater than desired or otherwise unreasonable.Section 162(m) limitation. Compensation Committee Report The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis with our management. Based upon such review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Proxy Statement for the 2016 Annual Meeting of Stockholders.and incorporated by reference into our Annual Report on Form 10-K for the year ended December 31, 2019. | Members of the Compensation Committee: Jeff Zhou, Chairman Herbert Chang Eugen Elmiger |
Compensation Committee Interlocks and Insider Participation The members of the Compensation Committee during 2015 were Herbert Chang, Eugen Elmiger and Jeff Zhou. No Compensation Committee member was at any time during 2015,2019, or at any other time, an officer or employee of us or any of our subsidiaries. No executive officerNEO of MPS serves on the board or compensation committee of any entity that has one or more executive officers serving on the Board or Compensation Committee.
Compensation Risk Management In 2015,2019, our management, including members from our internal legal, accounting, finance and human resources departments, undertook a subjective review of our compensation policies and practices that applied to all of our employees, including the following: annual base salaries and bonuses, equity incentive awards under our equity incentive plans and the Employee Stock Purchase Plan. This review was designed to review, consider and analyze the extent to which, if any, our compensation policies and practices might create risks for us, and this review also focused on variable and incentive compensation elements, as well as policies and practices that could mitigate or balance any such incentives. After conducting this review, management determined that none of our compensation policies and practices for our employees createsdo not create any risks that are reasonably likely to have a material adverse effect on us. The results of the review and management’s determination were reviewed and independently considered by the Compensation Committee, which concurred with management’s assessment. 2019 Summary Compensation Table The following table sets forth the 2015, 2014 and 2013 compensation for our Chief Executive Officer, Chief Financial Officer and our three other most highly compensated executive officers serving on December 31, 2019, which officers together constitute our NEOs: NEOs | | Year | | Salary | | | Bonus (1) | | | Stock Awards (2)(3) | | | Non-Equity Incentive Plan Compensation (4) | | | All Other Compensation (5) | | | Total | | | Name and Principal Position | | | Year | | Salary | | | Bonus | | | Stock Awards (1)(2) | | | Non-Equity Incentive Plan Compensation (3) | | | All Other Compensation (4) | | | Total | | Michael Hsing | | 2015 | | $ | 600,000 | | | $ | 90,000 | | | $ | 6,359,128 | | | $ | 1,500,000 | | | $ | - | | | $ | 8,549,128 | | | 2019 | | $ | 650,000 | | | $ | - | | | $ | 7,945,677 | | | $ | 761,269 | | | $ | - | | | $ | 9,356,946 | | Chief Executive Officer, President | | 2014 | | $ | 600,000 | | | $ | - | | | $ | 5,160,014 | | | $ | 1,373,658 | | | $ | - | | | $ | 7,133,672 | | | 2018 | | $ | 643,846 | | | $ | - | | | $ | 9,446,868 | | | $ | 1,625,000 | | | $ | - | | | $ | 11,715,714 | | and Chairman of the Board | | 2013 | | $ | 448,000 | | | $ | 22,400 | | | $ | 6,066,092 | | | $ | 896,000 | | | $ | - | | | $ | 7,432,492 | | | 2017 | | $ | 600,000 | | | $ | 90,000 | | | $ | 5,909,642 | | | $ | 1,386,977 | | | $ | - | | | $ | 7,986,619 | | Meera Rao | | 2015 | | $ | 310,000 | | | $ | 37,200 | | | $ | 1,794,985 | | | $ | 434,000 | | | $ | - | | | $ | 2,576,185 | | | Bernie Blegen | | | 2019 | | $ | 317,308 | | | $ | - | | | $ | 1,408,217 | | | $ | 299,823 | | | $ | - | | | $ | 2,025,348 | | Chief Financial Officer | | 2014 | | $ | 280,000 | | | $ | - | | | $ | 1,128,953 | | | $ | 366,000 | | | $ | - | | | $ | 1,774,953 | | | 2018 | | $ | 295,308 | | | $ | - | | | $ | 1,870,950 | | | $ | 600,000 | | | $ | - | | | $ | 2,766,258 | | | | 2013 | | $ | 260,000 | | | $ | 26,000 | | | $ | 1,826,605 | | | $ | 312,000 | | | $ | - | | | $ | 2,424,605 | | | 2017 | | $ | 281,692 | | | $ | 34,800 | | | $ | 1,020,348 | | | $ | 384,149 | | | $ | - | | | $ | 1,720,989 | | Deming Xiao | | 2015 | | $ | 340,000 | | | $ | 40,800 | | | $ | 2,220,816 | | | $ | 476,000 | | | $ | 64,649 | | | $ | 3,142,265 | | | 2019 | | $ | 340,000 | | | $ | - | | | $ | 2,057,358 | | | $ | 318,562 | | | $ | - | | | $ | 2,715,920 | | President of Asia Operations | | 2014 | | $ | 340,000 | | | $ | - | | | $ | 1,566,716 | | | $ | 418,000 | | | $ | 88,041 | | | $ | 2,412,757 | | | 2018 | | $ | 340,000 | | | $ | - | | | $ | 2,720,429 | | | $ | 680,000 | | | $ | - | | | $ | 3,740,429 | | | | 2013 | | $ | 340,000 | | | $ | - | | | $ | 2,355,247 | | | $ | 384,000 | | | $ | 80,638 | | | $ | 3,159,885 | | | 2017 | | $ | 340,000 | | | $ | 40,800 | | | $ | 1,727,919 | | | $ | 450,382 | | | $ | - | | | $ | 2,559,101 | | Maurice Sciammas | | 2015 | | $ | 340,000 | | | $ | 40,800 | | | $ | 2,220,816 | | | $ | 476,000 | | | $ | - | | | $ | 3,077,616 | | | 2019 | | $ | 340,000 | | | $ | - | | | $ | 2,057,358 | | | $ | 318,562 | | | $ | - | | | $ | 2,715,920 | | Senior Vice President, | | 2014 | | $ | 300,000 | | | $ | - | | | $ | 1,382,415 | | | $ | 390,000 | | | $ | - | | | $ | 2,072,415 | | | 2018 | | $ | 340,000 | | | $ | - | | | $ | 2,720,429 | | | $ | 680,000 | | | $ | - | | | $ | 3,740,429 | | Worldwide Sales and Marketing | | 2013 | | $ | 300,000 | | | $ | 24,000 | | | $ | 2,214,313 | | | $ | 360,000 | | | $ | - | | | $ | 2,898,313 | | | 2017 | | $ | 340,000 | | | $ | 40,800 | | | $ | 1,727,919 | | | $ | 450,382 | | | $ | - | | | $ | 2,559,101 | | Saria Tseng | | 2015 | | $ | 340,000 | | | $ | 40,800 | | | $ | 2,220,816 | | | $ | 476,000 | | | $ | - | | | $ | 3,077,616 | | | 2019 | | $ | 340,000 | | | $ | - | | | $ | 2,057,358 | | | $ | 318,562 | | | $ | - | | | $ | 2,715,920 | | Vice President, Strategic Corporate | | 2014 | | $ | 300,000 | | | $ | - | | | $ | 1,382,415 | | | $ | 390,000 | | | $ | - | | | $ | 2,072,415 | | Vice President, Strategic Corporate | 2018 | | $ | 340,000 | | | $ | - | | | $ | 2,720,429 | | | $ | 680,000 | | | $ | - | | | $ | 3,740,429 | | Development and General Counsel | | 2013 | | $ | 300,000 | | | $ | 24,000 | | | $ | 2,214,313 | | | $ | 360,000 | | | $ | - | | | $ | 2,898,313 | | | 2017 | | $ | 340,000 | | | $ | 40,800 | | | $ | 1,727,919 | | | $ | 450,382 | | | $ | - | | | $ | 2,559,101 | |
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| (1) | Includes discretionary cash bonuses approved by the Compensation Committee.
| | | (2) | For more information regarding the stock awards, see the section “Named Executive Officer Compensation -— Compensation Discussion and Analysis.”The amounts reflect the aggregate grant date fair value of the awards calculated in accordance with FASB ASC Topic 718, excluding the impact of estimated forfeitures. |
| | The PSUs included in the table above contain a purchase price feature, which requires the NEOs to pay MPS a purchase price per share upon vesting of the shares. The purchase price is $30 per share for the PSUs granted in 2019. Shares that do not vest will not be subject to the purchase price payment to MPS. The grant date fair value of time-based RSUs andthese PSUs was based on the closing stock price on the date of grant. The grant date fair value of MPSUs was estimated using a Monte Carlo simulation method. the Black-Scholes model, which factored the purchase price feature into consideration. |
| | Assumptions used in the calculation of these amountsthe 2019 stock awards are included in Note 1 and Note 78 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015,2019, filed with the SEC on February 29, 2016.28, 2020. |
| | (3)(2) | In 2015,Assuming the achievement of the highest level of performance criteria, the aggregate grant date fair value of the stock awards assuming the achievement of the highest level of performance criteria,in 2019 would be as follows: (a) $18,895,687$23,837,030 for Mr. Hsing, (b) $5,850,077$4,224,650 for Ms. Rao,Mr. Blegen, (c) $7,187,221$6,172,074 for Mr. Xiao, (d) $7,187,221$6,172,074 for Mr. Sciammas, and (e) $7,187,221$6,172,074 for Ms. Tseng. In 2014, the aggregate grant date fair value of the stock awards, assuming the achievement of the highest level of performance criteria, would be as follows: (a) $12,900,019 for Mr. Hsing, (b) $2,822,399 for Ms. Rao, (c) $3,916,773 for Mr. Xiao, (d) $3,456,020 for Mr. Sciammas, and (e) $3,456,020 for Ms. Tseng. In 2013, the aggregate grant date fair value of the awards, assuming the achievement of the highest level of performance criteria, would be: (a) $20,761,568 for Mr. Hsing, (b) $6,398,033 for Ms. Rao, (c) $8,085,934 for Mr. Xiao, (d) $7,733,596 for Mr. Sciammas, and (e) $7,733,596 for Ms. Tseng.
|
(4) | (3) | The 2019 amounts reflect the annualshort-term cash incentive compensation earned by the NEOs under our non-equitynon-equity incentive plan, as described under the section“Named Executive Officer Compensation -— Compensation Discussion and Analysis.” |
(5) | The “other compensation” for Mr. Xiao represents the value of the vested equity interest in a subsidiary of MPS that owns a corporate apartment in Chengdu, China, which is provided to Mr. Xiao in connection with his extended stay in China due to his increased responsibilities in our operations in Asia. See the section“Potential Payments Upon Termination or Termination Upon Change-in-Control -Employment Agreements and Change-in-Control Arrangements”for more information. Other than these amounts, we(4)
| We did not provide other benefits or compensation for the NEOs that is required to be disclosed under Item 402(c)(2)(ix) of Regulation S-K. |
CEO Pay Ratio For 2019, our CEO pay ratio was determined as follows: | ● | The annual total compensation of our CEO was $9,356,946, as reported in the “Total” column in the 2019 Summary Compensation Table disclosed above. |
| ● | The median of the annual total compensation of all employees (other than our CEO) was $36,848. The median employee was located in China. |
| ● | The ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees was 254 to 1. This pay ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K. |
For purposes of calculating the amount of compensation paid to our median employee in 2019, we used the same median employee that we identified in 2017, as permitted under the SEC rules. There have been no significant changes in our employee population or employee compensation arrangements that we believe would significantly impact the pay ratio disclosure. The SEC rules for identifying the median employee and calculating the pay ratio based on that employee's annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. Therefore, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
Alternative Measure:
As discussed in the Compensation Discussion and Analysis section above, more than 93% of our CEO’s annual compensation was tied to rigorous performance conditions in 2019, while the annual compensation of our median employee was not tied to performance goals. Accordingly, as an alternative measure, management believes that a more direct and meaningful pay ratio is to compare compensation that is not tied to any performance objectives. Based on this method, our alternative CEO pay ratio was determined as follows: | ● | The annual total compensation of our CEO was $650,000. |
| ● | The median of the annual total compensation of all employees (other than our CEO) was $36,848. |
| ● | The alternative ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees was 18 to 1. |
Grants of Plan-Based Awards for the Year Ended December 31, 20152019 | | | | | | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | | | Estimated Future Payouts Under Equity Incentive Plan Awards (#)(2) | | | Grant Date Fair Value of Stock and Option | | Name | | | Grant Date | | | Threshold | | | Target | | | Maximum | | | Threshold | | | Target | | | Maximum | | | Awards (3) | | Michael Hsing | | | | - | | | $ | - | | | $ | 650,000 | | | $ | 1,625,000 | | | | - | | | | - | | | | - | | | | - | | | | | 2/11/2019 | | | | - | | | | - | | | | - | | | | - | | | | 77,481 | | | | 232,443 | | | $ | 7,945,677 | | Bernie Blegen | | | - | | | $ | - | | | $ | 256,000 | | | $ | 640,000 | | | | - | | | | - | | | | - | | | | - | | | | | 2/11/2019 | | | | - | | | | - | | | | - | | | | - | | | | 13,732 | | | | 41,196 | | | $ | 1,408,217 | | Deming Xiao | | | - | | | $ | - | | | $ | 272,000 | | | $ | 680,000 | | | | - | | | | - | | | | - | | | | - | | | | | 2/11/2019 | | | | - | | | | - | | | | - | | | | - | | | | 20,062 | | | | 60,186 | | | $ | 2,057,358 | | Maurice Sciammas | | | - | | | $ | - | | | $ | 272,000 | | | $ | 680,000 | | | | - | | | | - | | | | - | | | | - | | | | | 2/11/2019 | | | | - | | | | - | | | | - | | | | - | | | | 20,062 | | | | 60,186 | | | $ | 2,057,358 | | Saria Tseng | | | - | | | $ | - | | | $ | 272,000 | | | $ | 680,000 | | | | - | | | | - | | | | - | | | | - | | | | | 2/11/2019 | | | | - | | | | - | | | | - | | | | - | | | | 20,062 | | | | 60,186 | | | $ | 2,057,358 | |
| | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) | | | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | | | All Other Stock Awards: | | | Grant Date | | NEOs | | Grant Date | | Threshold | | | Target | | | Maximum | | | Threshold | | | Target | | | Maximum | | | Number of Shares of Stock or Units (3) | | | Fair Value of Stock and Option Awards (4) | | Michael Hsing | | - | | $ | - | | | $ | 600,000 | | | $ | 1,500,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2/3/2015 | | | - | | | | - | | | | - | | | | - | | | | 79,745 | | | | 239,235 | | | | - | | | $ | 3,870,025 | | | | 2/3/2015 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 26,581 | | | $ | 1,289,976 | | | | 12/31/2015 | | | - | | | | - | | | | - | | | | - | | | | 27,749 | | | | 138,745 | | | | - | | | $ | 1,199,127 | | Meera Rao | | - | | $ | - | | | $ | 248,000 | | | $ | 434,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2/3/2015 | | | - | | | | - | | | | - | | | | - | | | | 19,317 | | | | 57,951 | | | | - | | | $ | 937,454 | | | | 2/3/2015 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 6,439 | | | $ | 312,485 | | | | 12/31/2015 | | | - | | | | - | | | | - | | | | - | | | | 12,613 | | | | 63,065 | | | | - | | | $ | 545,046 | | Deming Xiao | | - | | $ | - | | | $ | 272,000 | | | $ | 476,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2/3/2015 | | | - | | | | - | | | | - | | | | - | | | | 24,213 | | | | 72,639 | | | | - | | | $ | 1,175,057 | | | | 2/3/2015 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 8,071 | | | $ | 391,686 | | | | 12/31/2015 | | | - | | | | - | | | | - | | | | - | | | | 15,136 | | | | 75,680 | | | | - | | | $ | 654,073 | | Maurice Sciammas | | - | | $ | - | | | $ | 272,000 | | | $ | 476,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2/3/2015 | | | - | | | | - | | | | - | | | | - | | | | 24,213 | | | | 72,639 | | | | - | | | $ | 1,175,057 | | | | 2/3/2015 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 8,071 | | | $ | 391,686 | | | | 12/31/2015 | | | - | | | | - | | | | - | | | | - | | | | 15,136 | | | | 75,680 | | | | - | | | $ | 654,073 | | Saria Tseng | | - | | $ | - | | | $ | 272,000 | | | $ | 476,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2/3/2015 | | | - | | | | - | | | | - | | | | - | | | | 24,213 | | | | 72,639 | | | | - | | | $ | 1,175,057 | | | | 2/3/2015 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 8,071 | | | $ | 391,686 | | | | 12/31/2015 | | | - | | | | - | | | | - | | | | - | | | | 15,136 | | | | 75,680 | | | | - | | | $ | 654,073 | |
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| (1) | AmountsThe amounts reflect the threshold, target, and maximum awards under the short-term cash incentive compensation program, which is described in detail in the section“NamedExecutive Officer Compensation — Compensation Discussion and Analysis—Analysis of 2015 Compensation Elements—Short-Term Cash Incentive Compensation.Analysis.”
|
| (2) | AmountsThe amounts reflect the threshold, target, and maximum number of shares of PSUs that may be earned under the long-term equity incentive compensation program, which is described in detail in the section“NamedExecutive Officer Compensation —Compensation Discussion and Analysis—AnalysisAnalysis.”
| | | | | | The 2019 PSUs contain a purchase price feature, which requires the NEOs to pay MPS $30 per share upon vesting of 2015 Compensation Elements—Long-Term Equity Incentive Compensation.”the shares. Shares that do not vest will not be subject to the purchase price payment to MPS. The target number of shares granted to each NEO was determined based on the equity compensation value, divided by the closing stock price on the date of grant less the purchase price. |
(3)
| Amounts reflect the time-based RSUs granted under the long-term equity incentive compensation program, which is described in detail in the section “Compensation Discussion and Analysis—Analysis of 2015 Compensation Elements—Long-Term Equity Incentive Compensation.”
