UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Preliminary Proxy Statement
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Definitive Proxy Statement
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Soliciting Material Pursuant to §240.14a-12
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SunPower Corporation
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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NOTICE OF THE 2019 ANNUAL MEETING OF STOCKHOLDERS
TO ALL SUNPOWER STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 2019 Annual Meeting of Stockholders (the “Annual Meeting”) of SunPower Corporation, a Delaware corporation (“SunPower”), will be held on:
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Thursday, May 16, 2019
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9:00 a.m. Pacific Time
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Online at www.virtualshareholdermeeting.com/SPWR2019
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Virtual Meeting Admission:
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This year’s Annual Meeting will be a virtual meeting of stockholders, conducted via a live webcast. You will be able to attend the Annual Meeting online, vote your shares electronically, and submit questions during the meeting by visiting www.virtualshareholdermeeting.com/SPWR2019. Have your Notice of Internet Availability of Proxy Materials or proxy card in hand when you access the website and then follow the instructions. To participate in the meeting, you will need the 16-digit control number included on the Notice of Internet Availability of Proxy Materials or proxy card. Online check-in will begin at 8:30 a.m. Pacific Time, and you should allow ample time for the online check-in procedures.
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Items of Business:
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The re-election of three directors to serve as Class II directors on our Board of Directors;
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The approval, in an advisory vote, of our named executive officer compensation;
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The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2019; and
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The transaction of such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.
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The foregoing items of business are more fully described in the proxy statement accompanying this notice of the Annual Meeting. On or about April 5, 2019, we began mailing to certain stockholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access our proxy materials, including our 2018 Annual Report, via the Internet. Stockholders who did not receive the Notice of Internet Availability of Proxy Materials will receive a paper copy of this notice of the Annual Meeting, the proxy statement, our 2018 Annual Report, and the form of proxy.
All stockholders are cordially invited to attend the Annual Meeting. Only stockholders of record at the close of business on March 21, 2019 (the “Record Date”) are entitled to receive notice of, and to vote at, the Annual Meeting or any adjournment or postponement of the Annual Meeting. Any registered stockholder in attendance at the Annual Meeting and entitled to vote may do so during the meeting even if such stockholder returned a proxy.
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San Jose, California
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FOR THE BOARD OF DIRECTORS
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April 5, 2019
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Kenneth Mahaffey
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Corporate Secretary
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IMPORTANT: WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE, AND SIGN THE PROXY CARD AND MAIL IT PROMPTLY, OR YOU MAY VOTE BY TELEPHONE OR VIA THE INTERNET BY FOLLOWING THE DIRECTIONS ON THE PROXY CARD. ANY ONE OF THESE METHODS WILL ENSURE REPRESENTATION OF YOUR SHARES AT THE ANNUAL MEETING. NO POSTAGE NEED BE AFFIXED TO THE COMPANY-PROVIDED PROXY CARD ENVELOPE IF MAILED IN THE UNITED STATES.
SUNPOWER CORPORATION
77 Rio Robles
San Jose, California 95134
PROXY STATEMENT FOR
2019 ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
The Board of Directors (the “Board”) of SunPower Corporation, a Delaware corporation, is furnishing this proxy statement and proxy card to you in connection with its solicitation of proxies to be used at the Annual Meeting of Stockholders of SunPower Corporation to be held on May 16, 2019 at 9:00 a.m. Pacific Time (the “Meeting Date”), or at any adjournment(s), continuation(s), or postponement(s) of the meeting (the “Annual Meeting”).
This year’s Annual Meeting will be a virtual meeting of stockholders, conducted via a live webcast. You will be able to attend the Annual Meeting online, vote your shares electronically, and submit your questions during the meeting by visiting www.virtualshareholdermeeting.com/SPWR2019. Have your Notice of Internet Availability of Proxy Materials or proxy card in hand when you access the website and then follow the instructions. To participate in the meeting, you will need the 16-digit control number included on the Notice of Internet Availability of Proxy Materials or proxy card.
Online check-in will begin at 8:30 a.m. Pacific Time on the Meeting Date, and you should allow ample time for the online check-in procedures. We will have technicians ready to assist you should you have any technical difficulties accessing the virtual meeting.
We use a number of abbreviations in this proxy statement. We refer to SunPower Corporation as “SunPower,” “the Company,” or “we,” “us,” or “our.” The term “proxy solicitation materials” includes this proxy statement, the notice of the Annual Meeting, and the proxy card. References to “fiscal 2018” mean our 2018 fiscal year, which began on January 1, 2018 and ended on December 30, 2018, while references to “fiscal 2017” mean our 2017 fiscal year, which began on January 2, 2017 and ended on December 31, 2017.
Our principal executive offices are located at 77 Rio Robles, San Jose, California 95134, and our telephone number is (408) 240-5500.
Important Notice Regarding The Availability of Proxy Materials
We have elected to comply with the Securities and Exchange Commission (the “SEC”) “Notice and Access” rules, which allow us to make our proxy solicitation materials available to our stockholders over the Internet. Under these rules, on or about April 5, 2019, we started mailing to certain of our stockholders a Notice of Internet Availability of Proxy Materials (the “Notice of Internet Availability”). The Notice of Internet Availability contains instructions on how our stockholders can both access the proxy solicitation materials and our 2018 Annual Report on Form 10-K for the fiscal year ended December 30, 2018 (the “2018 Annual Report”) online and vote online. By sending the Notice of Internet Availability instead of paper copies of the proxy materials, we expect to lower the costs and reduce the environmental impact of our Annual Meeting.
Our proxy solicitation materials and our 2018 Annual Report are available at www.proxyvote.com.
Stockholders receiving the Notice of Internet Availability may request a paper or electronic copy of our proxy solicitation materials by following the instructions set forth on the Notice of Internet Availability. Stockholders who did not receive the Notice of Internet Availability will continue to receive a paper or electronic copy of our proxy solicitation materials, which were first mailed to stockholders and made public on or about April 5, 2019.
If you would like to further reduce our environmental impact and costs in mailing proxy materials, you can consent to receive all future proxy statements, proxy cards, and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions provided for voting via www.proxyvote.com and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
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To reduce the environmental waste and expense of delivering duplicate materials to our stockholders, we are taking advantage of householding rules that permit us to deliver only one set of proxy solicitation materials and our 2018 Annual Report, or one copy of the Notice of Internet Availability, to stockholders who share the same address, unless otherwise requested. Each stockholder retains a separate right to vote on all matters presented at the Annual Meeting.
If you share an address with another stockholder and have received only one set of materials, you may write or call us to request a separate copy of these materials at no cost to you. For future annual meetings, you may request separate materials or request that we only send one set of materials to you if you are receiving multiple copies by writing to us at SunPower Corporation, 77 Rio Robles, San Jose, California 95134, Attention: Corporate Secretary, or calling us at (408) 240-5500.
A copy of our 2018 Annual Report has been furnished with this proxy statement to each stockholder. A stockholder may also request a copy of our 2018 Annual Report by writing to our Corporate Secretary at 77 Rio Robles, San Jose, California 95134. Upon receipt of such request, we will provide a copy of our 2018 Annual Report without charge, including the financial statements required to be filed with the SEC pursuant to Rule 13a-1 of the Securities Exchange Act of 1934 (the “Exchange Act”) for our fiscal 2018. Our 2018 Annual Report is also available on our website at http://investors.sunpower.com/sec.cfm.
Record Date and Shares Outstanding
Stockholders who owned shares of our common stock, par value $0.001 per share, at the close of business on March 21, 2019, which we refer to as the Record Date, are entitled to notice of, and to vote at, the Annual Meeting. On the Record Date, we had 142,372,724 shares of common stock outstanding. For more information about beneficial ownership of our issued and outstanding common stock, please see “Security Ownership of Management and Certain Beneficial Owners.”
Our Board recommends that you vote:
| • | “FOR” Proposal One: re-election of each of the nominated Class II directors; |
| • | “FOR” Proposal Two: the approval, on an advisory basis, of the compensation of our named executive officers; and |
| • | “FOR” Proposal Three: the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2019. |
Each holder of shares of common stock is entitled to one vote for each share of common stock held as of the Record Date. Cumulating votes is not permitted under our Restated Certificate of Incorporation (the “Certificate of Incorporation”).
Many of our stockholders hold their shares through a stockbroker, bank, or other nominee, rather than directly in his or her own name. As summarized below, there are distinctions between shares held of record and those beneficially owned.
Stockholder of Record. If your shares are registered directly in your name with our transfer agent, Computershare Trust Company N.A., you are considered, with respect to those shares, the stockholder of record and these proxy solicitation materials are being furnished to you directly by us.
Beneficial Owner. If your shares are held in a stock brokerage account, or by a bank or other nominee (also known as shares registered in “street name”), you are considered the beneficial owner of such shares held in street name, and these proxy solicitation materials are being furnished to you by your broker, bank, or other nominee, who is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker, bank, or other nominee how to vote your shares, or to vote your shares during the Annual Meeting.
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How to Vote. If you hold shares directly as a stockholder of record, you can vote in one of the following four ways:
| (1) | Vote via the Internet before the Meeting Date. Go to www.proxyvote.com to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time on May 15, 2019. Have your Notice of Internet Availability or proxy card in hand when you access the website and then follow the instructions. |
| (2) | Vote by Telephone at 1-800-690-6903 before the Meeting Date. Use a touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time on May 15, 2019. Have your Notice of Internet Availability or proxy card in hand when you call and then follow the instructions. This number is toll free in the United States and Canada. |
| (3) | Vote by Mail before the Meeting Date. Mark, sign, and date your proxy card and return it in the postage-paid envelope we have provided, or return the proxy card to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, New York 11717. |
| (4) | Vote via the Internet during the Annual Meeting. You may attend the Annual Meeting on May 16, 2019 at 9:00 a.m. Pacific Time via the Internet at www.virtualshareholdermeeting.com/SPWR2019 and vote during the Annual Meeting. Have your Notice of Internet Availability or proxy card in hand when you access the website and then follow the instructions. |
If you hold shares beneficially in street name, you may submit your voting instructions in the manner prescribed by your broker, bank, or other nominee by following the instructions provided by your broker, bank, or other nominee, or you may vote your shares during the Annual Meeting.
Even if you plan to attend the Annual Meeting, we recommend that you vote your shares in advance as described in options (1), (2), and (3) above so that your vote will be counted if you later decide not to attend the Annual Meeting.
Quorum. A quorum, which is the holders of at least a majority of shares of our stock issued and outstanding and entitled to vote as of the Record Date, is required to be present in person or by proxy at the Annual Meeting in order to hold the Annual Meeting and to conduct business. Your shares will be counted as being present at the Annual Meeting if you attend the Annual Meeting (and are the stockholder of record for your shares), if you vote your shares by telephone or over the Internet, or if you submit a properly executed proxy card. Abstentions and “broker non-votes” are counted as present and entitled to vote for purposes of determining a quorum. Votes against a particular proposal will also be counted both to determine the presence or absence of a quorum and to determine whether the requisite number of voting shares has been obtained.