|
(4)(3)
| The amounts reflect the aggregate grant date fair value of each award based on the target level of performance and calculated in accordance with ASC Topic 718, excluding the impact of estimated forfeitures. The grant date fair value was $102.55 per share. It was calculated using the Black-Scholes model, which factored in the purchase price requirement of time-based RSUs and PSUs was based on the closing stock price on the date of grant. The grant date fair value of MPSUs was estimated using a Monte Carlo simulation method. $30 per share. | | | | | | Assumptions used in the calculation of these amountsthe stock awards are included in Note 1 and Note 78 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015,2019, filed with the SEC on February 29, 2016.28, 2020. |
Narrative Disclosure to 2019 Summary Compensation Table and Grants of Plan-Based Awards During the Year Ended December 31 2015, 2019 A discussion of 20152019 salaries, incentive plans and awards is set forth under the section“Named Executive Officer Compensation - Compensation Discussion and Analysis,”including a discussion of the material terms and conditions of the time-based RSUs, PSUsshort-term cash incentive compensation and MPSUs.PSUs. For information regarding our employment agreements with the NEOs, see the section “NamedExecutive Officer Compensation – Potential Payments Upon Termination or Termination Upon Change in Control – Employment Agreements and Change in Control Arrangements.” Equity Incentive Grant Policies We maintain the Monolithic Power Systems Equity Award Grant Policy, which is designed to work in concert with: (1) the administrative provisions of our amended 2014 Equity Incentive Plan (the “2014 Equity Plan”) and such other plans as we may adopt from time to time (which we refer to collectively as the Plans), (2) the requirements of the Delaware General Corporation Law, (3) the corporate governance requirements of NASDAQ, (4) applicable rules and regulations of the SEC, including those relating to Section 16 of the 1934 Act, and (5) relevant sections of the Internal Revenue Code. Grants to our NEOs are made pursuant to this policy, must be approved by the Board or the Compensation Committee and will only be granted at specific times during the year, as described in further detail below. Plan and Corporate Authorization Under the Plans, the authorization to administer the grant of equity incentive awards is conferred upon the Board or any committee of the Board as properly constituted under applicable laws. The Board has delegated to the Compensation Committee the authority to serve as administrator of the Plans (including the authority to grant awards under the Plans), and has approved a charter outlining the responsibilities of this committee which also includes this express authority. The delegation of authority to the Compensation Committee is not exclusive; the Board retains the right to formally approve award grants as well. The Compensation Committee may form and delegate authority to subcommittees when appropriate. In addition, the Board has delegated limited authority for grants of equity awards under the Plans to new employees and consultants to a committee consisting of the Chief Executive Officer (which committee we refer to as the Equity Award Committee). The authority does not extend to grants to the NEOs. The delegation of authority to the Equity Award Committee is not exclusive; the Board and Compensation Committee retain the right to formally approve award grants as well. Equity Grants to New Hires Grants to newly hired employees and consultants (other than Executive Officers as defined below) will generally be made on the date of the next regularly scheduled Board meeting subsequent to the employees’ start date. Management submits the employee equity award recommendations to the Compensation Committee and, if such equity awards are approved by the Compensation Committee, such equity awards will be granted effective as of the date of a meeting approving such awards as evidenced by written minutes of such meeting or the date of the last verification signature or electronic verification over email in the event of a written consent in lieu of the meeting. New hire grants made to “Executive Officers” (currently defined as the Chief Executive Officer, Chief Financial Officer, Chief Legal Officer, Chief Operations Officer, President, employees who are members of the Board and any other employee determined by the Board to be an Executive Officer) generally will only be granted on the date of the next regularly scheduled Board meeting subsequent to the Executive Officer’s start date and following the recommendation of such grant by the Compensation Committee. Equity Grants to Existing Employees or Incumbent Members of the Board Generally, annual grants of equity awards shall be made to key performers quarterly at a regularly scheduled Board meeting. Equity awards to non-employee members of the Board shall be made by the Board or pursuant to any automatic grant provisions in the Plans. OutstandingOutstanding Equity Awards at 20152019 Year-End
The following table sets forth, as to the NEOs, certain information concerning their outstanding equitystock awards at December 31, 2015. The market value of the stock awards that have not vested is based on the closing market price of our Common Stock of $63.71 on December 31, 2015, and includes any outstanding dividend equivalents accumulated on such awards as of December 31, 2015.2019. There were no outstanding option awards held by the NEOs as of December 31, 2015.2019. | Stock Awards | | NEOs | Grant Date | | | | | | Number of Shares of Restricted Stock Units that Have Not Vested | | | Market Value of Shares of Restricted Stock Units That Have Not Vested | | | Equity Incentive Plan Awards: Number of Unearned Restricted Stock Units That Have Not Vested | | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Restricted Stock Units That Have Not Vested | | Michael Hsing | 2/14/2012 | | | (1 | ) | | | 8,249 | | | $ | 544,484 | | | | - | | | | - | | | 12/28/2012 | | | (2 | ) | | | 387 | | | $ | 25,522 | | | | - | | | | - | | | 2/11/2013 | | | (3 | ) | | | 83,164 | | | $ | 5,390,790 | | | | - | | | | - | | | 12/14/2013 | | | (4 | ) | | | 550,000 | | | $ | 35,480,500 | | | | - | | | | - | | | 2/4/2014 | | | (5 | ) | | | 5,107 | | | $ | 337,112 | | | | - | | | | - | | | 2/4/2014 | | | (6 | ) | | | 337,002 | | | $ | 21,623,580 | | | | - | | | | - | | | 2/3/2015 | | | (7 | ) | | | 19,936 | | | $ | 1,287,400 | | | | - | | | | - | | | 2/3/2015 | | | (8 | ) | | | - | | | $ | - | | | | 79,745 | | | $ | 5,144,350 | | | 12/31/2015 | | | (9 | ) | | | - | | | $ | - | | | | 27,749 | | | $ | 1,767,889 | | Meera Rao | 2/14/2012 | | | (1 | ) | | | 2,401 | | | $ | 158,478 | | | | - | | | | - | | | 12/28/2012 | | | (2 | ) | | | 112 | | | $ | 7,406 | | | | - | | | | - | | | 2/11/2013 | | | (3 | ) | | | 22,988 | | | $ | 1,490,109 | | | | - | | | | - | | | 12/14/2013 | | | (4 | ) | | | 180,000 | | | $ | 11,611,800 | | | | - | | | | - | | | 2/4/2014 | | | (5 | ) | | | 1,118 | | | $ | 73,798 | | | | - | | | | - | | | 2/4/2014 | | | (6 | ) | | | 73,733 | | | $ | 4,731,045 | | | | - | | | | - | | | 2/3/2015 | | | (7 | ) | | | 4,830 | | | $ | 311,905 | | | | - | | | | - | | | 2/3/2015 | | | (8 | ) | | | - | | | $ | - | | | | 19,317 | | | $ | 1,246,140 | | | 12/31/2015 | | | (9 | ) | | | - | | | $ | - | | | | 12,613 | | | $ | 803,575 | | Deming Xiao | 2/14/2012 | | | (1 | ) | | | 3,531 | | | $ | 233,104 | | | | - | | | | - | | | 12/28/2012 | | | (2 | ) | | | 166 | | | $ | 10,936 | | | | - | | | | - | | | 2/11/2013 | | | (3 | ) | | | 31,940 | | | $ | 2,070,388 | | | | - | | | | - | | | 12/14/2013 | | | (4 | ) | | | 216,000 | | | $ | 13,934,160 | | | | - | | | | - | | | 2/4/2014 | | | (5 | ) | | | 1,551 | | | $ | 102,380 | | | | - | | | | - | | | 2/4/2014 | | | (6 | ) | | | 102,322 | | | $ | 6,565,445 | | | | - | | | | - | | | 2/3/2015 | | | (7 | ) | | | 6,054 | | | $ | 390,947 | | | | - | | | | - | | | 2/3/2015 | | | (8 | ) | | | - | | | $ | - | | | | 24,213 | | | $ | 1,561,981 | | | 12/31/2015 | | | (9 | ) | | | - | | | $ | - | | | | 15,136 | | | $ | 964,315 | | Maurice Sciammas | 2/14/2012 | | | (1 | ) | | | 2,769 | | | $ | 182,748 | | | | - | | | | - | | | 12/28/2012 | | | (2 | ) | | | 129 | | | $ | 8,546 | | | | - | | | | - | | | 2/11/2013 | | | (3 | ) | | | 28,182 | | | $ | 1,826,791 | | | | - | | | | - | | | 12/14/2013 | | | (4 | ) | | | 216,000 | | | $ | 13,934,160 | | | | - | | | | - | | | 2/4/2014 | | | (5 | ) | | | 1,368 | | | $ | 90,302 | | | | - | | | | - | | | 2/4/2014 | | | (6 | ) | | | 90,284 | | | $ | 5,793,033 | | | | - | | | | - | | | 2/3/2015 | | | (7 | ) | | | 6,054 | | | $ | 390,947 | | | | - | | | | - | | | 2/3/2015 | | | (8 | ) | | | - | | | $ | - | | | | 24,213 | | | $ | 1,561,981 | | | 12/31/2015 | | | (9 | ) | | | - | | | $ | - | | | | 15,136 | | | $ | 964,315 | | Saria Tseng | 2/14/2012 | | | (1 | ) | | | 2,769 | | | $ | 182,748 | | | | - | | | | - | | | 12/28/2012 | | | (2 | ) | | | 129 | | | $ | 8,546 | | | | - | | | | - | | | 2/11/2013 | | | (3 | ) | | | 28,182 | | | $ | 1,826,791 | | | | - | | | | - | | | 12/14/2013 | | | (4 | ) | | | 216,000 | | | $ | 13,934,160 | | | | - | | | | - | | | 2/4/2014 | | | (5 | ) | | | 1,368 | | | $ | 90,302 | | | | - | | | | - | | | 2/4/2014 | | | (6 | ) | | | 90,284 | | | $ | 5,793,033 | | | | - | | | | - | | | 2/3/2015 | | | (7 | ) | | | 6,054 | | | $ | 390,947 | | | | - | | | | - | | | 2/3/2015 | | | (8 | ) | | | - | | | $ | - | | | | 24,213 | | | $ | 1,561,981 | | | 12/31/2015 | | | (9 | ) | | | - | | | $ | - | | | | 15,136 | | | $ | 964,315 | |
| | Stock Awards | | Name | | Grant Date | | | | | Number of Shares or Units of Stock That Have Not Vested (#) | | | Market Value of Shares or Units of Stock That Have Not Vested (1) | | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (1) | | Michael Hsing | | 12/14/2013 | | (2 | ) | | | 440,000 | | | $ | 80,616,800 | | | | - | | | | - | | | | 12/31/2015 | | (3 | ) | | | 138,743 | | | $ | 25,041,459 | | | | - | | | | - | | | | 2/2/2016 | | (4 | ) | | | 20,329 | | | $ | 3,282,585 | | | | - | | | | - | | | | 2/7/2017 | | (5 | ) | | | 79,443 | | | $ | 11,947,370 | | | | - | | | | - | | | | 2/7/2018 | | (6 | ) | | | 289,250 | | | $ | 43,087,822 | | | | - | | | | - | | | | 10/25/2018 | | (7 | ) | | | 108,000 | | | $ | 19,293,120 | | | | - | | | | - | | | | 2/11/2019 | | (8 | ) | | | - | | | | - | | | | 77,481 | | | $ | 11,592,707 | | Bernie Blegen | | 12/14/2013 | | (2 | ) | | | 28,800 | | | $ | 5,276,736 | | | | - | | | | - | | | | 2/2/2016 | | (9 | ) | | | 27 | | | $ | 4,925 | | | | - | | | | - | | | | 2/2/2016 | | (10 | ) | | | 62 | | | $ | 10,098 | | | | - | | | | - | | | | 7/19/2016 | | (4 | ) | | | 5,560 | | | $ | 896,911 | | | | - | | | | - | | | | 2/7/2017 | | (5 | ) | | | 13,718 | | | $ | 2,062,978 | | | | - | | | | - | | | | 2/7/2018 | | (6 | ) | | | 44,055 | | | $ | 6,562,594 | | | | - | | | | - | | | | 10/25/2018 | | (7 | ) | | | 48,000 | | | $ | 8,574,720 | | | | - | | | | - | | | | 2/11/2019 | | (8 | ) | | | - | | | | - | | | | 13,732 | | | $ | 2,054,582 | | Deming Xiao | | 12/14/2013 | | (2 | ) | | | 172,800 | | | $ | 31,660,416 | | | | - | | | | - | | | | 12/31/2015 | | (3 | ) | | | 75,678 | | | $ | 13,658,978 | | | | - | | | | - | | | | 2/2/2016 | | (4 | ) | | | 6,174 | | | $ | 996,996 | | | | - | | | | - | | | | 2/7/2017 | | (5 | ) | | | 23,231 | | | $ | 3,493,691 | | | | - | | | | - | | | | 2/7/2018 | | (6 | ) | | | 74,894 | | | $ | 11,156,483 | | | | - | | | | - | | | | 10/25/2018 | | (7 | ) | | | 48,000 | | | $ | 8,574,720 | | | | - | | | | - | | | | 2/11/2019 | | (8 | ) | | | - | | | | - | | | | 20,062 | | | $ | 3,001,676 | | Maurice Sciammas | 12/14/2013 | | (2 | ) | | | 172,800 | | | $ | 31,660,416 | | | | - | | | | - | | | | 12/31/2015 | | (3 | ) | | | 75,678 | | | $ | 13,658,978 | | | | - | | | | - | | | | 2/2/2016 | | (4 | ) | | | 6,174 | | | $ | 996,996 | | | | - | | | | - | | | | 2/7/2017 | | (5 | ) | | | 23,231 | | | $ | 3,493,691 | | | | - | | | | - | | | | 2/7/2018 | | (6 | ) | | | 74,894 | | | $ | 11,156,483 | | | | - | | | | - | | | | 10/25/2018 | | (7 | ) | | | 48,000 | | | $ | 8,574,720 | | | | - | | | | - | | | | 2/11/2019 | | (8 | ) | | | - | | | | - | | | | 20,062 | | | $ | 3,001,676 | | Saria Tseng | | 12/14/2013 | | (2 | ) | | | 172,800 | | | $ | 31,660,416 | | | | - | | | | - | | | | 12/31/2015 | | (3 | ) | | | 75,678 | | | $ | 13,658,978 | | | | - | | | | - | | | | 2/2/2016 | | (4 | ) | | | 6,174 | | | $ | 996,996 | | | | - | | | | - | | | | 2/7/2017 | | (5 | ) | | | 23,231 | | | $ | 3,493,691 | | | | - | | | | - | | | | 2/7/2018 | | (6 | ) | | | 74,894 | | | $ | 11,156,483 | | | | - | | | | - | | | | 10/25/2018 | | (7 | ) | | | 48,000 | | | $ | 8,574,720 | | | | - | | | | - | | | | 2/11/2019 | | (8 | ) | | | - | | | | - | | | | 20,062 | | | $ | 3,001,676 | |
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| (1) | These shares are PSUs granted in February 2012. The performance goals with respect to these PSUs were achievedmarket value of the unvested stock awards is based on the closing market price of our Common Stock of $178.02 as of December 31, 2013. 50% of these shares vested in February 2014,2019, less any applicable purchase price, and the remaining 50% vest quarterly over the following two years through February 2016, for a total vesting period of four years, subject to continued employment.
|
(2)
| In December 2012, our Board declared a special cashincludes any outstanding dividend of $1.00 per common share, which was paidequivalents accumulated on December 28, 2012 to all stockholders of record as of the close of business on December 21, 2012. Holders of unvested RSUs did not receive this special cash dividend, but the Board approved a modification of unvested RSUs whereby the number of units covered by each unvested RSU as of December 28, 2012 was increased by a ratio of 1.0471. The purpose of the adjustments was to prevent dilution in the value of the awards due to the decrease in share value resulting from the dividend. These additional awards vest over the remaining vesting periods of the original awards granted, subject to continued employment.such awards.
| | | (3) | These shares are PSUs granted in February 2013. The performance goals with respect to these PSUs were achieved as of December 31, 2014. 50% of these shares vested in February 2015, and the remaining 50% vest quarterly over the following two years through February 2017, for a total vesting period of four years, subject to continued employment. | | | (4)(2) | These shares are MSUs granted in December 2013. The performance goals with respect to these MSUs were achieved as of December 31, 2015. The shares will vest quarterly over five years from January 1, 2019 to December 31, 2023, for a total vesting period of ten years, subject to continued employment. | | | (5) | These shares are time-based RSUs that vest quarterly over two years from the date of grant, subject to continued employment. | | | (6)(3) | These shares are PSUsMPSUs granted in February 2014.December 2015. The performance goals with respect to these PSUsMPSUs were achieved as of December 31, 2015. 50% of these shares will vest in February 2016, and the remaining 50% will vest quarterly over the following two years through February 2018, for a total vesting period of four years, subject to continued employment. | | | (7) | September 30, 2019. These shares are time-based RSUs that vest quarterly over three years from the date of grant, subject to continued employment. | | | (8) | These shares are PSUs granted in February 2015 and reflect the target level of performance. Upon achievement of the pre-determined performance targets at the end of 2016, 50% of these shares will vest in February 2017, and the remaining 50% will vest quarterly over the following two years through February 2019, for a total vesting period of four years, subject to continued employment.See the section“Compensation Discussion and Analysis - Analysis of 2015 Compensation Elements - Long-Term EquityIncentive Compensation”section above for further discussion.
| | | (9) | These shares are MPSUs granted in December 2015 and reflect the target level of performance. Upon achievement of the pre-determined performance goals and stock price targets during the performance periods ending on December 31, 2019, the shares will fully vest on January 1, 2020, for a total vesting period of four years, subject to continued employment. In addition, the MPSUs contain a post-vesting sales restriction for up to an additional two years.