Explanation of Broker Non-Votes and Abstentions. A “broker non-vote” occurs when a broker or other nominee holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting power with respect to that item and has not received instructions from the beneficial owner. The rules of The New York Stock Exchange (which in this instance also apply to companies listed on The Nasdaq Global Select Market) prohibit brokers from voting in their discretion on any non-routine proposals without instructions from the beneficial owners. If you do not instruct your broker how to vote on a non-routine proposal, your broker will not vote for you. Abstentions are deemed to be entitled to vote for purposes of determining whether stockholder approval of that matter has been obtained, and they would be included in the tabulation of voting results as votes against the proposal.
Votes Required/Treatment of Broker Non-Votes and Abstentions.
Proposal One−Re-election of Class II Directors. Election of a director requires the affirmative vote of the holders of a plurality of votes represented by the shares in attendance or represented by proxy at the Annual Meeting and entitled to vote on the election of directors. The three persons receiving the greatest number of votes at the Annual Meeting shall be elected as Class II directors. Neither “broker non-votes” nor abstentions will affect the outcome of the voting on Proposal One.
Proposal Two−Advisory Vote on Named Executive Officer Compensation. The non-binding advisory vote on named executive officer compensation requires the affirmative vote of the holders of a majority of our stock having voting power and in attendance or represented by proxy at the Annual Meeting. “Broker non-votes” have no effect and will not be counted towards the vote total for this proposal. Abstentions will have the effect of votes against Proposal Two.
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Proposal Three−Ratification of the Appointment of Independent Registered Public Accounting Firm for Fiscal Year 2019. Ratification of the appointment of our independent registered public accounting firm requires the affirmative vote of the holders of a majority of our stock having voting power and in attendance or represented by proxy at the Annual Meeting. We do not expect “broker non-votes” since this proposal is considered to be a routine proposal and brokers have discretionary authority to vote on this proposal. Abstentions will have the effect of votes against Proposal Three.
If you complete and submit your proxy card or vote via the Internet or by telephone, the shares represented by your proxy will be voted at the Annual Meeting in accordance with your instructions. If you submit your proxy card by mail, but do not fill out the voting instructions on the proxy card, the shares represented by your proxy will be voted in favor of each of the three proposals. In addition, if any other matters properly come before the Annual Meeting, it is the intention of the persons named in the enclosed proxy card to vote the shares they represent as directed by the Board. We have not received notice of any other matters that may properly be presented at the Annual Meeting.
You may revoke your proxy at any time before the Meeting Date by: (1) submitting a later-dated vote by telephone, by mail, or via the Internet before or at the Annual Meeting; or (2) delivering instructions to us at 77 Rio Robles, San Jose, California 95134 to the attention of our Corporate Secretary. Any notice of revocation sent to us must include the stockholder’s name and must be actually received by us before the Annual Meeting to be effective. Your attendance at the Annual Meeting after having executed and delivered a valid proxy card or vote via the Internet or by telephone will not in and of itself constitute a revocation of your proxy. If you are the stockholder of record or if your shares are held in “street name,” you may revoke your proxy by voting electronically at the Annual Meeting.
We will pay for the cost of this proxy solicitation. We may reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in forwarding or furnishing proxy solicitation materials to such beneficial owners. Proxies may also be solicited personally or by telephone, telegram, or facsimile by certain of our directors, officers, and regular employees, without additional compensation.
We will announce preliminary voting results at the Annual Meeting and publish final results on a Current Report on Form 8-K, which we intend to file with the SEC within four business days after the Meeting Date.
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Note Concerning Forward-Looking Statements
Certain of the statements contained in this proxy statement are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that do not represent historical facts and the assumptions underlying such statements. We use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “potential,” “will,” “would,” “should,” and similar expressions to identify forward-looking statements. Forward-looking statements in this proxy statement include, but are not limited to, our plans and expectations regarding future financial results, expected operating results, business strategies, the sufficiency of our cash and our liquidity, projected costs and cost reduction measures, development of new products and improvements to our existing products, the impact of recently adopted accounting pronouncements, our manufacturing capacity and manufacturing costs, the adequacy of our agreements with our suppliers, our ability to monetize our solar projects, legislative actions and regulatory compliance, competitive positions, management’s plans and objectives for future operations, our ability to obtain financing, our ability to comply with debt covenants or cure any defaults, our ability to repay our obligations as they come due, our ability to continue as a going concern, our ability to complete certain strategic transactions, trends in average selling prices, the success of our joint ventures and acquisitions, expected capital expenditures, warranty matters, outcomes of litigation, our exposure to foreign exchange, interest and credit risk, general business and economic conditions in our markets, industry trends, the impact of changes in government incentives, expected restructuring charges, risks related to privacy and data security, and the likelihood of any impairment of project assets, long-lived assets, and investments. These forward-looking statements are based on information available to us as of the date of this proxy statement and our current expectations, forecasts, and assumptions and involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. Such risks and uncertainties include a variety of factors, some of which are beyond our control. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed in Part I, Item 1A, “Risk Factors,” and elsewhere in our 2018 Annual Report, which accompanies this proxy statement. Please see these and our other filings with the Securities and Exchange Commission (“SEC”) for additional information on risks and uncertainties that could cause actual results to differ. These forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we are under no obligation to, and expressly disclaim any responsibility to, update or alter our forward-looking statements, whether as a result of new information, future events or otherwise.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO COMPLETE, DATE, AND SIGN THE PROXY CARD AND RETURN IT PROMPTLY, OR VOTE BY TELEPHONE OR VIA THE INTERNET BY FOLLOWING THE DIRECTIONS ON THE PROXY CARD. STOCKHOLDERS WHO ATTEND THE ANNUAL MEETING MAY REVOKE A PRIOR PROXY VOTE AND VOTE THEIR SHARES AS SET FORTH IN THIS PROXY STATEMENT.
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RE-ELECTION OF CLASS II DIRECTORS
Our Board is currently composed of nine directors and divided into three classes, in accordance with Article IV, Section B of our Certificate of Incorporation. Only the terms of the three directors serving as Class II directors are scheduled to expire in 2019. The terms of other directors expire in subsequent years.
On April 28, 2011, we and Total Solar International SAS, formerly known as Total Energies Nouvelles Activités USA, SAS and as Total Gas & Power USA, SAS (“Total”), a subsidiary of Total S.A. (“Total S.A.”), entered into a Tender Offer Agreement (the “Tender Offer Agreement”). Pursuant to the Tender Offer Agreement, on June 21, 2011, Total purchased in a cash tender offer approximately 60% of our then outstanding shares of common stock (the “Tender Offer”). In connection with the Tender Offer, we and Total entered into an Affiliation Agreement that governs the relationship between Total and us following the close of the Tender Offer (the “Affiliation Agreement”). In accordance with the terms of the Affiliation Agreement, our Board has nine members, composed of our chief executive officer, three non-Total-designated members of the Board, and five directors designated by Total. If the ownership of our voting power by Total, together with the controlled subsidiaries of Total S.A., declines below certain thresholds, the number of members of the Board that Total is entitled to designate will be reduced as set forth in the Affiliation Agreement. See “Certain Relationships and Related Persons Transactions—Agreements with Total Solar International SAS and Total S.A.—Affiliation Agreement.”
The Board has considered and approved the nomination of Catherine Lesjak, Ladislas Paszkiewicz, and Julien Pouget, our current Class II directors, for re-election as directors at the Annual Meeting. Ms. Lesjak is an independent director. Messrs. Paszkiewicz and Pouget are Total-designated directors. Each nominee has consented to being named in this proxy statement and to serve if re-elected. Unless otherwise directed, the proxy holders will vote the proxies received by them for the three nominees named herein. If any nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who is designated by the present Board to fill the vacancy. We do not expect that any nominee will be unable or will decline to serve as a director. The Class II directors elected will hold office until the annual meeting of stockholders in 2022 or until their successors are elected.
The Class I group of directors consists of François Badoual, Antoine Larenaudie, and Patrick Wood III, who will hold office until the annual meeting of stockholders in 2021 or until their successors are elected. Messrs. Badoual and Larenaudie are Total-designated directors. Mr. Wood is an independent director. The Class III group of directors consists of Helle Kristoffersen, Thomas McDaniel, and Thomas Werner, who will hold office until the annual meeting of stockholders in 2020 or until their successors are elected. Ms. Kristoffersen is a Total-designated director. Mr. McDaniel is an independent director. Mr. Werner is our Chief Executive Officer and Chairman of the Board.
Additional information about the Class II director nominees for re-election, and the Class I and Class III directors, is set forth below.
Class II Directors Nominated for Re-Election at the Annual Meeting
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Director
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Catherine Lesjak
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60
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Director
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2013
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Ladislas Paszkiewicz
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56
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Director
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2016
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Julien Pouget
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42
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Director
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2017
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Catherine Lesjak retired from HP Inc. on February 28, 2019 and was the Interim Chief Operating Officer of HP Inc. from July 1, 2018 until January 1, 2019. She served as Executive Vice President and Chief Financial Officer of HP Inc. (formerly Hewlett-Packard Company) (HP) from January 1, 2007 until July 1, 2018. Ms. Lesjak served as interim Chief Executive Officer of HP from August 2010 through October 2010. As a 32-year veteran at HP, Ms. Lesjak held a broad range of financial leadership roles across HP. Before being named as Chief Financial Officer, Ms. Lesjak served as Senior Vice President and Treasurer, responsible for managing HP’s worldwide cash, debt, foreign exchange, capital structure, risk management, and benefits plan administration. Earlier in her career at HP, she managed financial operations for Enterprise Marketing and Solutions and the Software Global Business Unit.
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Before that, she was group controller for HP’s Software Solutions Organization and managed HP’s global channel credit risk as controller and credit manager for the Commercial Customer Organization. Ms. Lesjak has a bachelor’s degree in biology from Stanford University and a master of business degree in finance from the University of California, Berkeley.
Ms. Lesjak’s extensive experience as the chief financial officer of a major corporation, with significant presence in both the business-to-consumer and business-to-business markets, allows her to make significant contributions to our strategic business planning and execution. Her background is also valuable in terms of financial oversight and review of our strategic investments. It is based on the Board’s identification of these qualifications, skills, and experience that the Board has concluded that Ms. Lesjak should serve as a director on our Board.
Ladislas Paszkiewicz has served as Senior Vice President, Strategy and Climate, for Total S.A. since September 2016. He previously served as Senior Vice President of Mergers and Acquisitions for Total S.A. from 2015 to 2016. From 2010 to 2014, he was Senior Vice President, Americas, for the Exploration and Production division of Total S.A. Prior to that, he served as Senior Vice President, Middle East, for the same division from 2007 to 2010. Mr. Paszkiewicz has also served as General Manager of the Total group’s subsidiary in Argentina, as head of the Investor Relations Department of Total S.A., and in various other positions in the Total group, which he joined in 1985. Mr. Paszkiewicz holds a master’s degree in business administration from New York University and a master’s degree in finance from the Insitut d’Etudes Politiques in Paris, France.
Mr. Paszkiewicz brings significant international strategic and business development experience to the Board. His extensive experience in the energy industry gives him a valuable perspective on the development of our strategy going forward. It is based on the Board’s identification of these qualifications, skills, and experience that the Board has concluded that Mr. Paszkiewicz should serve as a director on our Board.
Julien Pouget has served as Senior Vice President of the Renewables division of Total S.A. since January 1, 2017. From 2014 to 2016, he served as a senior advisor to the President of France, initially responsible for industry, then industry and digital, and finally for the economy. His responsibilities during this time included the restructuring of the French nuclear industry. Prior to his service to the president, Mr. Pouget spent six years in various positions at Alstom Power, including as Vice President of the heat exchangers product line for France, Switzerland, and China, as Vice President and General Manager of Asian activities, and as project leader and head of engineering for the heat exchangers on the Flamanville 3 EPR nuclear plant in France. From 2001 to 2008, Mr. Pouget held various positions in the French Ministry of Industry, and at the state shareholding agency at the French Ministry for Finance and Economy. Mr. Pouget is a chief engineer of the prestigious French Corps de Mines and a graduate of the École Polytechnique.
Mr. Pouget brings significant international managerial and operational experience to the Board. His extensive experience in the energy industry and in government gives him a valuable perspective on policy and the global energy marketplace. It is based on the Board’s identification of these qualifications, skills, and experience that the Board has concluded that Mr. Pouget should serve as a director on our Board.
Class I Directors with Terms Expiring in 2021
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Position(s) with
SunPower |
Director
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François Badoual
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54
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Director
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2017
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Antoine Larenaudie
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60
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Director
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2017
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Patrick Wood III
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56
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Director
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2005
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François Badoual has served as President and Chief Executive Officer of Total New Energies Ventures, Inc. since August 2017. From 2012 to 2017, he served as Chief Executive Officer of Total Energy Ventures, the corporate venture capital arm for the Total Group. Mr. Badoual also previously served as General Manager and Country Chairman for Total Exploration and Production − Algeria from 2009 to 2012, and as Deputy General Manager for Total Exploration and Production − Angola from 2006 to 2009. Mr. Badoual has held various other positions in the Total Group since 1990, and he has worked in France, Indonesia, United Arab Emirates, and Venezuela. Mr. Badoual holds a degree in civil engineering from École Nationale des Travaux Publics de l’État and an Advanced Master in Regional and Urban Planning from École Nationale des Ponts et Chaussées.
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Mr. Badoual brings significant international managerial and operational experience to the Board. His extensive experience in the energy industry gives him a valuable perspective on our efforts to manage our business and project development activities. It is based on the Board’s identification of these qualifications, skills, and experience that the Board has concluded that Mr. Badoual should serve as a director on our Board.
Antoine Larenaudie has served as Treasurer of the Total Group since September 2017. Before that, he served as Chief Financial Officer of Total’s Gas, Renewables, and Power division and Trading and Shipping division from 2002 to 2017. Mr. Larenaudie has held various other positions in the Total Group since 1990, and he has also worked for Credit Lyonnais Bank in France and London in various positions dealing with international corporations and commodities trading firms. He is a graduate of the École Supérieure de Commerce de Toulouse.
Mr. Larenaudie brings significant international financial management experience to the Board. His extensive experience in the energy industry gives him a valuable perspective on our financial strategy going forward. It is based on the Board’s identification of these qualifications, skills, and experience that the Board has concluded that Mr. Larenaudie should serve as a director on our Board.
Pat Wood III has served as President of Hunt Energy Enterprises BEE Network, an energy storage development company, since February 2019, and as a Principal of Wood3 Resources, an energy infrastructure developer, since July 2005. He is active in the development of electric power and natural gas infrastructure assets in North America. From 2001 to 2005, Mr. Wood served as the Chairman of the Federal Energy Regulatory Commission. From 1995 to 2001, he chaired the Public Utility Commission of Texas. Mr. Wood has also been an attorney with Baker & Botts, a global law firm, and an associate project engineer with Arco Indonesia, an oil and gas company, in Jakarta. He currently serves as a director of Quanta Services, Inc. Mr. Wood is a past Board Chairman of Dynegy, a past director of Memorial Resource Development, Inc. and TPI Composites, a former director of the American Council on Renewable Energy, and a member of the National Petroleum Council.
Mr. Wood brings significant strategic and operational management experience to the Board. Mr. Wood has demonstrated strong leadership skills through a decade of regulatory leadership in the energy sector. Mr. Wood brings a unique perspective and extensive knowledge of energy project development, public policy development, governance, and the regulatory process. His legal background also provides the Board with a perspective on the legal implications of matters affecting our business. It is based on the Board’s identification of these qualifications, skills, and experience that the Board has concluded that Mr. Wood should serve as a director on our Board, Chairman of the Nominating and Corporate Governance Committee, and Chairman of the Compensation Committee.
Class III Directors with Terms Expiring in 2020
|
Name
|
Age
|
Position(s) with
SunPower |
Director
Since |
|
Helle Kristoffersen
|
54
|
Director
|
2016
|
|
Thomas McDaniel
|
69
|
Director
|
2009
|
|
Thomas Werner
|
59
|
Chief Executive
Officer, Director, and Chairman of the Board |
2003
|
Helle Kristoffersen has served as Senior Vice President, Strategy and Corporate Affairs, of the Gas, Renewables, and Power segment for Total S.A. since September 2016. From January 2012 to August 2016, she was Senior Vice President, Strategy and Business Intelligence, at the group level of Total S.A. Prior to that, she served as Deputy Vice President of the same department since January 2011. In 1994, she joined Alcatel, where she spent 16 years and served in particular as Vice President, Corporate Strategy, of Alcatel and subsequently Alcatel-Lucent. She currently serves as a director of Orange, PSA Group (Peugeot), and Direct Energie. Ms. Kristoffersen served as a director of Valeo from 2007 to 2013. Ms. Kristoffersen is a graduate of the École Normale Supérieure and the Paris Graduate School of Economics, Statistics, and Finance (ENSAE). Ms. Kristoffersen also holds a master’s degree in econometrics from Université Paris 1.
Ms. Kristoffersen brings significant international strategic and business development experience to the Board. Her extensive experience in the energy and technology industries, including her service on the boards of directors of
8
several international, publicly listed companies, gives her a valuable perspective on our role in the global marketplace. It is based on the Board’s identification of these qualifications, skills, and experience that the Board has concluded that Ms. Kristoffersen should serve as a director on our Board.
Thomas McDaniel was Executive Vice President, Chief Financial Officer, and Treasurer of Edison International, a generator and distributor of electric power and investor in infrastructure and energy assets, before retiring in July 2008 after 37 years of service. Before January 2005, Mr. McDaniel was Chairman, Chief Executive Officer, and President of Edison Mission Energy, a power generation business specializing in the development, acquisition, construction, management, and operation of power production facilities. Mr. McDaniel was also Chief Executive Officer and a director of Edison Capital, a provider of capital and financial services supporting the growth of energy and infrastructure projects, products, and services, both domestically and internationally. Mr. McDaniel has served on our Board since February 2009. He is Chairman of the board of directors of SemGroup, L.P., a midstream energy services company. Mr. McDaniel also served on the advisory board of Cypress Envirosystems, which develops and markets energy efficiency products, and On Ramp Wireless, a communications company serving electrical, gas, and water utilities. Mr. McDaniel formerly served on the board of directors of the Senior Care Action Network (SCAN) from 2000 to 2013 and Aquion Energy, a manufacturer of energy storage systems. Through the McDaniel Family Foundation, he is also actively involved in a variety of charitable activities, such as the Boys and Girls Club of Huntington Beach, Heifer International, and the Free Wheelchair Mission.
Mr. McDaniel brings significant operational and development experience, including extensive experience growing and operating global electric power businesses, to the Board. In addition, Mr. McDaniel’s prior experience as a chief financial officer qualifies him as a financial expert, which is relevant to his duties as an Audit Committee member. It is based on the Board’s identification of these qualifications, skills, and experience that the Board has concluded that Mr. McDaniel should serve as a director on our Board, Chairman of the Audit Committee, and Chairman of the Finance Committee.
Thomas Werner has served as our Chief Executive Officer, and as a member of our Board, since June 2003, and Chairman of the Board since May 2011. Before joining SunPower, he held the position of Chief Executive Officer of Silicon Light Machines, Inc., an optical solutions subsidiary of Cypress Semiconductor Corporation, from 2001 to 2003. From 1998 to 2001, Mr. Werner served as Vice President and General Manager of the Business Connectivity Group of 3Com Corp., a network solutions company. He has also held a number of executive management positions at Oak Industries, Inc. and General Electric Co. Mr. Werner currently serves as a board member of Cree, Inc., a LED manufacturer, and the Silicon Valley Leadership Group. He served as a member of the board of directors of Silver Spring Networks, a provider of smart grid applications, from March 2009 to January 2018. He is also on the board of trustees of Marquette University. Mr. Werner holds a bachelor’s degree in industrial engineering from the University of Wisconsin–Madison, a bachelor’s degree in electrical engineering from Marquette University, and a master’s degree in business administration from George Washington University.
Mr. Werner brings significant leadership, technical, operational, and financial management experience to the Board. Mr. Werner provides the Board with valuable insight into management’s perspective with respect to our operations. Mr. Werner has demonstrated strong executive leadership skills through nearly 20 years of executive officer service with various companies and brings the most comprehensive view of our operational history over the past several years. Mr. Werner also brings to the Board leadership experience through his service on the board of directors for two other organizations, which gives him the ability to compare the way in which management and the boards operate within the companies he serves. It is based on the Board’s identification of these qualifications, skills, and experience that the Board has concluded that Mr. Werner should serve as a director on our Board and Chairman of the Board.
Vote Required
Election of a director requires the affirmative vote of the holders of a plurality of votes represented by the shares in attendance or represented by proxy at the Annual Meeting and entitled to vote on the election of directors. The three persons receiving the greatest number of votes at the Annual Meeting shall be elected as Class II directors. Neither “broker non-votes” nor abstentions will affect the outcome of the voting on this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION TO THE BOARD OF EACH OF THE CLASS II DIRECTOR NOMINEES.