| | | | | (4) | These shares are PSUs granted in February or July 2016. The performance goals with respect to these PSUs were achieved as of December 31, 2017. 50% of these shares vested in February 2018, and the remaining 50% vest quarterly through February or July 2020, for a total vesting period of four years, subject to continued employment. The PSUs contain a purchase price feature, which requires the NEOs to pay MPS $20 per share upon vesting of the shares. | | | | | (5) | These shares are PSUs granted in February 2017. The performance goals with respect to these PSUs were achieved as of December 31, 2018. 50% of these shares vested in February 2019, and the remaining 50% vest quarterly over the following two years through February 2021, for a total vesting period of four years, subject to continued employment. The PSUs contain a purchase price feature, which requires the NEOs to pay MPS $30 per share upon vesting of the shares. | | | | | (6) | These shares are PSUs granted in February 2018. The performance goals with respect to these PSUs were achieved as of December 31, 2019. 50% of these shares will vest in February 2020, and the remaining 50% will vest quarterly over the following two years through February 2022, for a total vesting period of four years, subject to continued employment. The PSUs contain a purchase price feature, which requires the NEOs to pay MPS $30 per share upon vesting of the shares. | | | | | (7) | These shares are MSUs granted in October 2018. The performance goals with respect to these MSUs were achieved as of December 31, 2019. These shares will fully vest on January 1, 2024, for a total vesting period of five years and two months, subject to continued employment. In addition, the MSUs contain a post-vesting sales restriction for up to an additional two years. | | | | | (8) | These shares are PSUs granted in February 2019 and reflect the target level of performance. Upon achievement of the pre-determined performance targets at the end of 2020, 50% of these shares will vest in February 2021, and the remaining 50% will vest quarterly over the following two years through February 2023, for a total vesting period of four years, subject to continued employment. The PSUs contain a purchase price feature, which requires the NEOs to pay MPS $30 per share upon vesting of the shares. See the section ““Named Executive Officer Compensation — Compensation Discussion and Analysis- Analysis of 2015 Compensation Elements- Long-Term EquityAnalysis” Incentive Compensation”section above for further discussion. | | | | | (9) | These shares are time-based RSUs that vest quarterly over four years from the date of grant, subject to continued employment. | | | | | (10) | These shares are PSUs granted in February 2016. The performance goals with respect to these PSUs were achieved as of December 31, 2017. 50% of these shares vested in February 2018, and the remaining 50% vest quarterly over the following two years through February 2020, for a total vesting period of four years, subject to continued employment. The PSUs contain a purchase price feature, which requires Mr. Blegen to pay MPS $20 per share upon vesting of the shares. |
2019 Option Exercises and Stock Vested The following table sets forth certain information concerningon the option awards exercised and stock awards vested for our NEOs in 2015:2019. There were no option exercises in 2019. | | Option Awards | | | Stock Awards | | | Stock Awards | | NEOs | | Number of Shares Acquired on Exercises | | | Value Realized on Exercise (1) | | | Number of Shares Acquired on Vesting | | | Value Realized on Vesting (2) | | | Name | | | Number of Shares Acquired on Vesting (#) | | | Value Realized on Vesting (1) | | Michael Hsing | | | 314,117 | | | $ | 11,594,486 | | | | 248,497 | | | $ | 12,832,886 | | | | 380,217 | | | $ | 48,189,614 | | Meera Rao | | | - | | | $ | - | | | | 71,642 | | | $ | 3,684,010 | | | Bernie Blegen | | | | 45,399 | | | $ | 5,344,019 | | Deming Xiao | | | - | | | $ | - | | | | 98,633 | | | $ | 5,078,484 | | | | 123,279 | | | $ | 15,949,006 | | Maurice Sciammas | | | 9,337 | | | $ | 373,408 | | | | 85,622 | | | $ | 4,405,532 | | | | 123,279 | | | $ | 15,949,006 | | Saria Tseng | | | - | | | $ | - | | | | 84,967 | | | $ | 4,373,936 | | | | 123,279 | | | $ | 15,949,006 | |
| (1) | Value realized is equal to (a) the closing price of our Common Stock on the vesting date less any purchase price, multiplied by the number of shares, plus (b) accumulated dividend equivalents attributable to such shares. |
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(1) Value realized is equal to the difference between the market price of our Common Stock at the time of exercise and the strike price of the stock options, multiplied by the number of shares.
(2) Value realized is equal to the sum of (a) the market price of our Common Stock on the vesting date, multiplied by the number of shares, plus (b) any accumulated dividend equivalents paid on such shares.
2019 Non-Qualified Deferred Compensation Plan
In July 2013, after taking into account trends in federal personal income taxation, as well as the practices of our peer companies, our Compensation Committee adoptedWe have a non-qualified, unfunded deferred compensation plan, which allows key employees, including our NEOs, to defer the receipt of, and taxation on, cash compensation. Investment returns on deferred balances are linked to the performance of the investment choices made available in the plan. We do not make contributions to the plan or guarantee returns on the investments. The following table summarizes contributions made by the non-qualified deferred compensation activity for our NEOs from compensation payable for 2015:in 2019:
NEOs | | Executive Contributions in Last FY (1) | | | Aggregate Earnings (Losses) in Last FY (2) | | | Aggregate Balance at Last FY | | Michael Hsing | | $ | 2,285,346 | | | $ | 32,957 | | | $ | 4,048,420 | | Meera Rao | | $ | 747,283 | | | $ | - | | | $ | 1,272,185 | | Deming Xiao | | $ | 827,762 | | | $ | (12,202 | ) | | $ | 1,550,406 | | Maurice Sciammas | | $ | 733,338 | | | $ | (13,668 | ) | | $ | 1,390,225 | | Saria Tseng | | $ | 826,362 | | | $ | (29,969 | ) | | $ | 1,484,309 | |
Name | | Executive Contributions in Last FY (1) | | | Aggregate Earnings in Last FY (2) | | | Aggregate Balance at Last FYE (3) | | Michael Hsing | | $ | 292,500 | | | $ | 596,310 | | | $ | 11,053,173 | | Bernie Blegen | | $ | 30,000 | | | $ | 38,704 | | | $ | 1,351,365 | | Deming Xiao | | $ | 598,427 | | | $ | 336,082 | | | $ | 4,671,073 | | Maurice Sciammas | | $ | 68,000 | | | $ | 354,415 | | | $ | 3,117,946 | | Saria Tseng | | $ | 597,561 | | | $ | 835,123 | | | $ | 5,305,162 | |
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| (1) | All executive contributions are reported as salary bonus or non-equity incentive plan compensation in the section“Named Executive Officer Compensation — 2019 Summary Compensation Table.”NEOs may defer up to 70% of their salary and up to 90% of their non-equity incentive plan compensation. |
| (2) | Represents the netamounts credited to the NEOs’ accounts as a result of the performance of their investment choices. The amounts are not included in the section“Named Executive Officer Compensation— 2019 Summary Compensation Table” because plan earnings are not “preferential or above-market” under SEC rules. |
| (3) | Includes the following cumulative amounts previously reported as compensation for the NEOs in prior years’ Summary Compensation Tables: Mr. Hsing, $8,944,880; Mr. Blegen, $756,811; Mr. Xiao, $3,630,513; Mr. Sciammas, $2,497,913; and Ms. Tseng, $3,568,454. |
Potential Payments Upon Termination or Termination Upon Change-in-ControlChange in Control Employment Agreements and Change-in-ControlChange in Control Arrangements We have entered into employment agreements with each of our NEOs. The employment agreements establish the initial titles, salaries, and reporting responsibilities for the NEOs. The employment agreements also provide forthat each NEO tomay participate in our equity, bonus and benefits programs. Each of the employment agreements with Mr. Hsing, Mr. Xiao and Mr. Sciammas was amended in December 2008 to bring the agreements into compliance with Section 409A of the Internal Revenue Code. The employment agreement with Mr. Xiao was subsequently amended in March 2011 to grant Mr. Xiao an equity interest in Hue Ming LLC, a Delaware limited liability company formed by us (see further discussion below).us. In addition to the terms described above, the employment agreements also provide certain severance benefits upon termination without cause or for good reason, or termination afterincluding within one year following a change-in-control,change in control (a “Change in Control with Termination”), as described in the following table. We have followed general market practices for senior executives in allowing limited change-in-controlchange in control arrangements for selected officers. NEOs | Agreement and Date | Termination Withoutwithout Cause or Departure for Good Reason | Change-in-Control withChange in Control
with Termination (1) | Michael R. Hsing | Employment Agreement dated March 10, 2008, as amended December 16, 2008. | Base salary, target annual bonus and benefits for 12 months;months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company; and acceleration of vesting of equity grantgrants equal to the number of equity grantshares that would have vested had the executive remained an employee for 12 months following the termination of employment. | Base salary, target annual bonus and benefits for a period of 12 months;months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company; and acceleration of vesting of 100% of the executive’s unvested equity grant.grants.(1) | Meera RaoBernie Blegen
| Employment Agreement dated January 5, 2009, as amended February 9, 2010.July 19, 2016. | Base salary, target annual bonus and benefits for six months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company; and acceleration of vesting of equity grantgrants equal to the number of equity grantshares that would have vested had the executive remained an employee for six months following the termination of employment. | Base salary, target annual bonus and benefits for a period of 12 months;months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company; and acceleration of vesting of 100% of the executive’s unvested equity grant.grants.(1) | Deming Xiao | Employment Agreement dated March 10, 2008, as amended December 16, 2008 and March 3, 20112011. | Base salary, target annual bonus and benefits for six months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company; and acceleration of vesting of equity grant and ownership interest in Hue Ming LLCgrants equal to the number of equity grant orshares that would have vested had the executive remained an employee for six months following the termination of employment. On March 3, 2011, we entered into an amendment to the employment agreement with Mr. Xiao to provide an additional benefit to him in connection with his extended stay in China due to his increased responsibilities. Pursuant to the amendment, we would transfer ownership of a corporate apartment in Chengdu, China, that was originally owned by our wholly-owned China subsidiary, to Mr. Xiao. In order to effect the transfer, we formed a new wholly-owned subsidiary Hue Ming LLC and granted Mr. Xiao 100% ownership in such subsidiary, subject to vesting conditions. The equity interest became fully vested in March 2016 and Hue Ming LLC was dissolved. | Base salary, target annual bonus and benefits for a period of 12 months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company; and acceleration of vesting of 100% of the executive’s unvested equity grants.(1) |
Maurice Sciammas | Employment Agreement dated March 10, 2008, as amended December 16, 2008. | Base salary, target annual bonus and benefits for six months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company; and acceleration of vesting of equity grants equal to the number of shares that would have vested had the executive remained an employee for six months following the termination of employment. | Base salary, target annual bonus and benefits for a period of 12 months;months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company; and acceleration of vesting of 100% of the executive’s unvested equity grant.grants.(1) | Maurice SciammasSaria Tseng
| Employment Agreement dated March 10,December 16, 2008, as amended December 16, 2008February 9, 2010. | Base salary, target annual bonus and benefits for six months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company; and acceleration of vesting of equity grantgrants equal to the number of equity grantshares that would have vested had the executive remained an employee for six months following the termination of employment. | Base salary, target annual bonus and benefits for a period of 12 months; and acceleration of vesting of 100% of the executive’s unvested equity grant. | Saria Tseng
| Employment Agreement dated December 16, 2008, as amended February 9, 2010
| Base salary, target annual bonus and benefits for six months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company; and acceleration of vesting of equity grant equal to the number of equity grant that would have vested had the executive remained an employee for six months following the termination of employment.
| Base salary, target annual bonus and benefits for a period of 12 months; and acceleration of vesting of 100% of the executive’s unvested equity grant.grants.(1)
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| (1) | With respect to the PSUs that have not been earned because the performance period is still in progress, a pro-rata portion of such awards shall vest to the extent the applicable performance levels are achieved through the date of the change in control, provided that the date of the change in control occurs after the first calendar year of the performance period. With respect to the MPSUs that have not been earned because the performance period is still in progress, such awards shall vest if the price hurdles are less than the per-share price paid in the change in control. |
Each of the employment agreements with our NEOs also contains a provision whereby during the period of employment and thereafter, the executive shall not, without the prior written consent of us, disclose or use any confidential information or proprietary data other than for our interest. These employment agreements also contain a covenant not to solicit, beginning with the date of the executive’s termination and until one year thereafter. All payments due under the severance benefits provided under the employment agreements with our NEOs are conditioned on the execution and non-revocation of a release for our benefit and the benefit of our related entities and agents. A “change-in-control”“change in control” of MPS means a merger or consolidation after which our stockholders do not hold a majority of our outstanding voting securities, any transaction involving the transfer of greater than 50% of our voting power (unless otherwise provided for in an award agreement), or a sale of substantially all our assets. “Cause” generally means the NEO’s failure to perform the duties or responsibilities of his or her employment, the NEO personally engaging in illegal conduct that is detrimental to us, the NEO being convicted of or pleading nolo contendere to a felony or other crime involving moral turpitude, or the NEO committing a material act of dishonesty, fraud or misappropriation of property. “Good reason”Reason” generally means the NEO’s termination of employment following the expiration of any cure period following the occurrence of: a material reduction in compensation (except where a substantially equivalent reduction is applied to all our officers), a material reduction in the NEO’s duties, or a material change in the location at which the NEO performs services. On March 3, 2011 (the “Amendment Date”), we entered into an amendment to the employment agreement with Mr. Xiao to provide an additional benefit to him in connection with his extended stay in China due to his increased responsibilities. Pursuant to the amendment, we would transfer ownership Estimated Payments Upon Termination or Change-in-ControlChange in Control The following table sets forth the estimated payments required to be made to each NEO in connection with the termination of theirhis or her employment upon specified events, assuming a stock price of $63.71$178.02 per share, the closing price onas of December 31, 2015.2019. The estimated amounts shown also assume that the termination was effective as of December 31, 2015,2019, and include estimates of the amountsseverance benefits which would be paid out in a lump sum to the executives upon their termination. The actual amounts payable to each NEO can only be determined at the time of the termination of the executive’s employment. | | Termination Without Cause or Departure for Good Reason | | | Change-in-Control With Termination | | NEOs | | Base Salary and Target Bonus | | | Acceleration of Vesting of Equity Awards | | | Other | | | Total Compensation | | | Base Salary and Target Bonus | | | Acceleration of Vesting of Equity Awards | | | Other | | | Total Compensation | | Michael Hsing | | $ | 1,200,000 | | | $ | 20,439,610 | | | $ | 10,187 | | | $ | 21,649,797 | | | $ | 1,200,000 | | | $ | 73,226,947 | | | $ | 10,187 | | | $ | 74,437,134 | | Meera Rao | | $ | 279,000 | | | $ | 3,527,880 | | | $ | 3,584 | | | $ | 3,810,464 | | | $ | 558,000 | | | $ | 21,304,819 | | | $ | 7,167 | | | $ | 21,869,986 | | Deming Xiao | | $ | 306,000 | | | $ | 4,900,884 | | | $ | 24,357 | | | $ | 5,231,241 | | | $ | 612,000 | | | $ | 26,864,156 | | | $ | 16,390 | | | $ | 27,492,546 | | Maurice Sciammas | | $ | 306,000 | | | $ | 4,311,160 | | | $ | 11,536 | | | $ | 4,628,696 | | | $ | 612,000 | | | $ | 25,795,220 | | | $ | 23,071 | | | $ | 26,430,291 | | Saria Tseng | | $ | 306,000 | | | $ | 4,311,160 | | | $ | 9,760 | | | $ | 4,626,920 | | | $ | 612,000 | | | $ | 25,795,220 | | | $ | 19,520 | | | $ | 26,426,740 | |
| | Termination without Cause or Departure for Good Reason | | | Change in Control with Termination | | Name | | Base Salary and Target Bonus | | | Acceleration of Vesting of Equity Awards | | | Other | | | Total Compensation | | | Base Salary and Target Bonus | | | Acceleration of Vesting of Equity Awards | | | Other | | | Total Compensation | | Michael Hsing | | $ | 1,300,000 | | | $ | 86,339,237 | | | $ | 19,431 | | | $ | 87,658,668 | | | $ | 1,300,000 | | | $ | 187,929,473 | | | $ | 19,431 | | | $ | 189,248,904 | | Bernie Blegen | | $ | 288,000 | | | $ | 6,944,087 | | | $ | 12,674 | | | $ | 7,244,761 | | | $ | 576,000 | | | $ | 24,514,295 | | | $ | 25,347 | | | $ | 25,115,642 | | Deming Xiao | | $ | 306,000 | | | $ | 27,982,937 | | | $ | 9,729 | | | $ | 28,298,666 | | | $ | 612,000 | | | $ | 70,320,891 | | | $ | 19,458 | | | $ | 70,952,349 | | Maurice Sciammas | | $ | 306,000 | | | $ | 27,982,937 | | | $ | 12,688 | | | $ | 28,301,625 | | | $ | 612,000 | | | $ | 70,320,891 | | | $ | 25,376 | | | $ | 70,958,267 | | Saria Tseng | | $ | 306,000 | | | $ | 27,982,937 | | | $ | 13,780 | | | $ | 28,302,717 | | | $ | 612,000 | | | $ | 70,320,891 | | | $ | 27,560 | | | $ | 70,960,451 | |
In the event the NEOs resign without good reason or we terminate their employment for cause, we will have no obligation to pay or provide any compensation or benefits as a result of the employment agreements between us and the NEOs. In the event of the NEOs’ death or disability, except as required by applicable law, we will have no obligation to pay or provide any compensation or benefits under the employment agreements between us and the NEOs. Equity Compensation Plan Information The following table summarizes certain information with respect tounder our Common Stock that may be issued under the equity compensation plans as of December 31, 2015:2019: 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)) | | | 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)) | | Equity compensation plans approved by stockholders (1) | | 4,322,000 | (2) | $ 17.50 | (3) | 9,390,000 | (4) | | | 4,053,000 | (2) | | $ | 29.61 | (3) | | | 6,128,000 | (4) |
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(1)
| (1) | Our equity compensation plans approved by stockholders include: include the following: |
| | | (i) | | 2004 Equity Incentive Plan (the “2004 Equity Plan”), which expired in November 2014. We can no longer grant equity awards under the 2004 Equity Incentive PlanPlan. However, certain equity awards granted prior to its expiration date remained unvested and shares that remained available for issuance under the plan expired in November 2014.outstanding. |
| (ii) | | | (ii)
| | the 2014 Equity Incentive Plan, which became effective in November 2014 and provides for the issuance of up to 5.5 million shares. The 2014 Equity Incentive Plan has a ten-year term. |
| | | (iii) | | 2004 Employee Stock Purchase Plan (the “ESPP”), which incorporates an evergreen provision pursuant to which on January 1 of each year, the aggregate number of shares of Common Stock reserved for issuance can increase by a number of shares equal to the least of: (i) 2% of the outstanding shares of Common Stock on the first day of the fiscal year, (ii) 1.0 million shares or (iii) a lesser number of shares determined by the Board. The 2004 Employee Stock Purchase PlanESPP has a 20-year term. |
| | | | | | (2) | | Includes 0.1 millionthe following outstanding awards: 180,000 RSUs, 1,417,000 PSUs, 1,886,000 MSUs, and 570,000 MPSUs. The number of securities reported for performance awards was based on the actual number of shares that have been earned, but are subject to additional service conditions before they vest. For those performance awards that have not been earned because the performance period was still in progress, the number of outstanding options and 4.2 million sharessecurities reported was based on the probable outcome of outstanding RSUs.the performance conditions. | |
| | | | | | (3) | | The weighted-average exerciseRepresents the purchase price is calculated based solely onrelated to the exercisePSUs. Employees are required to pay MPS a purchase price of either $20 or $30 per share upon vesting of the shares. All other outstanding optionsawards (RSUs, MSUs and does not reflect the outstanding RSUs whichMPSUs) have no exercise price.purchase price and are excluded.