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Our Board has determined that three of our nine directors, namely Ms. Lesjak and Messrs. McDaniel and Wood, each meet the standards for independence as defined by applicable listing standards of The Nasdaq Stock Market and rules and regulations of the SEC. Our Board has also determined that Mr. Werner, our Chief Executive Officer and Chairman of the Board, and Ms. Kristoffersen and Messrs. Badoual, Larenaudie, Paszkiewicz, and Pouget, as directors designated by our controlling stockholder, Total, pursuant to our Affiliation Agreement with Total, are not “independent” as defined by applicable listing standards of The Nasdaq Stock Market. There are no family relationships among any of our directors or executive officers.
Leadership Structure and Risk Oversight
The Board has determined that having a lead independent director assist Mr. Werner, the Chief Executive Officer and Chairman of the Board, is in the best interest of our stockholders. Mr. Wood has served as the lead independent director of the Board since June 2012. The Board believes this structure ensures a greater role for the independent directors in the oversight of our company and encourages active participation of the independent directors in setting agendas and establishing priorities and procedures for the work of the Board. We believe that this leadership structure also is preferred by a significant number of our stockholders.
The Board is actively involved in oversight of risks that could affect our company. This oversight is conducted primarily through committees of the Board, in particular our Audit Committee, as disclosed in the descriptions of each of the committees below and in the respective charters of each committee. The full Board, however, has retained responsibility for general oversight of risks. The Board satisfies this responsibility through full reports by each committee chair regarding the committee’s considerations and actions, as well as through regular reports directly from our officers responsible for oversight of particular risks within our company.
Our Board held four regular, quarterly meetings, one annual meeting, and 10 special meetings during fiscal 2018. During fiscal 2018, each director attended at least 75% of the aggregate number of meetings of the Board and its committees on which such director served during his or her term, with the exception of Ladislas Paszkiewicz. The average attendance rate at Board meetings held during fiscal 2018 was 86%. The average attendance rate at Board committee meetings held during fiscal 2018 was 96%. Our independent directors held four meetings with management present, as well as four executive sessions during regular, quarterly meetings and two executive sessions during special meetings without management present, during fiscal 2018.
Controlled Company, Nasdaq Listing Standards
Since the Tender Offer in June 2011 (including as of April 5, 2019), Total has owned greater than 50% of our outstanding voting securities and we are therefore considered a “controlled company” within the meaning of The Nasdaq Stock Market rules. As long as we remain a “controlled company,” we are exempt from the rules that would otherwise require that our Board be composed of a majority of independent directors and that our Compensation Committee and Nominating and Corporate Governance Committee be composed entirely of independent directors. This “controlled company” exception does not modify the independence requirements for the Audit Committee, and we comply with the requirements of the Sarbanes-Oxley Act and The Nasdaq Stock Market rules that require that our Audit Committee be composed exclusively of independent directors.
We believe that good corporate governance is important to ensure that we are managed for the long-term benefit of our stockholders. Our Board has established committees to ensure that we maintain strong corporate governance standards. Our Board has standing Audit, Compensation, and Nominating and Corporate Governance Committees. Prior to and during fiscal year 2018, our Board also had a Finance Committee, which was dissolved by the Board on February 7, 2019. Additionally, the Board has in the past established, and may in the future establish, ad hoc committees to assist the Board in fulfilling its oversight responsibilities. The charters of our Audit, Compensation, and Nominating and Corporate
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Governance Committees are available on our website at http://investors.sunpower.com. You may also request copies of our committee charters free of charge by writing to SunPower Corporation, 77 Rio Robles, San Jose, California 95134, Attention: Corporate Secretary. Below is a summary of our committee structure and membership information.
|
Director
|
Audit
Committee |
Compensation
Committee |
Finance
Committee |
Nominating and
Corporate Governance Committee |
|
François Badoual
|
—
|
—
|
—
|
Member
|
|
Helle Kristoffersen
|
—
|
Member
|
Member
|
—
|
|
Antoine Larenaudie
|
—
|
—
|
Member
|
—
|
|
Catherine Lesjak(I)
|
Member
|
—
|
Member
|
—
|
|
Thomas McDaniel(I)
|
Chair
|
Member
|
Chair
|
Member
|
|
Ladislas Paszkiewicz
|
—
|
—
|
—
|
Member
|
|
Julien Pouget
|
—
|
Member
|
—
|
—
|
|
Pat Wood III(I)(*)
|
Member
|
Chair
|
—
|
Chair
|
| (I) | Indicates an independent director. |
| (*) | Indicates the lead independent director. |
Mr. McDaniel is the Chairman of the Audit Committee, appointed in June 2012. Our Audit Committee is a separately-designated standing committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Board has determined that each member of our Audit Committee is “independent” as that term is defined in Section 10A of the Exchange Act and as defined by applicable listing standards of The Nasdaq Stock Market. Each member of the Audit Committee is financially literate and has the financial sophistication required by the applicable listing standards of The Nasdaq Stock Market. The Board has determined that each of Ms. Lesjak and Mr. McDaniel meet the criteria of an “audit committee financial expert” within the meaning of applicable SEC regulations due to their professional experience. Mr. McDaniel’s and Ms. Lesjak’s relevant professional experience is described above under “Proposal One—Re-Election of Class II Directors.” The Audit Committee held nine meetings during fiscal 2018.
The purpose of the Audit Committee, pursuant to its charter, is, among other things, to:
| • | provide oversight of our accounting and financial reporting processes and the audit of our financial statements and internal controls by our independent registered public accounting firm; |
| • | assist the Board in the oversight of: (1) the integrity of our financial statements; (2) our compliance with legal and regulatory requirements; (3) the independent registered public accounting firm’s performance, qualifications, and independence; and (4) the performance of our internal audit function; |
| • | oversee management’s identification, evaluation, and mitigation of major risks to our company; |
| • | prepare an audit committee report as required by the SEC to be included in our annual proxy statement; |
| • | provide to the Board such information and materials as it may deem necessary to make the Board aware of financial matters requiring the attention of the Board; |
| • | consider questions of actual and potential conflicts of interest (including corporate opportunities) of Board members and corporate officers and review and approve proposed related party transactions that would be required to be disclosed under Item 404 of Regulation S-K, provided that any approval of related party transactions may be made only by the disinterested members of the Audit Committee; and |
| • | oversee any waiver of the Code of Business Conduct and Ethics for directors and executive officers. |
The Audit Committee also serves as the representative of the Board with respect to its oversight of the matters described below in the “Audit Committee Report.” The Audit Committee has established procedures for (1) the
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receipt, retention, and treatment of complaints received by us regarding accounting, internal accounting controls, or auditing matters, and (2) the confidential, anonymous submission by our employees of concerns regarding accounting or auditing matters. The Audit Committee promptly reviews such complaints and concerns.1
Mr. Wood is the Chairman of the Compensation Committee, appointed in November 2012. Two of the four members of the Compensation Committee, Messrs. McDaniel and Wood, are “independent” as defined by applicable listing standards of The Nasdaq Stock Market. Ms. Kristoffersen and Mr. Pouget were designated by Total to be on the Compensation Committee pursuant to our Affiliation Agreement with Total and are not “independent” as defined by applicable listing standards of The Nasdaq Stock Market. The Compensation Committee held seven meetings during fiscal 2018.
The Compensation Committee, pursuant to its charter, assists the Board in discharging its duties with respect to:
| • | the formulation, implementation, review, and modification of the compensation of our directors and executive officers; |
| • | the review and preparation of an annual report of the Compensation Committee for inclusion in our annual proxy statement or Annual Report on Form 10-K, in accordance with applicable rules of the SEC and applicable listing standards of The Nasdaq Stock Market; |
| • | the review and discussion with management of the Compensation Discussion and Analysis section of our annual proxy statement or Annual Report on Form 10-K; |
| • | oversight of our company compensation philosophy, which may be performance-based, to reward and retain employees based on achievement of goals; and |
| • | the administration of our equity incentive plans, including the SunPower Corporation 2015 Omnibus Incentive Plan. |
We also have a Section 16 Subcommittee of the Compensation Committee consisting solely of independent directors available to approve certain compensation matters in accordance with Rule 16b-3 of the Exchange Act, as recommended by the Compensation Committee. This subcommittee historically also reviewed and approved certain compensation matters in accordance with Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).
In certain instances, the Compensation Committee has delegated limited authority to Mr. Werner, in his capacity as a Board member, with respect to compensation and equity awards for employees other than our executive officers. For more information on our processes and procedures for the consideration and determination of executive compensation, see “Compensation Discussion and Analysis” below.
Compensation Committee Interlocks and Insider Participation
No member of our Compensation Committee was at any time during fiscal 2018 one of our officers or employees, or is one of our former officers or employees. No member of our Compensation Committee had any relationship requiring disclosure under Item 404 and Item 407(e)(4) of Regulation S-K. Additionally, during fiscal 2018, none of our executive officers or directors was a member of the board of directors, or any committee of the board of directors, or of any other entity such that the relationship would be construed to constitute a compensation committee interlock within the meaning of the rules and regulations of the SEC.
Nominating and Corporate Governance Committee
Mr. Wood is the Chairman of our Nominating and Corporate Governance Committee. Two of the four members of the Nominating and Corporate Governance Committee, Messrs. McDaniel and Wood, are “independent” as defined by applicable listing standards of The Nasdaq Stock Market. Messrs. Badoual and Paszkiewicz were designated by Total to be on the Nominating and Corporate Governance Committee pursuant to our Affiliation Agreement with Total and are not “independent” as defined by applicable listing standards of The Nasdaq Stock Market. The Nominating and Corporate Governance Committee held four meetings during fiscal 2018.
| 1 | Upon the dissolution of the Finance Committee on February 7, 2019, a portion of the Finance Committee’s oversight responsibilities (including oversight responsibility for certain treasury, financial risk review, insurance review, and other matters) was allocated to the Audit Committee. |
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The Nominating and Corporate Governance Committee, pursuant to its charter, assists the Board in discharging its responsibilities with respect to:
| • | the identification of individuals qualified to become directors and the selection or recommendation of candidates for all directorships to be filled by the Board or by the stockholders; |
| • | the evaluation of whether an incumbent director should be nominated for re-election to the Board upon expiration of such director’s term, based upon factors established for new director candidates as well as the incumbent director’s qualifications, performance as a Board member, and such other factors as the Nominating and Corporate Governance Committee deems appropriate; and |
| • | the development, maintenance, and recommendation of a set of corporate governance principles applicable to us, and periodically reviewing such principles. |
The Nominating and Corporate Governance Committee also considers diversity in identifying nominees for directors. In particular, the Nominating and Corporate Governance Committee believes that the members of the Board should reflect a diverse range of talent, skill, and expertise sufficient to provide sound and prudent guidance with respect to our operations and interests. In addition, the Nominating and Corporate Governance Committee has determined that the Board as a whole must have the right diversity, mix of characteristics, and skills for the optimal functioning of the Board in its oversight role.