| |
| | | | | | (4) | | Includes 4.7 million1,595,000 shares of Common Stockremained available for future issuance under the 2014 Equity Incentive Plan and 4.7 million4,533,000 shares of Common Stockremained available for future issuance under the 2004 Employee Stock Purchase Plan.ESPP. |
Audit Committee Report
The purpose of the Audit Committee is to provide oversight of the Company’sour accounting and financial reporting processes and the audit of the Company’sour financial statements; appoint the independent registered public accounting firm to audit the Company’sour financial statements; and assist the Board in the oversight of: (i) the integrity of the Company’sour financial statements, (ii) the Company’sour compliance with legal and regulatory requirements, (iii) the independent auditor’s qualifications, independence and performance, and (iv) the Company’sour internal accounting and financial controls. In addition, the Audit Committee provides the Board with such information and materials as it may deem necessary to make the Board aware of financial matters requiring the attention of the Board. The Audit Committee has a duly adopted charter, which it reviews on an annual basis. The Audit Committee has determined that it fulfilled its responsibilities under the Audit Committee Charter in 2015. The Audit Committee is responsible for recommending to the Board that the Company’sour financial statements be included in its Annual Report on Form 10-K. The Audit Committee took a number of steps in making this recommendation for 2015,2019, including: | ● | reviewing and discussing the audited financial statements with the Company’sour independent registered public accounting firm and management; |
| ● | discussing with the independent registered public accounting firm the matters required to be discussed by the Statement on Auditing StandardsStandard No. 61, as amended (AICPA,1301, Professional StandardsCommunications with Audit Committees, Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T;Board; and |
| ● | receiving the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accountant’s communications with the Audit Committee concerning independence, and discussing with the independent registered public accounting firm their independence. |
Based upon the reviews and discussions described in this report, the Audit Committee recommended to the Board that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 20152019 for filing with the SEC. Members of the Audit Committee:Committee (as of the date the actions above were taken): Victor K. Lee, Chairman Karen A. Smith BogartHerbert Chang
Jeff Zhou PROPOSAL FOUR APPROVAL OF THE AMENDED AND RESTATED 2014 EQUITY PLAN For purposes of this Proposal Four, the term “Proposed 2014 Equity Plan” refers to the Amended and Restated 2014 Equity Plan. Introduction We currently maintain the 2014 Equity Plan, under which we may grant incentive awards relating to our Common Stock to our employees, directors and consultants. The 2014 Equity Plan was originally approved by the stockholders in June 2013 and provided for the issuance of 5,500,000 shares.
Summary of Material Changes from the 2014 Equity Plan Under this Proposal Four, we are asking our stockholders to approve the Proposed 2014 Equity Plan for the following key changes (in addition to certain other conforming and non-substantive or immaterial changes): | ● | increase the number of shares of Common Stock available for future awards by 5,000,000 shares, and increase the number of shares of Common Stock available for incentive stock options by the same 5,000,000 shares; | | | | | ● | remove certain language, provisions and limits relating to the potential to qualify awards for deductibility as performance-based compensation under Section 162(m) of the Code, as such deductibility will not be available for new awards granted under the Proposed 2014 Equity Plan. However, the Proposed 2014 Equity Plan will not govern awards that were granted under the 2014 Equity Plan that were intended to qualify as performance-based compensation under Section 162(m) of the Code (such awards referred to herein as “Grandfathered Awards”), and such Grandfathered Awards will continue to be governed by the applicable provisions of the 2014 Equity Plan; | | | | | ● | clarify that certain events, such as a combination of shares, recapitalization, other change in our capital structure, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities, or any other corporate transaction having an effect similar to the foregoing, in addition to other events previously enumerated in the 2014 Equity Plan, will result in an equitable adjustment to certain terms of outstanding awards as the administrator (as defined below) of the Proposed 2014 Equity Plan may decide in accordance with its terms; | | | | | ● | amend the share counting provisions to clarify that shares of Common Stock tendered for payment of an exercise price or purchase price for an award, or tendered or withheld in satisfaction of tax withholding for an award, will not be returned to the Proposed 2014 Equity Plan and will not become available for future use under the Proposed 2014 Equity Plan; | | | | | ● | provide flexibility for alternative definitions for the terms “Cause,” “Change in Control,” and “Disability” in individual award agreements; | | | | | ● | clarify that dividend equivalents may be paid out in either cash or shares of Common Stock and remove the ability to grant dividend equivalents with respect to awards of stock options and stock appreciation rights (“SARs”); | | | | | ● | require that dividends granted in connection with awards of restricted stock be subject to the same restrictions and vesting conditions applicable to the underlying restricted stock award; |
| ● | re-establish the outside director compensation limit at $1,000,000 and provide that it covers all compensation granted to outside directors, not just the value of equity awards granted under the Proposed 2014 Equity Plan; |
| ● | permit share withholding or delivery above minimum statutory withholding levels if such additional amounts do not result in adverse accounting consequences and are authorized by the Compensation Committee; |
| ● | provide the administrator with the ability to provide for special terms that may be necessary or appropriate to comply with applicable laws for awards granted to participants who are expected to be nationals of both the United States and other countries or to be employed both within and outside of the United States; |
| ● | clarify that stockholder approval may also be required for purposes of applicable stock exchange rules and, except as permitted under the Proposed 2014 Equity Plan’s equitable anti-dilution adjustment provisions, expressly requires stockholder approval for certain amendments; and |
| ● | extend the expiration date to June 11, 2030. |
Upon recommendation of the Compensation Committee in April 2020, our Board unanimously approved the Proposed 2014 Equity Plan, subject to stockholder approval. If the Proposed 2014 Equity Plan is approved by our stockholders, it will become effective on June 11, 2020. Outstanding awards under the 2014 Equity Plan, however, will continue in effect in accordance with their terms. If the stockholders do not approve this proposal, the Proposed 2014 Equity Plan will not become effective and the 2014 Equity Plan will continue in its current form in full force and effect. This proposal requires the affirmative vote of a majority of the shares of our Common Stock entitled to vote on the proposal and present in person via attendance at the virtual Annual Meeting or represented by proxy at the Annual Meeting. Abstentions have the same effect as a vote against this proposal. Broker non-votes will have no effect on the outcome of this proposal. The Board unanimously recommends that the stockholders vote “FOR” the approval of the PROPOSED 2014 EQUITY Plan. Why the Board is Seeking Approval of This Proposal Competition for talent in the semiconductor industry is intense, and equity compensation is central to our recruiting and retention philosophy, especially given our rapid growth and our need to attract talented employees from large companies that offer significant equity compensation. We have a long-standing practice of granting equity incentive awards to our executives, directors, and broadly among our employees. The Board believes the Proposed 2014 Equity Plan is in the best interest of stockholders and MPS, as our equity compensation program is designed to align the interests of our NEOs and other employees to those of our stockholders. Since 2012, our Compensation Committee has implemented annual equity programs for our NEOs and other employees based on the achievement of a combination of different performance goals, including revenue, operating metrics, and stock price appreciation. We believe the significant increase in our stock price and year-over-year outperformance in revenue growth in the past several years (as outlined under the section “Named Executive Officer Compensation — Compensation Discussion and Analysis”) demonstrate the effectiveness of our performance-based equity program in motivating our NEOs and other employees to build a sustainable business model and to focus on long-term value creation for our stockholders. The approval of the Proposed 2014 Equity Plan is essential to our ability to continue these positive practices and to remain competitive in our ability to attract, retain and incentivize highly qualified employees and other service providers in the future. If the Proposed 2014 Equity Plan is not approved, we may be compelled to increase significantly the cash component of our employee compensation, which may not necessarily align employee interests with those of stockholders as effectively as with stock-based compensation. Replacing equity awards with cash will also increase our cash compensation expense and use cash that management believes would be better utilized in other ways, such as reinvestment in our businesses. As of the Record Date, we had 2,021 employees (including our NEOs), five non-employee directors and 15 consultants eligible to participate in the Proposed 2014 Equity Plan. The basis for participation in the Proposed 2014 Equity Plan by eligible persons is the selection of such persons by the administrator (or its proper delegate) in its discretion. Shares Information as of Record Date The 2014 Equity Plan is currently our only active equity incentive plan under which we may grant new equity awards, other than the ESPP which allows employees to purchase our stock at a discount. The 2004 Equity Plan expired in November 2014; however, certain equity awards granted prior to the expiration date of the 2004 Equity Plan remained unvested and outstanding as of the Record Date. The following table summarizes certain share activity: | | As of Record Date | | | | (April 20, 2020) | | Total unvested and outstanding equity awards: | | | | | Stock options | | | --- | | RSUs (including time-based RSUs, PSUs, MSUs and MPSUs) | | | 3,328,000 | | Shares remained available for future issuance under the 2014 Equity Plan | | | 1,194,000 | | Common Stock outstanding | | | 44,715,000 | | Closing price of Common Stock | | $ | 184.23 | |
If our stockholders approve this proposal to increase the number of shares of Common Stock authorized for issuance by 5,000,000 shares, we expect to have an estimated total of 6,194,000 shares initially available for future issuance under the Proposed 2014 Equity Plan. KeyEquity Metrics In setting the number of additional shares authorized for issuance under the Proposed 2014 Equity Plan, management has reviewed a number of metrics to assess its view of the cumulative impact of our equity compensation program, particularly the burn rate and dilution. Burn Rate Burn rate measures our view of how rapidly the shares reserved for our equity incentive plan are utilized annually. It is equal to the total number of equity grants awarded (which includes stock options granted, time-based RSUs granted, and performance and market-based RSUs vested) during the year, divided by the weighted-average Common Stock outstanding for the year. Adjusted burn rate is calculated by applying a premium multiplier of 2.5 on the total number of equity grants awarded for each year. The following table summarizes our burn rate for the past three years: | | FY 2019 | | | FY 2018 | | | FY 2017 | | | 3-Year Average | | Stock options granted | | | - | | | | - | | | | - | | | | | | Time-based RSUs granted | | | 52,000 | | | | 133,000 | | | | 81,000 | | | | | | Performance and market-based RSUs (including PSUs and MSUs) vested | | | 980,000 | | | | 717,000 | | | | 597,000 | | | | | | Total | | | 1,032,000 | | | | 850,000 | | | | 678,000 | | | | | | Weighted-average Common Stock outstanding | | | 43,165,000 | | | | 42,247,000 | | | | 41,350,000 | | | | | | Burn rate | | | 2.4 | % | | | 2.0 | % | | | 1.6 | % | | | 2.0 | % | Adjusted burn rate | | | 6.0 | % | | | 5.0 | % | | | 4.1 | % | | | 5.0 | % |
Dilution Dilution measures our view of the potential impact of our equity compensation program on stockholder dilution. It is equal to the sum of the number of shares subject to our outstanding equity awards and the number of shares remained available for future issuance, divided by total number of shares of Common Stock outstanding at the end of the year. The following table summarizes our dilution for the past three years: | | As of December 31, | | | | | | | | 2019 | | | 2018 | | | 2017 | | | 3-Year Average | | Total unvested and outstanding equity awards: | | | | | | | | | | | | | | | | | Stock options | | | - | | | | - | | | | 5,000 | | | | | | RSUs (including time-based RSUs, PSUs, MSUs and MPSUs) | | | 4,053,000 | | | | 4,633,000 | | | | 4,144,000 | | | | | | Shares remained available for future issuance under the 2014 Equity Plan | | | 1,595,000 | | | | 2,000,000 | | | | 3,200,000 | | | | | | Common Stock outstanding | | | 43,616,000 | | | | 42,505,000 | | | | 41,614,000 | | | | | | Dilution | | | 12.9 | % | | | 15.6 | % | | | 17.7 | % | | | 15.4 | % |
New Plan Benefits Equity grants under the Proposed 2014 Equity Plan are discretionary and are not subject to set benefits or amounts. They will be determined and approved in the future at the discretion of the Compensation Committee. Accordingly, the benefits and the amounts that will be awarded to eligible participants under the Proposed 2014 Equity Plan are not currently determinable. The following table sets forth the number of shares subject to stock awards granted under the 2014 Equity Plan during 2019: Name and Position | | Number of Shares Subject to Stock Awards (1) | | Michael Hsing | | | 77,481 | | Chief Executive Officer, President and Chairman of the Board | | | | | Bernie Blegen | | | 13,732 | | Chief Financial Officer | | | | | Deming Xiao | | | 20,062 | | President of Asia Operations | | | | | Maurice Sciammas | | | 20,062 | | Senior Vice President, Worldwide Sales and Marketing | | | | | Saria Tseng | | | 20,062 | | Vice President, Strategic Corporate Development and General Counsel | | | | | All current executive officers as a group | | | 151,399 | | All current non-employee directors as a group | | | 6,695 | | All employees as a group, excluding current executive officers | | | 99,823 | |
(1) | 100% of the stock awards granted to the NEOs were PSUs in 2019. The number of shares in the table reflects the target level of performance. For more information regarding the PSUs, including the minimum, target and maximum level of performance, see the section “Named Executive Officer Compensation — Compensation Discussion and Analysis.” |
Since the date of inception of the 2014 Equity Plan through the Record Date, the aggregate numbers of shares of Common Stock subject to stock awards were granted to the following participants: (1) 1,503,746 shares subject to stock awards for Mr. Hsing; 230,124 shares subject to stock awards for Mr. Blegen; 473,384 shares subject to stock awards for Mr. Xiao; 473,384 shares subject to stock awards for Mr. Sciammas; and 473,384 shares subject to stock awards for Ms. Tseng; (2) 3,154,022 shares subject to stock awards for all current executive officers as a group; (3) 48,752 shares subject to stock awards for all non-employee directors as a group; and (4) 1,103,226 shares subject to stock awards for all employees as a group, excluding current executive officers. No shares subject to stock options were granted under the 2014 Equity Plan since the date of inception. If the Proposed 2014 Equity Plan is approved, we intend to utilize the shares authorized to continue our practice of incentivizing key individuals through equity grants. We currently anticipate that the shares requested in connection with approval of the Proposed 2014 Equity Plan will last for at least five years based on historical grant rates and practices, but could last for a different period of time if actual practices do not match historical rates. In evaluating this Proposal Four, stockholders should consider all of the information in this proposal, including the information set forth above under the section “Summary of Material Changes from the 2014 Equity Plan.” Summary of Key Provisions of the Proposed 2014 Equity Plan The following is a summary of the key provisions of the Proposed 2014 Equity Plan. This summary does not purport to be a complete description of all the provisions, and it is qualified in its entirety by reference to the full text of the Proposed 2014 Equity Plan, which is attached as Annexure B to this Proxy Statement. Purpose The purpose of the Proposed 2014 Equity Plan is to attract and retain the best available personnel of substantial responsibility, to provide additional incentives to our employees, directors and consultants, and to promote the success or our business. The Board believes that the Proposed 2014 Equity Plan is necessary to ensure that we maintain the ability in the future to continue to attract and retain highly qualified service providers by providing adequate incentives through the issuance of stock-based incentive awards. Term
The effective date of the Proposed 2014 Equity Plan is June 11, 2020 (the “Effective Date”). No awards shall be granted pursuant to the Proposed 2014 Equity Plan more than ten years after the Effective Date.