The Nominating and Corporate Governance Committee believes the Board should be composed of persons with skills in areas such as:
| • | relevant industries, especially solar products and services; |
| • | technology manufacturing; |
| • | sales and marketing; |
| • | leadership of large, complex organizations; |
| • | finance and accounting; |
| • | corporate governance and compliance; |
| • | strategic planning; |
| • | international business activities; and |
| • | human capital and compensation. |
Under our Corporate Governance Principles, during the director nominee evaluation process, the Nominating and Corporate Governance Committee and the Board take the following into account:
| • | A significant number of directors on the Board should be independent directors, unless otherwise required by applicable law or The Nasdaq Stock Market rules; |
| • | Candidates should be capable of working in a collegial manner with persons of different educational, business, and cultural backgrounds and should possess skills and expertise that complement the attributes of the existing directors; |
| • | Candidates should represent a diversity of viewpoints, backgrounds, experiences, and other demographics; |
| • | Candidates should demonstrate notable or significant achievement and possess senior-level business, management, or regulatory experience that would inure to our benefit; |
| • | Candidates shall be individuals of the highest character and integrity; |
| • | Candidates shall be free from any conflict of interest that would interfere with their ability to properly discharge their duties as a director or would violate any applicable law or regulation; |
| • | Candidates for the Audit Committee and Compensation Committee should have the enhanced independence and financial literacy and expertise that may be required under law or The Nasdaq Stock Market rules; |
| • | Candidates shall be capable of devoting the necessary time to discharge their duties, taking into account memberships on other boards and other responsibilities; and |
| • | Candidates shall have the desire to represent the interests of all stockholders. |
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Mr. McDaniel was the Chairman of the Finance Committee. Two of the four former members of the Finance Committee, Ms. Lesjak and Mr. McDaniel, are “independent” as defined by applicable listing standards of The Nasdaq Stock Market. Ms. Kristoffersen and Mr. Larenaudie were designated by Total to be on the Finance Committee pursuant to our Affiliation Agreement with Total and are not “independent” as defined by applicable listing standards of The Nasdaq Stock Market. The Finance Committee held four meetings during fiscal 2018. Pursuant to approval of the Board, the Finance Committee was dissolved on February 7, 2019. A portion of the Finance Committee’s oversight responsibilities were allocated to the Audit Committee, and the remainder to the Board.
Prior to its dissolution, the Finance Committee assisted the Board in discharging its duties with respect to:
| • | The review, evaluation, and approval of financing transactions, including credit facilities, structured finance, issuance of debt and equity securities in private and public transactions, sales of project assets or ownership therein to publicly traded entities in which we have an equity interest greater than 10% or their subsidiaries, and the repurchase of debt and equity securities (other than financing activity exceeding $50 million, which requires the review and approval of the Board); |
| • | The review of our annual operating plan for recommendation to the Board, and the monitoring of capital spend as compared with the annual operating plan; |
| • | The review and recommendation to the Board of investments, acquisitions, divestitures, and other corporate transactions; and |
| • | General oversight of our treasury activities, and the review, at least annually, of our counterparty credit risk and insurance programs. |
14
Stockholder Communications with Board
We provide a process by which stockholders may send communications to our Board, any committee of the Board, our non-management directors, or any particular director. Stockholders can contact our non-management directors by sending such communications to the Chairman of the Nominating and Corporate Governance Committee, c/o Corporate Secretary, SunPower Corporation, 77 Rio Robles, San Jose, California 95134. Stockholders wishing to communicate with a particular Board member, a particular Board committee, or the Board as a whole may send a written communication to our Corporate Secretary, SunPower Corporation, 77 Rio Robles, San Jose, California 95134. The Corporate Secretary will forward such communication to the full Board, to the appropriate committee, or to any individual director or directors to whom the communication is addressed, unless the communication is unduly hostile, threatening, illegal, or harassing, in which case the Corporate Secretary has the authority to discard the communication or take appropriate legal action regarding the communication.
Directors’ Attendance at Our Annual Meetings
Although we do not have a formal policy that mandates the attendance of our directors at our annual stockholder meetings, our directors are encouraged to attend. All of our directors are expected to attend the 2019 Annual Meeting, and five of our directors attended our annual meeting of stockholders held on May 17, 2018 (the “2018 Annual Meeting”).
Submission of Stockholder Proposals for the 2020 Annual Meeting
As a SunPower stockholder, you may submit a proposal, including director nominations, for consideration at future annual meetings of stockholders.
Stockholder Proposals. Only stockholders meeting certain criteria outlined in our Amended and Restated By-Laws (the “By-Laws”) are eligible to submit nominations for election to the Board or to propose other proper business for consideration by stockholders at an annual meeting. Under the By-Laws, stockholders who wish to nominate persons for election to the Board or propose other proper business for consideration by stockholders at an annual meeting must give proper written notice to us not earlier than 120 days and not later than 90 days before the first anniversary of the preceding year’s annual meeting, provided that in the event that an annual meeting is called for a date that is not within 25 days before or after such anniversary date, notice by the stockholder in order to be timely must be received not later than the close of business on the tenth day following the day on which we mail or publicly announce our notice of the date of the annual meeting, whichever occurs first. Therefore, notices regarding nominations of persons for election to the Board and proposals of other proper business for consideration at the 2020 annual meeting of stockholders must be submitted to us no earlier than January 17, 2020 and no later than February 16, 2020. If the date of the 2020 annual meeting is moved more than 25 days before or after the anniversary date of the 2019 Annual Meeting, the deadline will instead be the close of business on the tenth day following notice of the date of the 2020 annual meeting of stockholders or public disclosure of such date, whichever occurs first. We have discretionary power, but are not obligated, to consider stockholder proposals submitted after February 16, 2020 for the 2020 annual meeting.
Stockholder proposals will also need to comply with SEC regulations, such as Rule 14a-8 of the Exchange Act regarding the inclusion of stockholder proposals in any Company-sponsored proxy material. In order to be included in our proxy materials for the 2020 annual meeting of stockholders, pursuant to Rule 14a-8 of the Exchange Act the submission deadline for stockholder proposals is December 7, 2019. All written proposals must be received by our Corporate Secretary, at our corporate offices at 77 Rio Robles, San Jose, California 95134 by the close of business on the required deadline in order to be considered for inclusion in our proxy materials for the 2020 annual meeting of stockholders.
15
Nomination of Director Candidates. Our Nominating and Corporate Governance Committee will consider director candidates recommended by our stockholders. Such nominations should be directed to the Nominating and Corporate Governance Committee, c/o Corporate Secretary, SunPower Corporation, 77 Rio Robles, San Jose, California 95134. In addition, the stockholder must give notice of a nomination to our Corporate Secretary, and such notice must be received within the time period described above under “Stockholder Proposals.” Any such proposal must include the following:
| • | the name, age, business address, residential address, and record address of such nominee; |
| • | the principal occupation or employment of such nominee; |
| • | the class or series and number of shares of our stock owned beneficially or of record by such nominee; |
| • | any information relating to the nominee that would be required to be disclosed in our proxy statement; |
| • | the nominee holder for, and number of, shares owned beneficially but not of record by such person; |
| • | whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement, or understanding (including any derivative or short positions, profit interests, options, or borrowed or loaned shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, such person with respect to any share of our stock; |
| • | to the extent known by the stockholder giving the notice, the name and address of any other stockholder supporting the nominee for election or re-election as a director on the date of such stockholder’s notice; |
| • | a description of all arrangements or understandings between or among such persons pursuant to which the nomination(s) are to be made by the stockholder and any relationship between or among the stockholder giving notice and any person acting in concert, directly or indirectly, with such stockholder and any person controlling, controlled by, or under common control with such stockholder, on the one hand, and each proposed nominee, on the other hand; and |
| • | a representation that the stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice. |
If a director nomination is made pursuant to the process set forth above, the Nominating and Corporate Governance Committee will apply the same criteria in evaluating the nominee as it would any other board nominee candidate, and will recommend to the Board whether or not the stockholder nominee should be included as a candidate for election in our proxy statement. The nominee and nominating stockholder should be willing to provide any information reasonably requested by the Nominating and Corporate Governance Committee in connection with its evaluation. The Board will make the final determination whether or not a nominee will be included in the proxy statement and on the proxy card for election.
Once either a search firm selected by the Nominating and Corporate Governance Committee or a stockholder has provided our Nominating and Corporate Governance Committee with the identity of a prospective candidate, the Nominating and Corporate Governance Committee communicates the identity and known background and experience of the candidate to the Board. If warranted by a polling of the Board, members of our Nominating and Corporate Governance Committee and/or other members of our senior management may interview the candidate. If the Nominating and Corporate Governance Committee reacts favorably to a candidate, the candidate is next invited to interview with the members of the Board who are not on the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee then makes a final determination whether to recommend the candidate to the Board for directorship. The Nominating and Corporate Governance Committee currently has not set specific minimum qualifications or criteria for nominees that it proposes for Board membership, but evaluates the entirety of each candidate’s credentials. The Nominating and Corporate Governance Committee believes, however, that we will be best served if our directors bring to the Board a variety of diverse experience and backgrounds and, among other things, demonstrated integrity, executive leadership, and financial, marketing, or business knowledge and experience. See “Board Structure—Nominating and Corporate Governance Committee” for factors considered by the Nominating and Corporate Governance Committee and the Board in considering director nominees.
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Corporate Governance Principles
We believe that strong corporate governance practices are the foundation of a successful, well-run company. The Board has adopted Corporate Governance Principles that set forth our core corporate governance principles, including:
| • | oversight responsibilities of the Board; |
| • | election and responsibilities of the lead independent director; |
| • | role of Board committees and assignment and rotation of members; |
| • | review of the Code of Business Conduct and Ethics and consideration of related party transactions; |
| • | independent director meetings without management and with outside auditors; |
| • | Board’s access to employees; |
| • | annual review of director compensation; |
| • | membership criteria and selection of the Board; |
| • | annual review of Board performance; |
| • | director orientation and continuing education; |
| • | stock ownership guidelines for certain of our executive officers and directors; |
| • | annual review of performance and compensation of executive officers; and |
| • | succession planning for key executive officers. |
Our Corporate Governance Principles are available on our website at http://investors.sunpower.com.
Code of Business Conduct and Ethics; Related Persons Transactions Policy and Procedures
It is our general policy to conduct our business activities and transactions with the highest level of integrity and ethical standards and in accordance with all applicable laws. In addition, it is our policy to avoid situations that create an actual or potential conflict between our interests and the personal interests of our officers and directors. Such principles are described in our Code of Business Conduct and Ethics, which was revised on December 19, 2018. Our Code of Business Conduct and Ethics is applicable to our directors, officers, and employees (including our principal executive officer, principal financial officer, and principal accounting officer) and is designed to promote compliance with the laws applicable to our business, accounting standards, and proper and ethical business methods and practices. Our Code of Business Conduct and Ethics is available on our website at http://investors.sunpower.com/corporate-governance.cfm under the link for “Code of Conduct.” You may also request a copy by writing to us at SunPower Corporation, 77 Rio Robles, San Jose, California 95134, Attention: Corporate Secretary. If we amend our Code of Business Conduct and Ethics or grant a waiver applicable to our principal executive officer, principal financial officer, or principal accounting officer, we will post a copy of such amendment or waiver on our website. Under our Corporate Governance Principles, the Audit Committee is responsible for reviewing and recommending changes to our Code of Business Conduct and Ethics.