Amendment and Termination The Proposed 2014 Equity Plan may be amended, altered, suspended or terminated by our Board at any time, provided that no amendment, altercation, suspension or termination of the Proposed 2014 Equity Plan may materially impair any rights of any participant with respect to an award under the Proposed 2014 Equity Plan without the written consent of the holder of the affected award. We will obtain stockholder approval of any plan amendment to the extent necessary and desirable to comply with applicable laws or stock exchange listing requirements, including any amendment that, for purposes of the applicable stock exchange rules, (i) would materially increase the number of securities which may be issued under the Proposed 2014 Equity Plan, or (ii) must otherwise be approved by our stockholders in order to comply with applicable laws or the stock exchange rules. Eligibility and Participation All employees, directors and consultants of MPS and all employees and consultants of any parent or subsidiary of MPS are eligible to be selected to receive awards under the Proposed 2014 Equity Plan, provided that only employees may be selected to receive awards that are intended to qualify as incentive stock options. Shares Subject to the Proposed 2014 Equity Plan The Proposed 2014 Equity Plan provides for an additional 5,000,000 shares of our Common Stock for awards granted under the Proposed 2014 Equity Plan. All of the shares available for issuance under the Proposed 2014 Equity Plan may be issued pursuant to awards intended to qualify as incentive stock options. If the exercise price of a stock option is paid by net exercise or by tender to MPS, or attestation to the ownership, of shares owned by the participant, the number of shares available for issuance under the Proposed 2014 Equity Plan will be reduced by the gross number of shares for which the award is exercised, rather than reducing the number of shares available by only the number of shares issued. Shares will not be deemed to have been issued to the extent an award is settled in cash. If an award expires or becomes unexercisable without having been exercised in full or, with respect to awards other than options or stock-settled SARs, is forfeited to or repurchased by the Company due to failure to vest, the unexercised, forfeited or repurchased shares which were subject thereto will become available for future grant again under the Proposed 2014 Equity Plan (unless the Proposed 2014 Equity Plan has terminated). Shares tendered in payment of the exercise or purchase price of an award, or in satisfaction of tax withholding related to an award, will not be returned to the Proposed 2014 Equity Plan and will not become available for future distribution under the Proposed 2014 Equity Plan. Capitalization Adjustments If, after the Effective Date, there is an equity restructuring (within the meaning of FASB ASC Topic 718) that causes the per share value of shares to change, such as any large and nonrecurring cash dividend, stock dividend, stock split, combination of shares, recapitalization, or other change in the capital structure of MPS, any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities, or any other corporate transaction or event having an effect similar to any of the foregoing), the administrator shall effect an equitable adjustment to: (i) the number and, if applicable, kind of shares that may be issued under the Proposed 2014 Equity Plan or pursuant to any type of award, (ii) the award limits established and approved by stockholders for purposes of Section 421 of the Code, (iii) the number and, if applicable, kind of shares subject to outstanding awards, (iv) as applicable, the exercise or purchase price of any then outstanding awards, and/or (v) any other award terms. Limitation on Grants to Outside Directors No non-employee director may be granted in respect of his or her service as a non-employee director, in the aggregate in any fiscal year, compensation for such service having an aggregate maximum value (measured at the date of grant as applicable, and calculating the value of any awards based on the grant date fair value for financial reporting purposes) in excess of $1,000,000. Administration The Proposed 2014 Equity Plan may be administered by the Board, different committees of the Board, and, as permitted by law, a committee of one or more officers, depending on the recipient of the award and type of award intended to be granted. The Compensation Committee generally serves as the administrator of the Proposed 2014 Equity Plan. No awards granted under the Proposed 2014 Equity Plan on or after the Effective Date will be designed or intended to be “performance-based compensation” for purposes of Section 162(m) of the Code. With respect to awards granted under the 2014 Equity Plan prior to the Effective Date that are intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code (the “Grandfathered Awards”), such Grandfathered Awards shall continue to be governed by the applicable provisions of the 2014 Equity Plan as in effect prior to the Effective Date of the Proposed 2014 Equity Plan. To be clear, stockholders are not being asked to approve the Proposed 2014 Equity Plan (or any of its provisions) for purposes of Section 162(m) of the Code or the performance-based exception. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder will be structured to satisfy the requirements for exemption under Rule 16b-3; provided, however, that if it is later determined that such requirements were not satisfied, actions taken by the administrator shall be valid for all other purposes despite such failure to satisfy Rule 16b-3. The administrator of the Proposed 2014 Equity Plan has broad discretion and power to administer and interpret the Proposed 2014 Equity Plan. Specifically, subject to the terms of the Proposed 2014 Equity Plan, the administrator has the authority to: | ● | determine the fair market value of our shares of Common Stock; |
| ● | select the participants eligible to receive awards and the types of awards to be granted to such participants; |
| ● | determine the number of shares of Common Stock subject to awards and the value of performance units; |
| ● | determine terms and conditions of awards and to approve form of award agreements, including, the exercise or purchase price, how and when awards can be exercised, the rights to receive dividends or dividend equivalents, any vesting or forfeiture restrictions, any acceleration or waiver of forfeiture provisions, and any restrictions or limitations on awards; |
| ● | construe and interpret the terms of the Proposed 2014 Equity Plan and awards granted under the Proposed 2014 Equity Plan; |
| ● | establish, amend and rescind rules and regulations relating to the Proposed 2014 Equity Plan; |
| ● | modify or amend each award, including but not limited to the discretionary authority to extend the post-termination exercisability period of awards; |
| ● | determine the manner in which participants can satisfy withholding tax obligations; |
| ● | authorize any person to execute on behalf of MPS any instrument required to effect the grant of an award previously granted by the administrator; |
| ● | defer or allow participants to defer the receipt of the payment of cash or the delivery of shares of Common Stock in connection with an award, and |
| ● | make all other determinations deemed necessary or advisable for administering the Proposed 2014 Equity Plan. |
Types of Awards Awards under the Proposed 2014 Equity Plan may consist of options (nonqualified options and incentive stock options), SARs, restricted stock, restricted stock units, performance units, and dividend equivalent rights. The nature of each type of award is discussed below. Each award will be granted pursuant to an award agreement, the form and content of which will be determined by the administrator in its discretion, consistent with the provisions of the Proposed 2014 Equity Plan. The terms of award agreements for a particular type of award need not be uniform. Stock Options. Two types of options may be granted under the Proposed 2014 Equity Plan: options intended to qualify as incentive stock options, under Section 422 of the Code, and nonqualified options, which are options that are not intended to qualify as incentive stock options. Incentive stock options are subject to additional requirements and, to the extent these requirements are satisfied (including but not limited to a $100,000 limitation for exercise in any calendar year), receive special tax treatment under U.S. federal tax laws. If all or a part of an option that is intended to be treated as an incentive stock option fails to satisfy these requirements, such option or part of the option will be treated as a nonqualified option. Both incentive stock options and nonqualified options provide the holder the right to acquire shares, by exercising the option, at a specified price over a specified period. Options are generally only exercisable after vesting conditions have been satisfied. SARs. A SAR is a right to receive a payment (in cash or shares) upon exercise of the award, where the payment is based on the increase in the fair market value of a share after the date of grant. Specifically, on the exercise of a SAR, the participant will receive an amount determined by multiplying the difference between the fair market value of a share on the date of exercise over the exercise price by the number of shares as to which the SAR is being exercised. With respect to SARs that are granted in connection with a related stock option, or tandem SARs, the exercise of such tandem SARs will require forfeiture of the right to purchase an equal number of shares under the related stock option (and when a share is purchased under the related stock option, the tandem SAR will be canceled to the same extent). Affiliated SARs may be granted in connection with a related stock option and automatically will be deemed to be exercised at the same time that the related stock option is exercised. Freestanding SARs may be granted independently of any stock options. Tandem SARs may be exercised for all or part of the shares of Common Stock subject to the related stock option upon the surrender of the right to exercise the equivalent portion of the related stock option and may only be exercised with respect to the shares for which its related stock option is then exercisable. With respect to a tandem SAR granted in connection with an incentive stock option: (1) the tandem SAR will expire no later than the expiration of the underlying incentive stock option; (2) the value of the payout with respect to the tandem SAR will be for no more than 100% of the difference between the exercise price of the underlying incentive stock option and the fair market value of the shares subject to the underlying incentive stock option at the time the tandem SAR is exercised; and (3) the tandem SAR will be exercisable only when the fair market value of the shares subject to the incentive stock option exceeds the exercise price of the incentive stock option. An Affiliated SAR will be deemed to be exercised upon the exercise of the related stock option. Freestanding SARs will be exercisable on such terms and conditions as the administrator, in its sole discretion, will determine.
Restricted Stock. The Proposed 2014 Equity Plan provides for the granting of awards of restricted stock. Restricted stock awards are shares of our common stock that are subject to forfeiture and transfer restrictions until applicable vesting conditions are satisfied. Vesting conditions may be based on service and/or satisfaction of performance goals. The administrator may decide that a holder of restricted stock will have the right to receive all dividends and other distributions paid with respect to such shares, and shall condition such payment on the lapsing of the same forfeiture and transfer restrictions as the underlying shares. Restricted Stock Units and Performance Units. The Proposed 2014 Equity Plan provides for the granting of restricted stock units and performance units, each of which are awards that will result in an issuance of shares or payment of cash if pre-established performance or other vesting conditions are satisfied. Each restricted stock unit has a value equal to one share of our common stock. Performance units have an initial dollar value established by the administrator on the grant date. Vesting conditions may be based on service and/or satisfaction of performance goals. Dividend Equivalents. Dividend equivalents may be credited in respect of shares subject to restricted stock, restricted stock units or performance units, as determined by the administrator and as contained in the applicable award agreement or a separate award agreement. Dividend equivalents will be subject to the same terms and conditions applicable to the underlying restricted stock, restricted stock units or performance units to which they relate, including vesting, performance conditions, forfeiture, and restrictions on transfer or alienation. Performance Goals The administrator, in its discretion, shall set performance objectives or other vesting criteria which, depending on the extent to which they are met, will determine the number or value of performance units that will be paid out to the participants. Performance objectives may also apply to restricted stock or restricted stock unit awards in the administrator’s discretion. These performance objectives may include any one or more of the following performance goals, either individually or in any combination, applied either to MPS as a whole or to a business group, subsidiary, or other division, either individually or in any combination, and measured on an absolute basis or relative to a pre-established target, to previous years’ or any other period’s results, or to a designated comparison group, in each case as specified by the administrator: (i) revenue, growth in revenue or product revenue; (ii) sales or bookings targets, including product or product family sales or bookings targets; (iii) billings; (iv) market share; (v) stock price performance, including but not limited to growth in the market price of stock, total stockholder return, and return on stockholder equity; (vi) margin, including gross margin, net margin or operating margin; (vii) income, including but not limited to net income, operating income, and operating income after taxes; (viii) profit, including but not limited to operating profit, net operating profit or pre-tax profit; (ix) earnings, including but not limited to earnings per share, net earnings, earnings before interest, taxes and/or depreciation and/or amortization; (x) income, before or after taxes (including net income); (xi) return on assets, capital, operating revenue and/or investments; (xii) expense control and/or cost reductions; (xiii) capital expenditures; (xiv) economic value added; (xv) cash flow, including but not limited to operating cash flow, cash flow per share and cash management; (xvi) improvement in or attainment of working capital levels; (xvii) debt reduction or debt levels; (xviii) contract win, renewal or extension, or design win; (xix) delivery and/or design schedule; (xx) milestones in new generation of products or technologies; (xxi) completion of or milestones associated with mergers, acquisitions, strategic investments, restructurings, reorganizations (including entry into term sheets, signing of definitive agreements, closing transactions, funding of investments, and post-closing integration milestones); (xxii) litigation, including litigation outcomes, milestones or management; (xxiii) workforce diversity; (xxiv) customer satisfaction; and (xv) such other measures of performance selected by the Compensation Committee in its discretion. The Compensation Committee may adjust the evaluation of the achievement of the performance goals as follows: (a) to include or exclude restructuring and/or other nonrecurring charges; (b) to include or exclude exchange rate effects, as applicable, for non-U.S. dollar denominated performance goals; (c) to include or exclude the effects of changes to GAAP required by the Financial Accounting Standards Board or to the International Financial Reporting Standard (IFRS); (d) to include or exclude the effects of any statutory adjustments to corporate tax rates; (e) to include or exclude the effects of any “extraordinary items” as determined under GAAP; (f) to include or exclude the effect of payment of bonuses under the master cash plan or any other bonus plans; (g) to include or exclude the effect of stock based compensation and/or deferred compensation; (h) to include or exclude any unusual, non-recurring gain or loss or other extraordinary item; (i) to respond to, or in anticipation of, any unusual or extraordinary corporate item, transaction, event or development; (j) to respond to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions; (k) to include or exclude the effects of divestitures, acquisitions or joint ventures; (l) to include or exclude the effects of discontinued operations that do not qualify as a segment of a business unit under GAAP; (m) to assume that any business divested by us achieved performance objectives at targeted levels during the balance of a performance period following such divestiture; (n) to include or exclude the effect of any change in the outstanding shares of Common Stock of MPS by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common shareholders including cash dividends; (o) to reflect a corporate transaction, such as a merger, consolidation, separation (including a spinoff or other distribution of stock or property by a corporation), or reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code); (p) to reflect any partial or complete corporate liquidation; (q) to reflect shippable backlog; and (R) to include or exclude the amortization of purchased intangibles, technology license arrangements and incomplete technology. Option Exercise Prices and SAR Price Except as permitted under the Code in connection with certain corporate transactions, the exercise price for shares covered by an option or SAR may not be less than 100% of the fair market value of such shares on the date of grant. If an incentive stock option is granted to a 10% stockholder of MPS or its subsidiaries (measured by ownership of voting power), the exercise price of the incentive stock option shall not be less than 110% of the fair market value of such shares on the date of grant. Other Award Terms The administrator determines when and under what conditions awards will be granted, become vested and/or become exercisable. The conditions may be based on continued service, satisfaction of performance-related goals or a combination of service and performance. The administrator will determine the method of satisfying any exercise or purchase price and any tax obligations. Such payments may be made in cash (including electronic wire transfer) or by check, or, subject to the approval of the administrator and subject to applicable law, by the delivery of shares of our common stock already owned by the participant, through a “cashless” or a “broker-assisted” exercise involving the immediate sale or pledge of shares with a value sufficient to pay the exercise or purchase price, by net exercise, or by any other method specified by the administrator and permitted by applicable law. Maximum Term of Awards No award granted under the Proposed 2014 Equity Plan will have a term of more than 10 years. Options intended to qualify as incentive stock options that are granted to 10% stockholders of MPS (measured by ownership of voting power) shall expire not later than five years from the date of grant. No Repricings Except in connection with an anti-dilution adjustment under the Proposed 2014 Equity Plan, we may not, without obtaining stockholder approval: (a) amend the terms of outstanding options or SARs to reduce the exercise price of such outstanding options or SARs; (b) cancel outstanding options or SARs in exchange for options or SARs with an exercise price that is less than the exercise price of the original options or SARs; or (c) cancel outstanding options or SARs with an exercise price above the current stock price in exchange for cash or other securities. Termination of Service The treatment of each award on the termination of service shall be determined by the administrator in its discretion and shall be set forth in the applicable award agreement. If a participant ceases to provide services to us, the participant’s options and SARs that were vested and exercisable will generally remain exercisable for a period of three months (12 months in the case of death or disability). The administrator may provide that awards will expire and revert to the Proposed 2014 Equity Plan immediately on a termination of service for cause. Certain Corporate Transactions The Proposed 2014 Equity Plan provides that in the event of a “change in control” of MPS, the successor corporation or its parent or subsidiary will assume or substitute an equivalent award for each outstanding award. If there is no assumption or substitution of outstanding awards, the outstanding awards will immediately vest and, as applicable, become exercisable, all service-based restrictions on restricted stock and other awards will lapse, and all performance goals or other vesting requirements for performance-based awards will be deemed achieved at maximum levels. With respect to awards that are assumed or substituted for, in the event the service of an outside director is terminated on or following the date of the assumption or substitution, other than pursuant to a voluntary resignation, his or her awards will fully vest and become immediately exercisable, all service-based restrictions on restricted stock and other awards will lapse, and all performance goals or other vesting requirements for performance-based awards will be deemed achieved at maximum levels. The administrator may also provide for one or more alternatives to this treatment in an award agreement. Unless otherwise provided in an award agreement, a “change in control” of MPS generally means the occurrence of one of the following events (subject in each case to certain exceptions described in the Proposed 2014 Equity Plan): (1) the purchase by a person or a group of our stock that gives them ownership of 50% or more of the total voting power of our stock; (2) the consummation of a sale of disposition by MPS of all or substantially all of MPS’s assets; (3) a change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are directors who were either directors as of the effective date of the Proposed 2014 Equity Plan (the “Incumbent Directors”), or who are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination; or (4) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of MPS or such surviving entity or its parent outstanding immediately after such merger or consolidation.
Rights as a Stockholder The holder of an option, SAR, restricted stock unit, performance unit and dividend equivalent right will have no rights as a stockholder with respect to shares of our Common Stock covered by the award until the date such holder becomes a holder of record of such shares. The recipient of restricted stock will generally have all the rights of a stockholder with respect to the shares of our Common Stock issued pursuant to such award, including the right to vote such shares, but any dividends and distributions with respect to such shares will generally be subject to the same vesting restrictions, if any, as the underlying shares. Transferability of Options, SARs and Other Awards Unless determined otherwise by the administrator, an award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the participant, only by the participant. If the administrator makes an award transferable, such award will contain such additional terms and conditions as the administrator deems appropriate. Income Tax Matters The following discussion of federal income tax consequences does not purport to be a complete analysis of all of the potential tax effects of the Proposed 2014 Equity Plan. It is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change. No information is provided with respect to persons who are not citizens or residents of the United States, or foreign, state or local tax laws, or estate and gift tax considerations. In addition, the tax consequences to a particular participant may be affected by matters not discussed above. ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT HIS OR HER TAX ADVISOR CONCERNING THE TAX CONSEQUENCES TO HIM OR HER OF THE PROPOSED 2014 EQUITY PLAN, INCLUDING THE EFFECTS OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS (INCLUDING MEDICARE AND SOCIAL SECURITY TAX LAWS) AND OF CHANGES IN THE TAX LAWS. The Proposed 2014 Equity Plan is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974, or ERISA, and is not qualified under Section 401(a) of the Code. Non-Qualified Stock Options. Under current federal income tax law, the grant of a non-qualified stock option has no immediate tax effect on us or the participant. If the shares of our common stock received on the exercise of a non-qualified stock option are not subject to restrictions on transfer or substantial risk of forfeiture, the exercise of the non-qualified stock option will result in ordinary income to the participant equal to the excess of the fair market value of the shares at the time of exercise over the option price. The participant’s tax basis in the shares will be equal to the option price plus the amount of ordinary income recognized upon the exercise of the option. Upon any subsequent disposition of the shares, any gain or loss recognized by the participant will be treated as capital gain or loss and will be long-term capital gain or loss if the shares are held for more than one year after exercise. At the time of recognition of ordinary income by the participant upon exercise, we will normally be allowed to take a deduction for federal income tax purposes in an amount equal to such recognized ordinary income. If the shares received on the exercise of a non-qualified stock option are subject to restrictions on transfer or substantial risk of forfeiture, such as a vesting condition, different rules will apply, and the tax consequences will depend on whether the participant makes an election under Section 83(b) of the Code within 30 days after exercise of the option. If the participant does not make a Section 83(b) election, the participant will recognize ordinary income when the shares vest in an amount equal to the excess of the fair market value on the date of vesting over the exercise price. In that case, the participant’s basis in the shares will be the fair market value of the shares on the date of vesting, and the participant’s holding period will begin on the date of vesting. Upon any later disposition of the shares, any gain or loss that the participant recognizes will be capital gain or loss, and will be long-term capital gain or loss if the participant holds the shares more than one year after vesting. We will be allowed a deduction for federal income tax purposes when the shares vest equal to the amount of ordinary income the participant recognizes. If the participant makes a Section 83(b) election, the participant will recognize ordinary income at the time of exercise equal to the excess of the fair market value on the date of exercise over the exercise price. We will be allowed a deduction for federal income tax purposes on the date of exercise equal to the amount of ordinary income he or she recognizes. The participant’s basis in the shares will generally begin on the date of exercise, and the participant’s basis in the shares will generally be the option price increased by the amount of ordinary income the participant recognized at the time of exercise. Upon any later disposition of the shares, any gain or loss that the participant recognizes will be capital gain or loss, and will be long-term capital gain or loss if the participant holds the shares more than one year after exercise. However, if the participant later forfeits the shares, the participant will recognize a capital loss equal to excess (if any) of the option price over any amount the participant receives from us on the forfeiture. In other words, if a participant makes the Section 83(b) election and thereby recognizes ordinary income on the date of exercise, the participant will receive no corresponding deduction or loss if the participant later forfeits the shares for the amount of ordinary income the participant recognized. Incentive Stock Options. The federal income tax consequences associated with incentive stock options are generally more favorable to the participant and less favorable to us than those associated with non-qualified stock options. Under current federal income tax law, the grant of an incentive stock option does not result in income to the participant or in a deduction for us at the time of the grant. Generally, the exercise of an incentive stock option will not result in income for the participant if the participant does not dispose of the shares within two years after the date of grant or within one year after the date of exercise. If these requirements are met, the basis of the shares of our common stock upon a later disposition will be the option price, any gain on the later disposition will be taxed to the participant as long-term capital gain, and we will not be entitled to a deduction. The excess of the fair market value on the exercise date over the option price is an adjustment to regular taxable income in determining alternative minimum taxable income, which could cause the participant to be subject to the alternative minimum tax, thereby in effect depriving the participant of the tax benefits of incentive stock option treatment. If the participant disposes of the shares before the expiration of either of the holding periods described above, referred to as a disqualifying disposition, the participant will have compensation taxable as ordinary income, and we will normally be entitled to a deduction, equal to the lesser of (a) the fair market value of the shares on the exercise date minus the option price, or (b) the amount realized on the disposition minus the option price. If the price realized in any such disqualifying disposition of the shares exceeds the fair market value of the shares on the exercise date, the excess will be treated as long-term or short-term capital gain, depending on the participant’s holding period for the shares. SARs. A participant holding a SAR will recognize ordinary income on the exercise of the SAR equal to the amount of cash or the fair market value of the shares he or she receives on the exercise. We will receive a tax deduction in the same amount. Upon disposition of the shares acquired, the participant will recognize the appreciation or depreciation on the shares after the date of grant as either short-term or long-term capital gain or loss, depending on how long the shares have been held. Restricted Stock. In general, no taxable income will be recognized by a participant at the time restricted stock is granted. Generally, on the date the restricted stock becomes vested, the participant will recognize ordinary income in an amount equal to the difference between the fair market value of the shares on the date the shares vest and the purchase price (if any), and we will receive a tax deduction for the same amount. Upon disposition of the shares acquired, the participant will recognize the appreciation or depreciation on the shares after the date of vesting as either short-term or long-term capital gain or loss, depending on how long the shares have been held. Alternatively, a participant may elect to make an election under Section 83(b) of the Code with respect to unvested shares. If a participant makes a Section 83(b) election with the Internal Revenue Service within 30 days from the date of grant, the participant will recognize ordinary income in an amount equal to the difference between the fair market value of the shares on the date of grant and the purchase price, and we will receive a tax deduction for the same amount. If the participant makes a timely Section 83(b) election, the participant will not recognize ordinary income when the shares vest. Upon disposition of the shares acquired, the participant will recognize the appreciation or depreciation on the shares after the date of grant as either short-term or long-term capital gain or loss, depending on how long the shares have been held. If the participant forfeits unvested shares, the participant will recognize a capital loss equal to the excess (if any) of the purchase price over any amount the participant receives from us on the forfeiture. Generally, if the participant makes a Section 83(b) election, and thereby recognizes ordinary income on the date of grant, the participant will receive no corresponding deduction or loss for the amount of ordinary income the participant recognized if the participant later forfeits any unvested shares. Restricted Stock Units and Performance Units. Restricted stock units and performance units result in ordinary income on the receipt of cash or shares equal to the amount of cash, or the excess of the fair market value of the shares over the amount (if any) that the participant pays for the shares. We will receive a tax deduction in the same amount. Upon disposition of any shares acquired, the participant will recognize the appreciation or depreciation on the shares after the date of grant as either short-term or long-term capital gain or loss, depending on how long the shares have been held. Section 409A Compliance. To the extent applicable, it is intended that the Proposed 2014 Equity Plan and any grants made hereunder comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to the participants. The Proposed 2014 Equity Plan and any grants made hereunder will be administered in a manner consistent with this intent. Any reference in the Proposed 2014 Equity Plan to Section 409A of the Code will also include any regulations or any other formal guidance promulgated with respect to such section by the U.S. Department of the Treasury or the Internal Revenue Service. Neither a participant nor any of a participant’s creditors or beneficiaries will have the right to subject any deferred compensation payable under the Proposed 2014 Equity Plan and grants hereunder to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment. Except as permitted under Section 409A of the Code, any deferred compensation payable to a participant or for a participant’s benefit under the Proposed 2014 Equity Plan and grants hereunder may not be reduced by, or offset against, any amount owed by a participant to us. If, at the time of a participant’s separation from service, (i) the participant will be a specified employee and (ii) we make a good faith determination that an amount payable hereunder constitutes deferred compensation, the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the Code, then we will not pay such amount on the otherwise scheduled payment date but will instead pay it, without interest, on the tenth business day of the seventh month after such separation from service. Notwithstanding any provision of the Proposed 2014 Equity Plan and grants hereunder to the contrary, in light of the uncertainty with respect to the proper application of Section 409A of the Code, we reserve the right to make amendments to the Proposed 2014 Equity Plan and grants hereunder as we deem necessary or desirable to avoid the imposition of taxes or penalties under Section 409A of the Code. In any case, a participant will be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on a participant or for a participant’s account in connection with the Proposed 2014 Equity Plan and grants hereunder (including any taxes and penalties under Section 409A of the Code), and we will not have any obligation to indemnify or otherwise hold a participant harmless from any or all of such taxes or penalties. Tax Withholding. We have retained the authority under the Proposed 2014 Equity Plan to deduct or withhold, or require a participant to remit to us, an amount sufficient to satisfy federal, state, local, domestic or foreign taxes required by law or regulation to be deducted or withheld with respect to awards granted under the Proposed 2014 Equity Plan. The administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit a participant to satisfy such tax withholding obligation, in whole or in part by, without limitation (a) paying cash, (b) electing to have us withhold otherwise deliverable cash or shares having a fair market value equal to the minimum statutory amount required to be withheld, or (c) delivering to us already-owned shares having a fair market value equal to the minimum statutory amount required to be withheld. In no event will the fair market value of the awards to be withheld or delivered exceed the minimum amount required to be withheld, unless (a) an additional amount can be withheld and not result in adverse accounting consequences and (b) such additional withholding amount is authorized by the Compensation Committee. Registration with the SEC We intend to file a Registration Statement on Form S-8 relating to the issuance of the additional shares of Common Stock under the Proposed 2014 Equity Plan with the SEC pursuant to the Securities Act of 1933, as amended, as soon as practicable after approval of the Proposed 2014 Equity Plan by our stockholders. Other Matters We know of no other matters to be submitted at the meeting. If any other matters properly come before the meeting, it is the intention of the persons named in the enclosed form of proxy to vote the shares they represent as we may recommend. | | BY ORDER OF THE BOARD OF DIRECTORS | | | | Dated: April 29, 20162020 | |
| | | Saria Tseng | | | Vice President, Strategic Corporate Development, General Counsel and Corporate Secretary |
Annexure A RECONCILIATION OF GAAP AND NON-GAAP MEASURES (1)
(in thousands, except per-share amounts)
| | RECONCILIATION OF GAAP TO NON-GAAP MEASURES (1) | (in thousands, except per-share amounts) |
| | FY 2013 | | | FY 2014 (2) | | | FY 2015 | | | FY 2019 | | | FY 2018 | | | FY 2017 | | GAAP operating income | | $ | 23,915 | | | $ | 35,300 | | | $ | 41,070 | | | $ | 102,562 | | | $ | 113,488 | | | $ | 77,424 | | Adjustments: | | | | | | | | | | | | | | Stock-based compensation expense | | | 20,701 | | | | 33,454 | | | | 41,563 | | | | 78,699 | | | | 60,607 | | | | 52,617 | | Change in fair value of contingent consideration | | | - | | | | - | | | | (2,507 | ) | | Acquisition-related transaction costs | | | - | | | | 622 | | | | - | | | Amortization of acquisition-related intangible assets | | | - | | | | 672 | | | | 1,759 | | | | 110 | | | | 841 | | | | 2,051 | | Deferred compensation plan expense (income) expense, net | | | 11 | | | | 66 | | | | (200 | ) | | Deferred compensation plan (income) expense | | | | 3,995 | | | | (591 | ) | | | 2,769 | | Non-GAAP operating income | | $ | 44,627 | | | $ | 70,114 | | | $ | 81,685 | | | | 185,366 | | | | 174,345 | | | | 134,861 | | Litigation expense | | | | 2,464 | | | | 1,922 | | | | 1,243 | | Non-GAAP operating income used in short-term cash incentive plan | | | $ | 187,830 | | | $ | 176,267 | | | $ | 136,104 | | | | | | | | | | | | | | | | | | | | | | | | | | | GAAP net income | | $ | 22,898 | | | $ | 35,495 | | | $ | 35,172 | | | $ | 108,839 | | | $ | 105,268 | | | $ | 65,203 | | Adjustments: | | | | | | | | | | | | | | Stock-based compensation expense | | | 20,701 | | | | 33,454 | | | | 41,563 | | | | 78,699 | | | | 60,607 | | | | 52,617 | | Change in fair value of contingent consideration | | | - | | | | - | | | | (2,507 | ) | | Acquisition-related transaction costs | | | - | | | | 622 | | | | - | | | Amortization of acquisition-related intangible assets | | | - | | | | 672 | | | | 1,759 | | | | 110 | | | | 841 | | | | 2,051 | | Deferred compensation plan (income) expense, net | | | 21 | | | | (53 | ) | | | 175 | | | Cash award | | | (266 | ) | | | - | | | | - | | | Deferred compensation plan expense | | | | 189 | | | | 431 | | | | 238 | | Tax effect | | | (2,226 | ) | | | (4,435 | ) | | | 1,058 | | | | (10,128 | ) | | | (313 | ) | | | 7,402 | | Non-GAAP net income | | $ | 41,128 | | | $ | 65,755 | | | $ | 77,220 | | | $ | 177,709 | | | $ | 166,834 | | | $ | 127,511 | | | | | | | | | | | | | | | | | | | | | | | | | | | GAAP net income per share - diluted | | $ | 0.59 | | | $ | 0.89 | | | $ | 0.86 | | | $ | 2.38 | | | $ | 2.36 | | | $ | 1.50 | | Non-GAAP net income per share - diluted | | $ | 1.06 | | | $ | 1.65 | | | $ | 1.89 | | | $ | 3.88 | | | $ | 3.74 | | | $ | 2.93 | | Shares used in the calculation of diluted net income per share | | | 38,620 | | | | 39,793 | | | | 40,869 | | | | 45,763 | | | | 44,602 | | | | 43,578 | |
____________________
| (1) | These non-GAAP financial measures are not prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. MPS utilizes both GAAP and non-GAAP financial measures to assess what it believes to be its core operating performance, and to evaluate and manage its internal business and assist in making financial, operating and compensation decisions. MPS believes that the non-GAAP financial measures, together with GAAP measures, provide investors with an alternative presentation useful to investors' understanding of MPS’s core operating results and trends. Additionally, MPS believes that the inclusion of non-GAAP measures, together with GAAP measures, providesmay provide investors with an additional dimension of comparability to similar companies. However, investors should be aware that non-GAAP financial measures utilized by other companies are not likely to be comparable in most cases to the non-GAAP financial measures used by MPS. |
ANNEXURE B MONOLITHIC POWER SYSTEMS, INC. AMENDED AND RESTATED 2014 EQUITY INCENTIVE PLAN 1. | Purposes of the Plan. The purposes of this Plan are: |
| (2)●
| The GAAPto attract and non-GAAP financial resultsretain the best available personnel for 2014 includedpositions of substantial responsibility,
|
| ● | to provide additional incentive to Employees, Directors and Consultants, and |
| ● | to promote the success of the Company’s business. |
The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock, Stock Appreciation Rights, Performance Units, Restricted Stock Units and Dividend Equivalents. 2. | Definitions. As used herein, the following definitions will apply: |
(a) “Administrator” means the Board or any of its Committees as will be administering the Plan, in accordance with Section 4 of the Plan. (b) “Affiliate” means, at the time of determination, any “parent” or “subsidiary” of the Company as such terms are defined in Rule 405 of the Securities Act. The Board will have the authority to determine the time or times at which “parent” or “subsidiary” status is determined within the foregoing definition. (c) “Affiliated SAR” means a SAR that is granted in connection with a related Option, and which automatically will be deemed to be exercised at the same time that the related Option is exercised. (d) “Applicable Laws” means the requirements relating to the administration of equity-based awards under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan. (e) “Award” means, individually or collectively, a grant under the Plan of Options, SARs, Restricted Stock, Performance Units, Restricted Stock Units or Dividend Equivalents. (f) “Award Agreement” means the written or electronic agreement (or other type or form of writing or other approved evidence) setting forth the terms and provisions applicable to each Award granted under the Plan. The Award Agreement is subject to the terms and conditions of the Plan. (g) “Board” means the Board of Directors of the Company. (h) “Cause” means, unless otherwise provided for in an Award Agreement, the occurrence of any one or more of the following: (i) the Participant’s commission of any felony involving fraud, dishonesty or moral turpitude; (ii) the Participant’s attempted commission of or participation in a fraud or act of dishonesty against the Company that results in (or might have reasonably resulted in) material harm to the business of the Company; (iii) the Participant’s intentional, material violation of any contract or agreement between the Participant and the Company or any statutory duty that the Participant owes to the Company; or (iv) the Participant’s conduct that constitutes gross insubordination, incompetence or habitual neglect of duties and that results in (or might have reasonably resulted in) material harm to the business of the Company. However, the action or conduct described in clauses (iii) and (iv) above will constitute “Cause” only if such action or conduct continues after the Company has provided the Participant with written notice thereof and thirty (30) days to cure the same. Notwithstanding the foregoing, the definition of Cause (or any analogous term) in an individual written agreement between the Company or any Affiliate and Participant will supersede the foregoing definition or definition set forth in an Award Agreement with respect to Awards granted hereunder. (i) “Change in Control” means, unless otherwise provided for in an Award Agreement, the occurrence of any of the following events: (i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities; or (ii) The consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; or (iii) A change in the composition of the Board occurring within a two year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” means directors who either (A) are Directors as of the Effective Date, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but will not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or (iv) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation. Notwithstanding the foregoing, to the extent payment of any Award would be accelerated due to the Change in Control and such Award constitutes “nonqualified deferred compensation” within the meaning of Section 409A of the Code, the event shall not be considered to be a Change in Control under the Plan for purposes of such Award unless such event is also a “change in ownership,” a “change in effective control” or a “change in the ownership of a substantial portion of the assets” of the Company within the meaning of Section 409A of the Code. (j) “Code” means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code herein will be a reference to any successor or amended section of the Code. (k) “Committee” means a committee of Directors (or a subcommittee appointed by the committee of Directors) or of other individuals satisfying Applicable Laws appointed by the Board in accordance with Section 4 of the Plan. (l) “Common Stock” means the common stock of the Company. (m) “Company” means Monolithic Power Systems, Inc., a Delaware corporation, or any successor thereto. (n) “Consultant” means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity (provided that such person (i) is a natural person and (ii) provides bona fide services to the Company that are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities). (o) “Continuous Service” means that Participant’s service with the Company or an Affiliate as a Service Provider is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company or an Affiliate as a Service Provider or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s service with the Company or an Affiliate, will not terminate a Participant’s Continuous Service. If the entity for which a Participant is rendering services ceases to qualify as an Affiliate, such Participant’s Continuous Service will be considered to have terminated on the date such entity ceases to qualify as an Affiliate. To the extent permitted by law, the Board or the chief executive officer of the Company, in that party’s sole discretion, may determine whether Continuous Service will be considered interrupted in the case of (i) any leave of absence approved by the Company, including sick leave, military leave or any other personal leave or (ii) transfers between the Company, an Affiliate, or their successors. A leave of absence will be treated as Continuous Service for purposes of vesting in an Award only to such extent provided in the Company’s leave of absence policy, in the written terms of any leave of absence agreement applicable to the Participant, or as otherwise required by law. In addition, if required for exemption from or compliance with Section 409A of the Code, the determination of Continuous Service will be made, and such term will be construed, in a manner that is consistent with the definition of “separation from service” as defined under Treasury Regulation Section 1.409A-1(h) (without regard to any alternative definition thereunder). (p) “Director” means a member of the Board. (q) “Disability” means, unless otherwise provided for in an Award Agreement, total and permanent disability as defined in Section 22(e)(3) of the Code, provided that in the case of Awards other than Incentive Stock Options, the Administrator in its discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Administrator from time to time. (r) “Dividend Equivalent” means a right to be paid in cash or Shares an amount equal to the regular cash dividends declared and paid on a Share that is subject to an unvested or otherwise outstanding Restricted Stock Unit or Performance Unit. A Dividend Equivalent will immediately expire on the issuance of the underlying Shares subject to the Restricted Stock Unit or Performance Unit Awards, as well as on the expiration or other forfeiture of the related Restricted Stock Unit or Performance Unit Awards. (s) “Effective Date” has the meaning set forth in Section 18. (t) “Employee” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company. (u) “Exchange Act” means the Securities Exchange Act of 1934, as amended. (v) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq Global Select Market, the Nasdaq Global Market, or the Nasdaq Capital Market of The Nasdaq Stock Market, its Fair Market Value will be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share will be the mean between the high bid and low asked prices for the Common Stock on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value will be determined in good faith by the Administrator. | (w) | “Fiscal Year” means the fiscal year of the Company. |