Pursuant to our Corporate Governance Principles and the charter of our Audit Committee, our Audit Committee will consider questions of actual and potential conflicts of interest (including corporate opportunities) of directors and officers and approve or prohibit such transactions. The Audit Committee will review and approve in advance all proposed related party transactions that would be required to be disclosed under Item 404 of Regulation S-K, in compliance with the applicable Nasdaq Stock Market rules. A related party transaction will only be approved if the Audit Committee determines that it is in our best interests. If a director is involved in the transaction, he or she will be recused from all voting and approval processes in connection with the transaction.
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Certain Relationships and Related Persons Transactions
Other than the compensation agreements and other arrangements described herein, and the transactions described below, since the start of our last fiscal year on January 1, 2018, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we have been or will be a party:
| • | in which the amount involved exceeded or will exceed $120,000; and |
| • | in which any director, director nominee, executive officer, beneficial owner of more than 5% of any class of our common stock, or any immediate family member of such persons had or will have a direct or indirect material interest. |
Agreements with Total and Total S.A.
Amended and Restated Credit Support Agreement
We and Total S.A. entered into an Amended and Restated Credit Support Agreement (the “Credit Support Agreement”) on June 29, 2016, which amended and restated the Credit Support Agreement dated April 28, 2011, by and between Total S.A. and us, as amended, which was entered into in connection with the Tender Offer.
Under the Credit Support Agreement, Total S.A. has agreed to enter into one or more guarantee agreements (each a “Guaranty”) with banks providing letter of credit facilities to us in support of certain of our businesses and for other permitted purposes. Total S.A. will guarantee the payment to the applicable issuing bank of our obligation to reimburse a draw on a letter of credit and pay interest thereon in accordance with the letter of credit facility between such bank and us. At any time until December 31, 2018, we may request that Total S.A. provide a Guaranty in support of our payment obligations with respect to a letter of credit facility. Such letters of credit must be issued no later than December 31, 2018 and expire no later than March 31, 2020. Total S.A. is required to issue and enter into the Guaranty requested by us, subject to certain terms and conditions. In addition, Total S.A. will not be required to enter into the Guaranty if, after giving effect to our request for a Guaranty, the sum of (a) the aggregate amount available to be drawn under all guaranteed letter of credit facilities, (b) the amount of letters of credit available to be issued under any guaranteed facility, and (c) the aggregate amount of draws (including accrued but unpaid interest) on any letters of credit issued under any guaranteed facility that have not yet been reimbursed by us, would exceed $500 million in the aggregate. Such maximum amounts of credit support available to us can be reduced upon the occurrence of specified events.
In consideration for the commitments of Total S.A. pursuant to the Credit Support Agreement, we are required to pay Total S.A. a guaranty fee for each letter of credit that is the subject of a Guaranty under the Credit Support Agreement and was outstanding for all or part of the preceding calendar quarter, which fee (applied on a tiered basis) will be equal to: (x) the average daily amount of the undrawn amount outstanding on each guaranteed letter of credit plus any drawn amounts that have not been reimbursed by us or Total S.A., (y) multiplied by (1) 2.35% for letters of credit issued or extended if our leverage ratio (subject to reduction or increase consistent with the minimum leverage covenant set forth in the Revolving Credit Agreement among us, Crédit Agricole Corporate and Investment Bank (“Crédit Agricole”), as agent, and the lenders party thereto, as amended from time to time) (the “Leverage Ratio”) is less than or equal to 4.5 to 1.0; or (2) if the Leverage Ratio is greater than 4.5 to 1.0, 2.35% for letters of credit issued or extended for amounts less than $200 million; 4.50% for amounts greater than or equal to $200 million and less than $300 million; 6.50% for amounts greater than or equal to $300 million and less than $400 million; and 8.00% for amounts greater than or equal to $400 million and less than or equal to $500 million (z) multiplied by the number of days during such calendar quarter that such letter of credit was outstanding, divided by 365. As an example, if at the end of a fiscal quarter our leverage ratio is greater than 4.5 to 1.0 and we had $250 million in letters of credit outstanding during 50 days of the preceding calendar quarter, the guarantee fee would be equal to $0.95 million (($200 million * 2.35% + $50 million * 4.5%) * 50/365). In addition, we are required to pay Total S.A. a commitment fee equal to 0.50% times the average daily available facility amount for the preceding calendar quarter. We are also required to reimburse Total S.A. for payments made under any Guaranty and certain expenses of Total S.A., plus interest on both. In fiscal 2018, we incurred guaranty fees of approximately $5.3 million to Total S.A. under the Credit Support Agreement.
We have agreed to undertake certain actions, including, but not limited to, ensuring that our payment obligations to Total S.A. rank at least equal in right of payment with all of our other present and future indebtedness, other than certain permitted secured indebtedness. We have also agreed to refrain from taking certain actions, including
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refraining from making any dividend distributions so long as we have any outstanding repayment obligation to Total S.A. resulting from a draw on a guaranteed letter of credit.
The Credit Support Agreement will terminate following December 31, 2018, after the later of the satisfaction of all obligations thereunder and the termination or expiration of each Guaranty provided thereunder.
The Credit Support Agreement may not be assigned by us without the prior written consent of Total S.A. Total S.A., as the initial guarantor (but not any assignee of Total S.A.), may assign its rights and obligations under the Credit Support Agreement without our consent to an entity that is a Total S.A. subsidiary and which satisfies certain credit requirements. In connection with an assignment to an assignee that is rated lower than A/A2, Total S.A. would be required to either (a) pay to us an assignment fee equal to $10 million as of June 29, 2016 and reduced by $1 million at the beginning of each calendar quarter thereafter until reduced to zero or (b) agree to pay us a make-whole amount based on a calculation of the amount actually paid by us to banks that are party to letter of credit facilities (both guaranteed and non-guaranteed) and to lenders in revolving credit facilities permitted under the Credit Support Agreement in increased costs as a result of Total S.A.’s assignment of its rights and obligations under the Credit Support Agreement. Such make-whole amount would be payable on a quarterly basis from the assignment date through the termination date of the Credit Support Agreement.
Under the Credit Support Agreement, we have agreed to undertake certain actions, including, but not limited to, ensuring that our payment obligations to Total S.A. rank at least equal in right of payment with all of our other present and future indebtedness, other than certain permitted secured indebtedness. We also agreed to refrain from taking certain actions as detailed in the Credit Support Agreement, including (1) amending any agreements related to any guaranteed letter of credit facility, (2) granting any lien to secure indebtedness unless (a) an identical lien was granted to Total S.A. and (b) such other lien was at all times equal or subordinate to the priority of the lien granted to Total S.A. under (a), and (3) making any equity distributions.
Under the Credit Support Agreement, following a Trigger Event (as defined in the agreement and described below), and during its continuation, Total S.A. could elect not to enter into any additional Guarantees; declare all or any portion of the outstanding amounts owed by us to Total S.A. to be due and payable; direct banks that had provided guaranteed letter of credit facilities to stop all issuances of any additional letters of credit under such facilities; access and inspect our relevant financial records and other documents upon reasonable notice to us; and exercise all other rights it may have had under applicable law, provided that at its discretion, Total S.A. could also rescind such actions.
Each of the following events constitute a “Trigger Event”:
| • | we default with respect to our reimbursement obligations to Total S.A. described above or any other payment obligation under the Credit Support Agreement that is 30 days overdue for which Total S.A. demands payment in writing; |
| • | any representation or warranty made by us in the Credit Support Agreement was false, incorrect, incomplete, or misleading in any material respect when made and is not cured within 15 days after notice thereof by Total S.A.; |
| • | we fail, and continue to fail for 15 days, to observe or perform any material covenant, obligation, condition, or agreement in the Credit Support Agreement; |
| • | we default in the observance or performance of any agreement, term, or condition contained in a guaranteed letter of credit facility that would constitute an event of default or similar event thereunder (other than an obligation to pay any amount, the payment of which was guaranteed by Total S.A.), up to or beyond any grace period provided in such facility, unless waived by the applicable bank and Total S.A.; |
| • | we or any of our subsidiaries default in the observance or performance of any agreement, term, or condition contained in any bond, debenture, note, or other indebtedness such that the holders of such indebtedness could accelerate the payment of $25 million or more of such indebtedness; and |
| • | certain bankruptcy or insolvency events. |
In addition to the Credit Support Agreement, we and Total S.A. entered into a letter agreement (the “Letter Agreement”) on May 8, 2017 to facilitate the issuance by Total S.A. of one or more guaranties of our payment obligations of up to $100 million (the “Support Amount”) under the Amended and Restated Revolving Credit Agreement with Credit Agricole Corporate and Investment Bank, as “administrative agent,” and the other lenders
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party thereto. In consideration for the commitments of Total S.A. pursuant to the Letter Agreement, we are required to pay a guarantor commitment fee of 0.50% per annum for the unutilized Support Amount and a guaranty fee of 2.35% per annum of the outstanding guaranties. The maturity date of the Letter Agreement is August 26, 2019.
Affiliation Agreement
In connection with the Tender Offer, we and Total entered into an affiliation agreement (the “Affiliation Agreement”). The Affiliation Agreement was amended on June 7, 2011, December 12, 2011, February 28, 2012, and August 10, 2012. The Affiliation Agreement governs the relationship following the closing of the Tender Offer between SunPower, on the one hand, and Total S.A., Total, any other affiliate of Total S.A. and any member of a group of persons formed for the purpose of acquiring, holding, voting, disposing of, or beneficially owning our voting stock of which Total S.A. or any of its affiliates is a member (the “Total Group”), on the other hand.
Standstill. Following the closing of the Tender Offer and during the Standstill Period (as defined below), Total, Total S.A., and the Total Group may not:
| • | effect or seek, or announce any intention to effect or seek, any transaction that would result in the Total Group beneficially owning shares in excess of the Applicable Standstill Limit (as defined below), or take any action that would require us to make a public announcement regarding the foregoing; |
| • | request that (i) we, (ii) our Board members that are independent directors and not appointed to the Board by Total (the “Disinterested Directors”), or (iii) our officers or employees, amend or waive any of the standstill restrictions applicable to the Total Group described above; or |
| • | enter into any discussions with any third party regarding any of the foregoing. |
In addition, no member of the Total Group may, among other things, solicit proxies relating to the election of directors to our Board without the prior approval of the Disinterested Directors.