| (x) | “Freestanding SAR” means a one-time incomeSAR that is granted independently of $9.5 million relatedany Option. |
| (y) | “GAAP” means United States generally accepted accounting principles. |
| (z) | “Grandfathered Awards” has the meaning set forth in Section 4(a)(ii). |
| (aa) | “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the resolutionmeaning of a patent litigation judgment. See Note 13 toSection 422 of the financial statements included in our Annual Report on Form 10-K forCode and the year ended December 31, 2015, filed with the SEC on February 29, 2016, for further discussion. regulations promulgated thereunder. |
| (bb) | “Inside Director” means a Director who is an Employee. |
| (cc) | “Nonstatutory Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option. |
| (dd) | “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. |
| (ee) | “Option” means a stock option granted pursuant to the Plan. |
| (ff) | “Optioned Stock” means the Common Stock subject to an Option. |
| (gg) | “Outside Director” means a Director who is not an Employee. |
| (hh) | “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code. |
| (ii) | “Participant” means the holder of an outstanding Award. |
(jj) “Performance Goals” shall mean any one or more of the following performance goals, either individually or in any combination, applied either to the Company as a whole or to a business group, subsidiary, or other division, either individually or in any combination, and measured on an absolute basis or relative to a pre-established target, to previous years’ or any other period’s results (including results during a prior or current Performance Period), or to a designated comparison group, in each case as specified by the Administrator: (i) revenue, growth in revenue or product revenue; (ii) sales or bookings targets, including product or product family sales or bookings targets; (iii) billings; (iv) market share; (v) stock price performance, including but not limited to growth in the market price of stock, total stockholder return, and return on stockholder equity; (vi) margin, including gross margin, net margin or operating margin; (vii) income, including but not limited to net income, operating income, and operating income after taxes; (viii) profit, including but not limited to operating profit, net operating profit or pre-tax profit; (ix) earnings, including but not limited to earnings per share, net earnings, earnings before interest, taxes and/or depreciation and/or amortization; (x) income, before or after taxes (including net income); (xi) return on assets, capital, operating revenue and/or investments; (xii) expense control and/or cost reductions; (xiii) capital expenditures; (xiv) economic value added; (xv) cash flow, including but not limited to operating cash flow, cash flow per share and cash management; (xvi) improvement in or attainment of working capital levels; (xvii) debt reduction or debt levels; (xviii) contract win, renewal or extension or design win; (xix) delivery and/or design schedule; (xx) milestones in new generation of products or technologies; (xxi) completion of or milestones associated with mergers, acquisitions, strategic investments, restructurings, reorganizations (including entry into term sheets, signing of definitive agreements, closing transactions, funding of investments, and post-closing integration milestones); (xxii) litigation, including litigation outcomes, milestones or management; (xxiii) workforce diversity; (xxiv) customer satisfaction; and (xv) such other measures of performance selected by the Committee in its discretion. The Committee may appropriately adjust any evaluation of performance with respect to Performance Goals to exclude certain events that occur during a Performance Period, including (A) to include or exclude restructuring and/or other nonrecurring charges; (B) to include or exclude exchange rate effects, as applicable, for non-U.S. dollar denominated performance goals; (C) to include or exclude the effects of changes to GAAP required by the Financial Accounting Standards Board or to the International Financial Reporting Standard (IFRS); (D) to include or exclude the effects of any statutory adjustments to corporate tax rates; (E) to include or exclude the effects of any “extraordinary items” as determined under GAAP; (F) to include or exclude the effect of payment of bonuses under the bonus plans of the Company; (G) to include or exclude the effect of stock-based compensation and/or deferred compensation; (H) to include or exclude any unusual, non-recurring gain or loss or other extraordinary item; (I) to respond to, or in anticipation of, any unusual or extraordinary corporate item, transaction, event or development; (J) to respond to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions; (K) to include or exclude the effects of divestitures, acquisitions or joint ventures; (L) to include or exclude the effects of discontinued operations that do not qualify as a segment of a business unit under GAAP; (M) to assume that any business divested by the Company achieved performance objectives at targeted levels during the balance of a performance period following such divestiture; (N) to include or exclude the effect of any change in the outstanding shares of common stock of the Company by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common shareholders including cash dividends; (O) to reflect a corporate transaction, such as a merger, consolidation, separation (including a spinoff or other distribution of stock or property by a corporation), or reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code); (P) to reflect any partial or complete corporate liquidation; (Q) to reflect shippable backlog; and (R) to include or exclude the amortization of purchased intangibles, technology license arrangements and incomplete technology. For the avoidance of doubt, the Committee may use any of the foregoing and/or any additional or different performance goals and may make the foregoing or any other adjustments it chooses with respect to Awards (other than Grandfathered Awards). (kk) “Performance Period” means the period determined by the Committee in its sole discretion during which performance or other vesting conditions are measured. (ll) “Performance Unit” means an Award granted to a Participant pursuant to Section 9. (mm) “Period of Restriction” means the period during which the transfer of Shares are subject to restrictions and therefore, the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by the Administrator. (nn) “Plan” means the Monolithic Power Systems, Inc. 2014 Equity Incentive Plan, as it may be amended or amended and restated from time to time. (oo) “Restricted Stock” means Shares issued pursuant to a Restricted Stock Award under Section 7 of the Plan. (pp) “Restricted Stock Unit” means an Award granted to a Participant pursuant to Section 10. (qq) “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. (rr) “Section 16(b) “ means Section 16(b) of the Exchange Act. (ss) “Securities Act” means the Securities Act of 1933, as amended. (tt) “Service Provider” means an Employee, Director or Consultant. (uu) “Share” means a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan. (vv) “Stock Appreciation Right” or “SAR” means an Award, granted alone or in connection with an Option, that pursuant to Section 8 is designated as a SAR. (ww) “Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code. (xx) “Tandem SAR” means a SAR that is granted in connection with a related Option, the exercise of which will require forfeiture of the right to purchase an equal number of Shares under the related Option (and when a Share is purchased under the Option, the SAR will be canceled to the same extent). 3. | Stock Subject to the Plan. |
(a) Stock Subject to the Plan. Subject to the provisions of Section 14 of the Plan, the maximum aggregate number of Shares that may be available for Awards under the Plan is 10,500,000 Shares (consisting of 5,500,000 Shares approved by the Company’s stockholders in 2013 and 5,000,000 Shares approved by the Company’s stockholders in 2020). The Shares may be authorized, but unissued, or reacquired Common Stock. Shares will not be deemed to have been utilized pursuant to the Plan with respect to any portion of an Award that is settled in cash. Subject to the provisions of Section 14 of the Plan, all 10,500,000 Shares available for Awards under the Plan may be issued pursuant to Incentive Stock Options. Upon payment in Shares pursuant to the exercise of a SAR, the number of Shares available for Awards under the Plan will continue to be reduced by the gross number of Shares with respect to which the SAR is being exercised, rather than reducing the number of Shares available by only the number of Shares issued. Similarly, if the exercise price of an Option is paid by net exercise or by tender to the Company, or attestation to the ownership, of Shares owned by the Participant, the number of Shares available for issuance under the Plan will be reduced by the gross number of Shares for which the Option is exercised. (b) Lapsed Awards. If an Award expires or becomes unexercisable without having been exercised in full or, with respect to Restricted Stock, Performance Units, Restricted Stock Units or Dividend Equivalents, is forfeited to or repurchased by the Company due to failure to vest, the unexercised, forfeited or repurchased Shares (as applicable) will become available again under the Plan (unless the Plan has terminated). Shares tendered in payment of the exercise or purchase price of an Award, or in satisfaction of tax withholding related to an Award, will not be returned to the Plan and will not become available for future distribution under the Plan. (c) Share Reserve. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of the Plan. 4. | Administration of the Plan. |
(a) Procedure. (i) Multiple Administrative Bodies. Different Committees with respect to different groups of Service Providers may administer the Plan. The Board or a committee of the Board may delegate authority to grant Awards to one or more Officers of the Company in a manner that complies with Applicable Laws. (ii) Section 162(m). No Awards granted under the Plan on or after the Effective Date will be designed or intended to be “performance-based compensation” for purposes of Section 162(m) of the Code. With respect to Awards granted under the Plan prior to the Effective Date that are intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code (the “Grandfathered Awards”), such Grandfathered Awards shall continue to be governed by the applicable provisions of the Plan as in effect prior to the Effective Date of this amendment and restatement of the Plan. (iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder will be structured to satisfy the requirements for exemption under Rule 16b-3; provided, however, that if it is later determined that such requirements were not satisfied, actions taken by the Administrator shall be valid for all other purposes despite such failure to satisfy Rule 16b-3. (iv) Other Administration. Other than as provided above, the Plan will be administered by (A) the Board or (B) a Committee, which committee will be constituted to satisfy Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee or by a Committee to another Committee, the Administrator will have the authority, in its discretion: | (i) | to determine the Fair Market Value; |
| (ii) | to select the Service Providers to whom Awards may be granted hereunder and the type of Awards to be granted; |
| (iii) | to determine the number of Shares to be covered by, or size of, each Award granted hereunder and the value of Performance Units granted hereunder; |
| (iv) | to approve forms of Award Agreement for use under the Plan; |
(v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise and purchase price, the time or times when Awards may be exercised (which may be based on performance criteria), the right to receive dividends or Dividend Equivalents, any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator will determine; (vi) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan; (vii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws; (viii) to modify or amend each Award (subject to the terms of the Plan), including but not limited to the discretionary authority to extend the post-termination exercisability period of Awards; (ix) to determine the manner in which Participants can satisfy withholding tax obligations; (x) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator; (xi) to defer, or to allow a Participant to defer, the receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant under an Award; and (xii) to make all other determinations deemed necessary or advisable for administering the Plan. (c) Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations will be final and binding on all Participants and any other holders of Awards. 5. Eligibility. Nonstatutory Stock Options, Restricted Stock, Stock Appreciation Rights, Performance Units, Restricted Stock Units and Dividend Equivalents may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. 6. Stock Options. (a) Limitations. (i) Each Option will be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, or such Option otherwise fails to satisfy the requirements to be Incentive Stock Options, such Option will be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options will be taken into account in the order in which they were granted. The Fair Market Value of the Shares will be determined as of the time the Option with respect to such Shares is granted (or modified, as applicable). (ii) The following limitations will apply to grants of Options: (A) No Service Provider will be granted, in any Fiscal Year, Options to purchase more than 1,000,000 Shares. (B) In connection with his or her initial service, a Service Provider may be granted Options to purchase up to an additional 1,250,000 Shares, which will not count against the limit set forth in Section 6(a)(ii)(A) above. (C) The foregoing limitations will be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 14. (D) If an Option is cancelled in the same Fiscal Year in which it was granted (other than in connection with a transaction described in Section 14), the cancelled Option will be counted against the limits set forth in subsections (A) and (B) above. (b) Term of Option. The term of each Option will be stated in the Award Agreement. The term will be ten (10) years from the date of grant or such shorter term as may be provided in the Award Agreement. Moreover, in the case of an Incentive Stock Option granted to a Participant who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option will be five (5) years from the date of grant or such shorter term as may be provided in the Award Agreement. (c) Option Exercise Price and Consideration. (i) Exercise Price. The per share exercise price for the Shares to be issued pursuant to the exercise of an Option will be determined by the Administrator, subject to the following: | (A) | In the case of an Incentive Stock Option: |
(1) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price will be no less than 110% of the Fair Market Value per Share on the date of grant. (2) granted to any Employee other than an Employee described in paragraph (A)(1) immediately above, the per Share exercise price will be no less than 100% of the Fair Market Value per Share on the date of grant. (B) In the case of a Nonstatutory Stock Option, the per Share exercise price will be determined by the Administrator, but will not be less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. (C) Notwithstanding the foregoing, Options may be granted with (or adjusted to include) a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a transaction described in Section 424(a) of the Code. (ii) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator will fix the period within which the Option may be exercised and will determine any conditions that must be satisfied before the Option may be exercised. (iii) Form of Consideration. The Administrator will determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator will determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (A) cash (including electronic wire transfer); (B) check; (C) other Shares, provided that such Shares have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option will be exercised and provided further that accepting such Shares will not result in any adverse accounting consequences to the Company, as the Administrator determines in its sole discretion; (D) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; (E) by net exercise; (F) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws; or (G) any combination of the foregoing methods of payment. (i) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder will be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share. An Option will be deemed exercised when the Company receives: (A) notice of exercise (in such form as the Administrator may specify from time to time) from the person entitled to exercise the Option, and (B) full payment for the Shares with respect to which the Option is exercised (together with applicable withholding taxes), with the exercise effective only if the exercise otherwise complies with Applicable Laws. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse or lawfully recognized domestic partner. Until Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. Except as otherwise provided in Section 14 of the Plan, no adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued. Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (ii) Termination of Continuous Service. If a Participant’s Continuous Service terminates (other than upon the Participant’s termination as the result of the Participant’s death or Disability), the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for three (3) months following the termination of Participant’s Continuous Service. Unless otherwise provided by the Administrator, if on the date of termination of Participant’s Continuous Service, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If, after termination of Participant’s Continuous Service, the Participant does not exercise his or her Option within the time specified by the Administrator, the Option will terminate, and the Shares covered by the unexercised portion of such Option will revert to the Plan. The Administrator may provide in the Award Agreement that the Option will terminate immediately on a termination of the Participant’s Continuous Service for Cause. (iii) Disability of Participant. If a Participant’s Continuous Service is terminated as a result of the Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested on the date of termination of Continuous Service (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following the Participant’s termination of Continuous Service due to Disability. Unless otherwise provided by the Administrator, if on the date of termination of Continuous Service Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If after termination of Continuous Service Participant does not exercise his or her Option within the time specified herein, the Option will terminate, and the Shares covered by the unexercised portion of such Option will revert to the Plan. (iv) Death of Participant. If a Participant’s Continuous Service terminates as a result of such Participant’s death, the Option may be exercised following the Participant’s death within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of death (but in no event may the Option be exercised later than the expiration of the term of such Option as set forth in the Award Agreement), by the Participant’s designated beneficiary, provided such beneficiary has been designated prior to Participant’s death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Participant, then such Option may be exercised by the personal representative of the Participant’s estate or by the person(s) to whom the Option is transferred pursuant to the Participant’s will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following Participant’s death. Unless otherwise provided by the Administrator, if at the time of death, Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered by the unexercised portion of such Option will revert to the Plan. 7. Restricted Stock. (a) Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Administrator, at any time and from time to time, may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator, in its sole discretion, will determine. (b) Restricted Stock Agreement. Each Award of Restricted Stock will be evidenced by an Award Agreement that will specify the Period of Restriction, the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion, will determine. Unless the Administrator determines otherwise, Shares of Restricted Stock will be held by the Company as escrow agent until Period of Restriction expires and all restrictions on such Shares have lapsed. (c) Transferability. Unless otherwise determined by the Administrator, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction. (d) Other Restrictions. The Administrator, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate. (i) General Restrictions. The Administrator may set restrictions based upon continued employment or service with the Company and its Affiliates, the achievement of Performance Goals or other performance objectives (Company-wide, departmental, or individual), or any other basis determined by the Administrator in its discretion. (ii) Performance Restrictions. The Administrator, in its discretion, may make the grant of Restricted Stock, or the vesting of Restricted Stock, contingent upon the achievement of Performance Goals. The Performance Goals shall be set by the Administrator in connection with the grant of such Restricted Stock. (e) Removal of Restrictions. Unless otherwise determined by the Administrator, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan will be released from escrow as soon as practicable after the last day of the Period of Restriction. After the grant of a Restricted Stock, the Administrator, in its sole discretion, may reduce or waive any restrictions or performance objectives or other vesting provisions for such Restricted Stock. (f) Stockholder Rights. During the Period of Restriction, Service Providers holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise. (g) Dividends. At the discretion of the Administrator, an Award of Restricted Stock may provide the Participant with the right to receive dividends, which shall be subject to the same restrictions and vesting conditions applicable to such Award. (h) Return of Restricted Stock to Company. On the date set forth in the Award Agreement, the Restricted Stock for which restrictions have not lapsed will revert to the Company and again will become available for grant under the Plan. 8. Stock Appreciation Rights. (a) Grant of SARs. Subject to the terms and conditions of the Plan, a SAR may be granted to Service Providers at any time and from time to time as will be determined by the Administrator, in its sole discretion. The Administrator may grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any combination thereof. (b) Number of Shares. Subject to the following limitations, the Administrator will have complete discretion to determine the number of SARs granted to any Service Provider: (i) No Service Provider will be granted, in any Fiscal Year, SARs to purchase more than 1,000,000 Shares. (ii) In connection with his or her initial service, a Service Provider may be granted SARs to purchase up to an additional 1,250,000 Shares, which will not count against the limit set forth in Section 8(b)(i) above. (iii) The foregoing limitations will be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 14. (iv) If a SAR is cancelled in the same Fiscal Year in which it was granted (other than in connection with a transaction described in Section 14), the cancelled SAR will be counted against the limits set forth in subsections (i) and (ii) above. (c) Exercise Price and Other Terms. The Administrator, subject to the provisions of the Plan, will have complete discretion to determine the terms and conditions of SARs granted under the Plan. However, the exercise price of Tandem or Affiliated SARs will equal the exercise price of the related Option. In addition, the exercise price of Freestanding SARs will not be less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant; provided, however that a SAR may be granted with (or adjusted to include) a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a transaction described in Section 424(a) of the Code. (d) Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable. With respect to a Tandem SAR granted in connection with an Incentive Stock Option: (i) the Tandem SAR will expire no later than the expiration of the underlying Incentive Stock Option; (ii) the value of the payout with respect to the Tandem SAR will be for no more than one hundred percent (100%) of the difference between the exercise price of the underlying Incentive Stock Option and the Fair Market Value of the Shares subject to the underlying Incentive Stock Option at the time the Tandem SAR is exercised; and (iii) the Tandem SAR will be exercisable only when the Fair Market Value of the Shares subject to the Incentive Stock Option exceeds the exercise price of the Incentive Stock Option. (e) Exercise of Affiliated SARs. An Affiliated SAR will be deemed to be exercised upon the exercise of the related Option. The deemed exercise of an Affiliated SAR will not necessitate a reduction in the number of Shares subject to the related Option. (f) Exercise of Freestanding SARs. Freestanding SARs will be exercisable on such terms and conditions as the Administrator, in its sole discretion, will determine. (g) SAR Agreement. Each SAR Award will be evidenced by an Award Agreement that will specify the exercise price, the term of the SAR, the conditions of exercise, and such other terms and conditions as the Administrator, in its sole discretion, will determine. (h) Expiration of SARs. A SAR granted under the Plan will expire upon the date determined by the Administrator, in its sole discretion, and set forth in the Award Agreement. Notwithstanding the foregoing, the rules of Section 6(d) also will apply to SARs. (i) Payment of SAR Amount. Upon exercise of a SAR, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying: (i) The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times | (ii) | The number of Shares with respect to which the SAR is exercised. |