The Total Group is, however, permitted to either (i) make and consummate a Total Tender Offer or (ii) propose and effect a Total Merger so long as, in each case, Total complies with certain advance notice and prior negotiation obligations, including providing written notice to us at least 120 days before commencing or proposing such Total Tender Offer or Total Merger and making its designees reasonably available for the purpose of negotiation with the Disinterested Directors concerning such Total Tender Offer or Total Merger.
The “Standstill Period” is the period beginning on the date of the Affiliation Agreement and ending on the earlier to occur of:
| • | a change of control of our company; |
| • | the first time that the Total Group beneficially owns less than 15% of outstanding voting power of our company; |
| • | we or our Board take or fail to take certain of the actions described below under “—Events Requiring Stockholder Approval by Total” or fail to comply with certain of the covenants described below under “—Covenants of Total and SunPower” during the time when Total, together with the controlled subsidiaries of Total S.A., owns 50% or less of the outstanding voting power of our company or 40% or less of the outstanding voting power of our company when at least $100 million in Guarantees are outstanding under the Credit Support Agreement; |
| • | a tender offer for at least 50% of the outstanding voting power of our company is commenced by a third party after the time when Total, together with the controlled subsidiaries of Total S.A., owns 50% or less of the outstanding voting power of our company or 40% or less of the outstanding voting power of our company when at least $100 million in Guarantees are outstanding under the Credit Support Agreement; and |
| • | the termination of the Affiliation Agreement. |
The “Applicable Standstill Limit” is 70% of the lower of (i) the then outstanding shares of our common stock or (ii) the then outstanding voting power of our company.
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During the Standstill Period, the Total Group will not be in breach of its standstill obligations described above if any member of the Total Group holds beneficial ownership of shares of our common stock in excess of the Applicable Standstill Limit solely as a result of:
| • | recapitalizations, repurchases, or other actions taken by us or our controlled subsidiaries that have the effect of reducing the number of shares of our common stock then outstanding; |
| • | the issuance of shares of our common stock to Total in connection with the acquisition of Tenesol SA; or |
| • | the rights specified in any “poison pill” share purchase rights plan having separated from the shares of our common stock and a member of the Total Group having exercised such rights. |
Transfer of Control. If any member or members of the Total Group seek to transfer, in one or a series of transactions, either (i) 40% or more of the outstanding shares of our common stock or (ii) 40% or more of the outstanding voting power of our company to a single person or group, then such transfer must be conditioned on, and may not be effected, unless the transferee either:
| • | makes a tender offer to acquire 100% of the voting power of our company, at the same price per share of voting stock and using the same form of consideration to be paid by the transferee to the Total Group; or |
| • | proposes a merger providing for the acquisition of 100% of the voting power of our company, at the same price per share of voting stock and using the same form of consideration to be paid by the transferee to the Total Group. |
Total’s Rights to Maintain. The Total Group has the following rights to maintain its ownership in us until (i) the first time that the Total Group owns less than 40% of the outstanding voting power of our company, or (ii) until the first time that Total transfers shares of our common stock to a person other than Total S.A. or a controlled subsidiary of Total S.A. and, as a result of such transfer, Total S.A. and its subsidiaries own less than 50% of the outstanding voting power of our company.
If we propose to issue new securities primarily for cash in a financing transaction, then Total has the right to purchase a portion of such new securities equal to its percentage ownership in us. Total can also elect to purchase our securities in open market transactions or through privately negotiated transactions in an amount equal to its percentage ownership in connection with such issuance of new securities. If we propose to issue new securities in consideration for our purchase of a business or assets of a business, then Total has the right to purchase additional securities in the open market or through privately-negotiated transactions equal to its percentage ownership in us. Total has similar rights in the event that we issue or propose to issue (including pursuant to our equity plans or as the result of the conversion of our convertible securities) securities that, together with all other issuances of securities by us since the end of the preceding fiscal quarter, aggregate to more than 1% of our fully diluted equity. Total has a nine-month grace period, subject to certain extensions to satisfy regulatory conditions, to acquire securities in the open market or through privately negotiated transactions in connection with any of the securities issuances described above.
SunPower Board. The Affiliation Agreement provides that Total is entitled to designate nominees to our Board, subject to the maintenance of certain ownership thresholds described below. See “Proposal One” above for more details on our current Board membership.
So long as Total, together with the controlled subsidiaries of Total S.A., owns at least 10% of the outstanding voting power of our company, then our Board must use its reasonable best efforts to elect the directors designated by Total as follows:
| • | until the first time that Total, together with the controlled subsidiaries of Total S.A., owns less than 50% of the voting power of our company, Total will be entitled to designate five nominees to serve on our Board; |
| • | until the first time that Total, together with the controlled subsidiaries of Total S.A., owns less than 50% but not less than 40% of the voting power of our company, Total will be entitled to designate four nominees to serve on our Board; |
| • | until the first time that Total, together with the controlled subsidiaries of Total S.A., owns less than 40% but not less than 30% of the voting power of our company, Total will be entitled to designate three nominees to serve on our Board; |
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| • | until the first time that Total, together with the controlled subsidiaries of Total S.A., owns less than 30% but not less than 20% of the voting power of our company, Total will be entitled to designate two nominees to serve on our Board; and |
| • | until the first time that Total, together with the controlled subsidiaries of Total S.A., owns less than 20% but not less than 10% of the voting power of our company, Total will be entitled to designate one nominee to serve on our Board. |
For as long as they are serving on our Board, the directors designated by Total will be allocated across the three classes that comprise our Board in a manner as equal as practicable.
Subject to the listing standards of The Nasdaq Stock Market, until the first time that Total, together with the controlled subsidiaries of Total S.A., owns less than 30% of the outstanding voting power of our company:
| • | the Audit Committee will be composed of three Disinterested Directors; |
| • | the Compensation Committee and the Nominating and Corporate Governance Committee will each be composed of two Disinterested Directors and two directors designated by Total; and |
| • | any other standing committee will be composed of two Disinterested Directors and two directors designated by Total. |
Until the first time that Total, together with the controlled subsidiaries of Total S.A., own less than 10% of the outstanding voting power of our company, a representative of Total will, subject to certain exceptions, be permitted to attend all meetings of our Board or any committee thereof in a non-voting, observer capacity (other than any committee whose sole purpose is to consider a transaction for which there exists an actual conflict of interest between the Total Group, on the one hand, and us and any of our affiliates, on the other hand).
Events Requiring Specific Board Approval. At any time when Total, together with the controlled subsidiaries of Total S.A., owns at least 30% of the outstanding voting power of our company, neither the Total Group nor we (or any of our affiliates) may effect any of the following without first obtaining the approval of a majority of the Disinterested Directors:
| • | any amendment to our Certificate of Incorporation or By-Laws; |
| • | any transaction that, in the reasonable judgment of the Disinterested Directors, involves an actual conflict of interest between the Total Group, on the one hand, and us and any of our affiliates, on the other hand; |
| • | the adoption of any shareholder rights plan or the amendment or failure to renew our existing shareholder rights plan; |
| • | except as provided above, the commencement of any tender offer or exchange offer by the Total Group for shares of our common stock or securities convertible into shares of our common stock, or the approval of a merger of us or any company that we control with a member of the Total Group; |
| • | any voluntary dissolution or liquidation of our company or any company that we control; |
| • | any voluntary bankruptcy filing by us or any company that we control or the failure to oppose any other person’s bankruptcy filing or action to appoint a receiver of our company or any company that we control; |
| • | any delegation of all or a portion of the authority of our Board to any committee thereof; |
| • | any amendment, modification, or waiver of any provision of the Affiliation Agreement; |
| • | any modification of, or action with respect to, director’s and officer’s insurance coverage; or |
| • | any reduction in the compensation of the Disinterested Directors. |
Events Requiring Supermajority Board Approval. At any time when Total, together with the controlled subsidiaries of Total S.A., owns at least 30% of the outstanding voting power of our company, neither Total nor we (nor any of Total’s or our affiliates, respectively) may, without first obtaining the approval of two-thirds of our directors (including at least one Disinterested Director), effect any approval or adoption of our annual operating plan or budget that has the effect of reducing the planned letter of credit utilization in any given year by more than 10% below the applicable maximum letter of credit amount in the Credit Support Agreement.
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Events Requiring Stockholder Approval by Total. Until the first time that Total, together with the controlled subsidiaries of Total S.A., owns 50% or less of the outstanding voting power of our company or 40% or less of the outstanding voting power of our company when at least $100 million in Guarantees are outstanding pursuant to the Credit Support Agreement and, thereafter, for so long as (1) any loans by Total S.A. to us remain outstanding, (2) any guarantees by Total S.A. of any of our indebtedness remain outstanding, or (3) any other continuing obligation of Total S.A. to or for the benefit of us remain outstanding (“Total Stockholder Approval Period”), neither we (including any of our controlled subsidiaries) nor our Board may effect any of the following without first obtaining the approval of Total:
| • | any amendment to our Certificate of Incorporation or By-Laws; |
| • | any transaction pursuant to which we or any company that we control acquires or otherwise obtains the ownership or exclusive use of any business, property, or assets of a third party if as of the date of the consummation of such transaction the aggregate net present value of the consideration paid or to be paid exceeds the lower of (i) 15% of our then-consolidated total assets or (ii) 15% of our market capitalization; |
| • | any transaction pursuant to which a third party obtains ownership or exclusive use of any of our business, property, or assets or those of any company that we control if as of the date of the consummation of such transaction the aggregate net present value of the consideration received or to be received exceeds the lower of (i) 10% of our then-consolidated total assets or (ii) 10% of our market capitalization; |
| • | the adoption of any shareholder rights plan or certain changes to our existing shareholder rights plan; |
| • | except for the incurrence of certain permitted indebtedness, the incurrence of additional indebtedness in excess of the difference, if any, of 3.5 times our LTM EBITDA (as defined in the Affiliation Agreement) less our Outstanding Gross Debt (as defined in the Affiliation Agreement); |
| • | subject to certain exceptions, any voluntary dissolution or liquidation of our company or any company that we control; |
| • | any voluntary bankruptcy filing by us or any company that we control or the failure to oppose any other person’s bankruptcy filing or action to appoint a receiver of our company or any company that we control; or |
| • | any repurchase of our common stock. |
Certain Matters Related to SunPower’s Shareholder Rights Plan. Until the Total Group beneficially owns less than 15% of the outstanding voting power of our company, neither we nor our Board is permitted to adopt any shareholder rights plan or make certain changes to our existing shareholder rights plan without the approval of Total.