At the discretion of the Administrator, the payment upon SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof. (j) Stockholder Rights. Unless and until Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends), or any other rights as a stockholder will exist with respect to the SARs, notwithstanding the exercise of the SARs. The Company will issue (or cause to be issued) such Shares promptly after the SAR is exercised, subject to the payment of applicable withholding taxes and compliance with Applicable Laws. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 14 of the Plan. 9. Performance Units. (a) Grant of Performance Units. Performance Units may be granted to Service Providers at any time and from time to time, as will be determined by the Administrator in its sole discretion. The Administrator will have complete discretion in determining the number of Performance Units granted to each Participant. (b) Value of Performance Units. Each Performance Unit will have an initial value that is established by the Administrator on or before the date of grant and denominated in U.S. dollars. (c) Performance Objectives and Other Terms. The Administrator, in its discretion, shall set performance objectives (including objectives based on Performance Goals) or other vesting criteria which, depending on the extent to which they are met, will determine the number or value of Performance Units that will be paid out to the Participants. Each Award of Performance Units shall be evidenced by an Award Agreement that shall specify the Performance Period, if applicable, and such other terms and conditions as the Administrator, in its sole discretion, shall determine. (i) General Restrictions. The Administrator may condition the granting of the Performance Units, or the vesting of the Performance Units, on continued employment or service with the Company and its Affiliates, the achievement of Performance Goals or other performance objectives (Company-wide, departmental, or individual), or any other basis determined by the Administrator in its discretion. (ii) �� Performance Restrictions. The Administrator, in its discretion, may condition the granting or vesting of Performance Units on the achievement of Performance Goals. The Performance Goals shall be set by the Administrator in connection with the grant of such Performance Unit Award. (d) Earning of Performance Units. After the applicable Performance Period has ended, the holder of Performance Units will be eligible to receive a payout of the number of Performance Units earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding Performance Goals, performance objectives or other vesting provisions have been achieved. After the grant of a Performance Unit, the Administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions applicable to such Performance Unit. (e) Form and Timing of Payment of Performance Units. Except as otherwise provided in an Award Agreement, payment of earned Performance Units will be made as soon as practicable after the expiration of the applicable Performance Period. The Administrator, in its sole discretion, may pay earned Performance Units in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units on the date set forth in the Award Agreement) or in a combination thereof. (f) Cancellation of Performance Units. Upon the occurrence of the termination of the Participant’s Continuous Service and/or such other date set forth in the Award Agreement (or any other written agreement between the Company and the Participant), or except as otherwise determined by the Committee, all unearned or unvested Performance Units will be forfeited to the Company, and again will be available for grant under the Plan. (g) Stockholder Rights. Unless and until Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Performance Units. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, as applicable, except as provided in Section 14 or Section 9(h) of the Plan or as determined by the Administrator as applicable to the calculation of Performance Goals or other performance criteria. (h) Dividend Equivalents. Dividend Equivalents may be credited in respect of Shares subject to Performance Units, as determined by the Administrator and as contained in the applicable Award Agreement or a separate Award Agreement. Dividend Equivalents will be subject to the same terms and conditions applicable to the underlying Performance Units to which they relate, including vesting, performance conditions, forfeiture, and restrictions on transfer or alienation. 10. | Restricted Stock Units. |
(a) Grant of Restricted Stock Units. Restricted Stock Units may be granted to Service Providers at any time and from time to time, as will be determined by the Administrator, in its sole discretion. The Administrator will have complete discretion in determining the number of Restricted Stock Units granted to each Participant. (b) Value of Restricted Stock Units. Each Restricted Stock Unit will have a value equal to the Fair Market Value of one Share. (c) Other Restrictions. The Administrator, in its sole discretion, may impose such restrictions on Restricted Stock Units as it may deem advisable or appropriate. (i) General Restrictions. The Administrator may set restrictions based upon continued employment or service with the Company and its Affiliates, the achievement of Performance Goals or other specific performance objectives (Company-wide, departmental, or individual), or any other basis determined by the Administrator in its discretion. (ii) Performance Restrictions. The Administrator, in its discretion, may set restrictions based upon the achievement of Performance Goals. The Performance Goals shall be set by the Administrator in connection with the grant of such Restricted Stock Units. Restricted Stock Units that are subject to Performance Goals are sometimes referred to as “Performance RSUs” or “PRSUs.” (d) Earning of Restricted Stock Units. After the applicable vesting period or Performance Period has ended, the holder of Restricted Stock Units will be eligible to receive a payout of the number of Restricted Stock Units earned by the Participant, to be determined as a function of the extent to which the corresponding performance objectives or other vesting provisions have been achieved. After the grant of Restricted Stock Units, the Administrator, in its sole discretion, may reduce or waive any restrictions or performance objectives or other vesting provisions applicable to such Restricted Stock Units. (e) Form and Timing of Payment of Restricted Stock Units. Except as otherwise provided in an Award Agreement, payment of earned Restricted Stock Units will be made as soon as practicable after the expiration of the applicable vesting period or Performance Period. The Administrator, in its sole discretion, may pay earned Restricted Stock Units in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Restricted Stock Units at the close of the applicable vesting period or Performance Period), or in a combination thereof. (f) Cancellation of Restricted Stock Units. On the termination of the Participant’s Continuous Service and/or such other date set forth in the Award Agreement, all unearned or unvested Restricted Stock Units will be forfeited to the Company, and again will be available for grant under the Plan. (g) Stockholder Rights. Unless and until Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends (except as otherwise provided in Section 10(h)), or any other rights as a stockholder will exist with respect to the Restricted Stock Units. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, as applicable, except as provided in Section 10(h) and Section 14 of the Plan. (h) Dividend Equivalents. At the discretion of the Administrator, Dividend Equivalents may be credited in respect of Shares subject to Restricted Stock Units, which shall be subject to the same restrictions and vesting conditions applicable to such Award. The terms of any Dividend Equivalents will be contained in the applicable Award Agreement or a separate Award Agreement. 11. Limitation on Grants to Outside Directors. No Outside Director shall be granted, in any one Fiscal Year, compensation for such service having an aggregate maximum value (measured at the date of grant as applicable, and calculating the value of any Awards based on the grant date fair value for financial reporting purposes) in excess of $1,000,000. 12. Leaves of Absence; Transfer Between Locations. Unless the Administrator provides otherwise (including for purposes of compliance with Applicable Laws), vesting of Awards granted hereunder will be suspended during any unpaid leave of absence. A Participant will not cease to be an Employee in the case of any leave of absence approved by the Company or transfers between locations of the Company or between the Company, its Parent, or any Subsidiary. For purposes of Incentive Stock Options, no such leave may exceed three (3) months, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then on the date that is six (6) months following the first (1st) day of such leave, any Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option. The Administrator reserves the right to unilaterally reduce the rate of vesting of, or the number of Shares or units subject to, an Award if a Participant’s level of regular service is reduced (e.g., a reduction from full-time to part-time status). 13. Transferability of Awards. Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, such Award will contain such additional terms and conditions as the Administrator deems appropriate. 14. Adjustments; Dissolution or Liquidation; Merger or Change in Control. (a) Adjustments. If, after the Effective Date, there is an equity restructuring (within the meaning of FASB Accounting Standards Codification (ASC) 718) that causes the per share value of Shares to change, such as any large and nonrecurring cash dividend, stock dividend, stock split, combination of shares, recapitalization, or other change in the capital structure of the Company, any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities, or any other corporate transaction or event having an effect similar to any of the foregoing (any such event, a “Capitalization Adjustment”), the Administrator shall cause there to be made an equitable adjustment to: (i) the number and, if applicable, kind of shares that may be issued under the Plan or pursuant to any type of Award under the Plan, (ii) the Award limits established and approved by stockholders for purposes of Section 421 of the Code, (iii) the number and, if applicable, kind of shares subject to outstanding Awards, (iv) as applicable, the exercise or purchase price of any then outstanding Awards, and/or (v) any other Award terms. Any fractional shares resulting from a Capitalization Adjustment shall be eliminated. Any Capitalization Adjustment made pursuant to this Section 14(a) shall be conclusive and binding for all purposes of the Plan. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator will notify each Participant as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed action. (c) Change in Control. In the event of a Change in Control, each outstanding Award will be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Award, the Participant will fully vest in and have the right to exercise all of his or her outstanding Awards, including Shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock will lapse and, to the extent applicable for any kind of Award, all performance goals or other vesting criteria will be deemed achieved at maximum levels and all other terms and conditions met; provided, however, that no such acceleration shall occur to the extent the Administrator determines that an Award constitutes “nonqualified deferred compensation” within the meaning of Section 409A of the Code and such acceleration would cause the Participant to incur additional taxes pursuant to Section 409A. In addition, if an Option or Stock Appreciation Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a Change in Control, the Administrator will notify the Participant in writing or electronically that the Option or Stock Appreciation Right will be fully vested and exercisable for a period of time determined by the Administrator in its sole discretion, and the Option or Stock Appreciation Right will terminate upon the expiration of such period. With respect to Awards granted to an Outside Director that are assumed or substituted for, if on the date of or following such assumption or substitution the Participant’s status as a Director or a director of the successor corporation, as applicable, is terminated other than upon a voluntary resignation by the Participant that is not required by or a condition of the applicable definitive agreement pursuant to which the Change in Control occurs, then the Participant will fully vest in, and have the right to exercise Options and/or Stock Appreciation Rights as to, all of the Shares subject to the Award, including Shares as to which such Award would not otherwise be vested or exercisable, all restrictions on Restricted Stock will lapse and, to the extent applicable for all Awards, all performance goals or other vesting criteria will be deemed achieved at maximum levels and all other terms and conditions met. For the purposes of this subsection (c), an Award will be considered assumed if, following the Change in Control, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, or other securities or property) or, in the case of a Stock Appreciation Right upon the exercise of which the Administrator determines to pay cash or a Performance Unit or Restricted Stock Unit which the Administrator can determine to pay in cash, the fair market value of the consideration received in the Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares). If the consideration received in the Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of an Option or Stock Appreciation Right or upon the payout of a Performance Unit or Restricted Stock Unit, for each Share subject to such Award (or in the case of Performance Units, the number of implied shares determined by dividing the value of the Performance Units by the per share consideration received by holders of Common Stock in the Change in Control), to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the Change in Control. Notwithstanding anything in this Section 14(c) to the contrary, an Award that vests, is earned or paid out upon the satisfaction of one or more Performance Goals will not be considered assumed if the Company or its successor modifies any of such Performance Goals without the Participant’s consent; provided, however, a modification to such Performance Goals only to reflect the successor corporation’s post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption. (a) Withholding Requirements. The Company and each of its Affiliates shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company or any of its Affiliates, an amount sufficient to satisfy federal, state, local, domestic or foreign taxes required by law or regulation to be withheld with respect to any taxable event arising as a result of the Plan. (b) Withholding Arrangements. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit a Participant to satisfy any tax withholding, in whole or in part by, without limitation (i) paying cash, (ii) electing to have the Company or any of its Affiliates withhold otherwise deliverable cash or Shares having a Fair Market Value equal to the minimum statutory amount required to be withheld, (iii) delivering to the Company already-owned Shares having a Fair Market Value equal to the minimum statutory amount required to be withheld or (iv) electing any other method as may be set forth in the Participant’s Award Agreement. The Fair Market Value of the Shares to be withheld or delivered will be determined as of the date that the taxes are required to be withheld. In addition, the Fair Market Value of the Shares to be withheld or delivered pursuant to this Section 15(b) may exceed the minimum amount required to be withheld only if (A) an additional amount can be withheld and not result in adverse accounting consequences and (B) such additional withholding amount is authorized by the Committee. 16. No Effect on Employment or Service. Neither the Plan nor any Award will confer upon a Participant any right with respect to continuing the Participant’s relationship as a Service Provider with the Company or any of its Affiliates, nor will they interfere in any way with the Participant’s right or the right of the Company or any of its Affiliates to terminate such relationship at any time, with or without cause, to the extent permitted by Applicable Laws. 17. Date of Grant. The date of grant of an Award will be, for all purposes, the date on which the Administrator makes the determination granting such Award, or such other later date as is provided for by the Administrator on which the Award becomes effective. Notice of the determination will be provided to each Participant within a reasonable time after the date of such grant. 18. Term of Plan. The original Monolithic Power Systems, Inc. 2014 Equity Incentive Plan was adopted by the Board on April 22, 2013 and became effective as of November 13, 2014. This amendment and restatement of the Monolithic Power Systems, Inc. 2014 Equity Incentive Plan was adopted by the Board on April 21, 2020, and its Effective Date (the “Effective Date”) shall be the date on which it is approved by the stockholders of the Company in accordance with Section 22 of the Plan. No Awards shall be granted pursuant to this Plan more than ten (10) years after the Effective Date. 19. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan. (b) Stockholder Approval. The Company will obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws, including any amendment that, for purposes of the applicable stock exchange rules (and except as permitted under Section 14 of the Plan) (i) would materially increase the number of securities which may be issued under this Plan, or (ii) must otherwise be approved by the stockholders of the Company in order to comply with applicable law or the rules of the Nasdaq Stock Market or, if the Common Stock is not traded on the Nasdaq Stock Market, the principal national securities exchange upon which the Common Stock is traded or quoted, all as determined by the Board. (c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan or an Award will materially impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company; provided that an amendment or modification that may cause an Incentive Stock Option to become a Nonstatutory Stock Option shall not be treated as adversely affecting the rights of the Participant for purposes of Section 19(c) of the Plan. Termination of the Plan will not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination. 20. | Conditions Upon Issuance of Shares. |
(a) Legal Compliance. Shares will not be issued under an Award unless the exercise of such Award (if applicable) and the issuance and delivery of such Shares will comply with Applicable Laws and will be further subject to the approval of counsel for the Company with respect to such compliance. No exercise will be deemed effective unless and until the exercise complies with Applicable Laws. (b) Investment Representations. As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 21. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority will not have been obtained. 22. Stockholder Approval. The Plan was subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted by the Board. For future material modifications, such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws. 23. No Repricings. Except as otherwise provided in Section 14, the Company may not, without obtaining stockholder approval: (a) amend the terms of outstanding Options or SARs to reduce the exercise price of such outstanding Options or SARs; (b) cancel outstanding Options or SARs in exchange for Options or SARs with an exercise price that is less than the exercise price of the original Options or SARs; or (c) cancel outstanding Options or SARs with an exercise price above the current stock price in exchange for cash or other securities. 24. Accommodations for Participants of Different Nationalities. In order to facilitate the making of any grant or combination of grants under this Plan, the Administrator may provide for such special terms for Awards to Participants as the Administrator may consider necessary or appropriate to accommodate differences in local law, tax policy or custom given that Participants are expected to be nationals of both the United States of America and other countries, or to be employed by the Company or any Subsidiary both within and outside of the United States of America. Moreover, the Administrator may approve such supplements to or amendments, restatements or alternative versions of this Plan (including sub-plans) as it may consider necessary or appropriate for such purposes, without thereby affecting the terms of this Plan as in effect for any other purpose, and the secretary or other appropriate officer of the Company may certify any such document as having been approved and adopted in the same manner as this Plan. No such special terms, supplements, amendments or restatements, however, will include any provisions that are inconsistent with the terms of this Plan as then in effect unless this Plan could have been amended to eliminate such inconsistency without further approval by the stockholders of the Company. 25. Compliance with Section 409A of the Code. (a) To the extent applicable, it is intended that this Plan and any grants made hereunder comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to the Participants. This Plan and any grants made hereunder will be administered in a manner consistent with this intent. Any reference in this Plan to Section 409A of the Code will also include any regulations or any other formal guidance promulgated with respect to such section by the U.S. Department of the Treasury or the Internal Revenue Service. (b) Neither a Participant nor any of a Participant’s creditors or beneficiaries will have the right to subject any deferred compensation (within the meaning of Section 409A of the Code) payable under this Plan and grants hereunder to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment. Except as permitted under Section 409A of the Code, any deferred compensation (within the meaning of Section 409A of the Code) payable to a Participant or for a Participant’s benefit under this Plan and grants hereunder may not be reduced by, or offset against, any amount owed by a Participant to the Company or any of its Subsidiaries. (c) If, at the time of a Participant’s separation from service (within the meaning of Section 409A of the Code), (i) the Participant will be a specified employee (within the meaning of Section 409A of the Code and using the identification methodology selected by the Company from time to time) and (ii) the Company makes a good faith determination that an amount payable hereunder constitutes deferred compensation (within the meaning of Section 409A of the Code) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the Code, then the Company will not pay such amount on the otherwise scheduled payment date but will instead pay it, without interest, on the tenth business day of the seventh month after such separation from service. (d) Notwithstanding any provision of this Plan and grants hereunder to the contrary, in light of the uncertainty with respect to the proper application of Section 409A of the Code, the Company reserves the right to make amendments to this Plan and grants hereunder as the Company deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A of the Code. In any case, a Participant will be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on a Participant or for a Participant’s account in connection with this Plan and grants hereunder (including any taxes and penalties under Section 409A of the Code), and neither the Company nor any of its Affiliates will have any obligation to indemnify or otherwise hold a Participant harmless from any or all of such taxes or penalties. |