Covenants of Total and SunPower. In order to effect the transactions contemplated by the Affiliation Agreement, each of Total and we have committed to taking certain actions. With respect to us, such actions include:
| • | amending our By-Laws to provide that the Total Group may call a special meeting of stockholders in certain circumstances; |
| • | taking certain actions to exculpate Total S.A., Total, any controlled subsidiary of Total S.A., and those of our directors designated by Total from corporate opportunities, to the fullest extent permitted by applicable law; |
| • | taking certain actions to render Delaware’s business combination statute inapplicable to the Total Group and certain future transferees of the Total Group; |
| • | making certain amendments to our shareholder rights plan, including excluding the Total Group from the definition of “Acquiring Person” under such plan; |
| • | renewing our existing shareholder rights plan so long as the Total Group beneficially owns at least 15% of our outstanding voting power; and |
| • | providing Total with certain of our financial information from time to time. |
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Termination. The Affiliation Agreement generally terminates upon the earlier to occur of (i) Total, together with the controlled subsidiaries of Total S.A., owning less than 10% of the outstanding voting power of our company or (ii) Total, together with the controlled subsidiaries of Total S.A., owning 100% of the outstanding voting power of our company.
Affiliation Agreement Guaranty
Total S.A. entered into a guaranty (the “Affiliation Agreement Guaranty”) in connection with the Tender Offer and entry into the Affiliation Agreement, pursuant to which Total S.A. unconditionally guarantees the full and prompt payment of Total S.A.’s, Total’s, and each Total S.A. controlled company’s payment obligations under the Affiliation Agreement and the full and prompt performance of their respective representations, warranties, covenants, duties, and agreements contained in the Affiliation Agreement.
Research & Collaboration Agreement
In connection with the Tender Offer, we and Total entered into a Research & Collaboration Agreement (the “R&D Agreement”) that establishes a framework under which the parties engage in long-term research and development collaboration (the “R&D Collaboration”). The R&D Collaboration encompasses a number of different projects (“R&D Projects”), with a focus on advancing our technology position in the crystalline silicon domain, as well as ensuring our industrial competitiveness.
The R&D Agreement contemplates a joint committee (the “R&D Strategic Committee”) to identify, plan, and manage the R&D Collaboration. Due to the impracticability of anticipating and establishing all of the legal and business terms that would be applicable to the R&D Collaboration or to each R&D Project, the R&D Agreement sets forth broad principles applicable to the parties’ potential R&D Collaboration, and the R&D Strategic Committee establishes the particular terms governing each particular R&D Project consistent with the terms set forth in the R&D Agreement. In fiscal 2018, Total contributed $0.1 million to us under the R&D Agreement.
Registration Rights Agreement
In connection with the Tender Offer, we and Total entered into a customary registration rights agreement (the “Registration Rights Agreement”) related to Total’s ownership of shares of our common stock. The Registration Rights Agreement provides Total with shelf registration rights, subject to certain customary exceptions, and up to two demand registration rights in any 12-month period, also subject to certain customary exceptions. Total also has certain rights to participate in any registrations of securities that we initiate. We will generally pay all costs and expenses we incur and that Total incurs in connection with any shelf or demand registration (other than selling expenses incurred by Total). We and Total have also agreed to certain indemnification rights under the Registration Rights Agreement. The Registration Rights Agreement terminates on the first date on which: (i) the shares held by Total constitute less than 5% of our then outstanding common stock; (ii) all of our securities held by Total may be immediately resold pursuant to Rule 144 promulgated under the Exchange Act during any 90-day period without any volume limitation or other restriction; or (iii) we cease to be subject to the reporting requirements of the Exchange Act.
The Registration Rights Agreement was amended on May 29, 2013, in connection with the issuance of our 0.75% Senior Convertible Debentures due 2018, to provide that convertible debentures and our common stock underlying such debentures are “registrable securities” within the meaning of the Registration Rights Agreement.
Stockholder Rights Plan
On April 28, 2011, before the execution of the Tender Offer Agreement, we entered into an amendment (the “Rights Agreement Amendment”) to the Rights Agreement, dated August 12, 2008, by and between us and Computershare Trust Company, N.A., as Rights Agent (the “Rights Agreement”), in order to, among other things, render the rights therein inapplicable to each of: (i) the approval, execution, or delivery of the Tender Offer Agreement; (ii) the commencement or consummation of the Tender Offer; (iii) the consummation of the other transactions contemplated by the Tender Offer Agreement and the related agreements; and (iv) the public or other announcement of any of the foregoing.
On June 14, 2011, we entered into a second amendment to the Rights Agreement (the “Second Rights Agreement Amendment”), in order to, among other things, exempt Total, Total S.A., and certain of their affiliates and certain members of a group of which they may become members from the definition of “Acquiring Person” thereunder, such that the rights issuable pursuant to the Rights Agreement will not become issuable in connection with the completion of the Tender Offer.
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By-Laws Amendment
On June 14, 2011, our Board approved amendments of our By-Laws as required under the Affiliation Agreement. The amendments: (i) allow any member of the Total Group to call a meeting of stockholders for the sole purpose of considering and voting on a proposal to effect a Total Merger or a Transferee Merger (as defined in the Affiliation Agreement); (ii) provide that the number of directors of our Board shall be determined from time to time by resolution adopted by the affirmative vote of a majority of our entire Board at any regular or special meeting; and (iii) require, before the termination of the Affiliation Agreement, the approval of a majority of our independent directors to amend our By-Laws so long as Total, together with the controlled subsidiaries of Total S.A., owns at least 30% of our voting securities as well as require, before the termination of the Affiliation Agreement, Total’s written consent during the Total Stockholder Approval Period to amend the By-Laws. In November 2011, our By-Laws were amended to remove restrictions prohibiting stockholder consents in writing. On November 3, 2017, our By-Laws were amended to provide that the designation of the office of president is not mandatory, in addition to effecting certain other minor clarifying changes for purposes of administrative ease and alignment with our current organization.
The Credit Support Agreement, Letter Agreement, Affiliation Agreement, Affiliation Agreement Guaranty, Research and Collaboration Agreement, Registration Rights Agreement, Rights Agreement Amendment, Second Rights Agreement Amendment, and By-Law amendments, and amendments thereto, as described above, are attached to, and more fully described in, our Forms 8-K as filed with the SEC on May 2, 2011, June 7, 2011, June 15, 2011, December 23, 2011, May 9, 2017, and November 7, 2017, our Solicitation/Recommendation Statement on Form 14D-9 filed with the SEC on May 3, 2011, and our Forms 10-Q as filed with the SEC on November 2, 2012 and August 10, 2016.
Upfront Warrant
On February 28, 2012, we issued to Total a warrant (the “Upfront Warrant”) that is exercisable to purchase 9,531,677 shares of our common stock at an exercise price of $7.8685 per share, subject to adjustment for customary anti-dilution and other events. The Upfront Warrant, which is governed by a Private Placement Agreement, dated December 23, 2011, and a Compensation and Funding Agreement, dated February 28, 2012, as amended, is exercisable at any time for seven years after its issuance, provided that, so long as at least $25 million in aggregate of our convertible debt remains outstanding, such exercise will not cause any “person,” including Total S.A., to, directly or indirectly, including through one or more wholly owned subsidiaries, become the “beneficial owner” (as such terms are defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act) of more than 74.99% of the voting power of our common stock at such time, a circumstance which would trigger the repurchase or conversion of our existing convertible debt. The Upfront Warrant expired on February 27, 2019.
Sale of 0.75% Debentures Due 2018
In May 2013, we issued $300 million in aggregate principal amount of our 0.75% senior convertible debentures due 2018 (the “2018 Debentures”) in a private offering. An aggregate principal amount of $200 million of the 2018 Debentures were sold to Total by the initial purchasers of the 2018 Debentures. The 2018 Debentures were convertible into shares of our common stock at any time based on an initial conversion rate of 40.0871 shares of common stock per $1,000 principal amount of 2018 Debentures (which is equivalent to an initial conversion price of approximately $24.95 per share of our common stock), subject to adjustment under certain circumstances. The 2018 Debentures were subject to redemption at our option under certain circumstances. On June 1, 2018, the 2018 Debentures were redeemed at maturity.
Sale of 0.875% Debentures Due 2021
In June 2014, we issued $400 million in aggregate principal amount of our 0.875% senior convertible debentures due 2021 (the “2021 Debentures”) in a private offering. An aggregate principal amount of $250 million of the 2021 Debentures were sold to Total by the initial purchasers of the 2021 Debentures. The 2021 Debentures are convertible into shares of our common stock at any time based on an initial conversion rate of 20.5071 shares of common stock per $1,000 principal amount of 2021 Debentures (which is equivalent to an initial conversion price of approximately $48.76 per share of our common stock), subject to adjustment under certain circumstances. The holders of the 2021 Debentures may require us to repurchase their 2021 Debentures under certain circumstances. The 2021 Debentures are subject to redemption at our option under certain circumstances.
25
Sale of 4.00% Debentures Due 2023
In December 2015, we issued $425 million in aggregate principal amount of our 4.00% senior convertible debentures due 2023 (the “2023 Debentures”) in a private offering. An aggregate principal amount of $100 million of the 2023 Debentures were sold to Total by the initial purchasers of the 2023 Debentures. The 2023 Debentures are convertible into shares of our common stock at any time based on an initial conversion rate of 32.7568 shares of common stock per $1,000 principal amount of 2023 Debentures (which is equivalent to an initial conversion price of approximately $30.53 per share of our common stock), subject to adjustment under certain circumstances. The holders of the 2023 Debentures may require us to repurchase their 2023 Debentures under certain circumstances. The 2023 Debentures are subject to redemption at our option under certain circumstances.
Joint Solar Projects
In the ordinary course of our business, from time to time we enter into agreements with Total or its affiliates in connection with certain of our international project co-development initiatives, whereby SunPower and Total split the associated costs.
During the first quarter of fiscal 2017, in connection with a co-development project between us and Total, Total made an approximately $0.5 million payment to us in exchange for our 50% ownership interest in the co-development project. At closing of the transaction, we received reimbursement of our equity contributions in the project from Total in the amount of approximately $0.5 million.
During the fourth quarter of fiscal 2017, we sold our remaining noncontrolling interests in a co-development project entity to Total, for which we received payment from Total in the amount of $6.0 million.
In connection with a co-development solar project between us, Total, and an independent third party investor, we sold a 25% ownership interest in the company owning such solar project to Total and a 50% ownership interest in such company to the independent third party investor. The amount received from Total was not material to us for fiscal 2018. We expected to sell the remaining 25% of our ownership interest to Total during the fourth quarter of 2018 and to supply photovoltaic modules in late 2019 to the project. However, recent amendments to the feed-in-tariff rules in Japan have had a significant impact on the project’s ability to secure financing. Although financial closing of the transaction did not occur in the fourth quarter of fiscal 2018 as expected, discussions between the equity owners and the lenders are ongoing, and we anticipate reaching financial close in fiscal 2019, or otherwise exploring other alternatives to monetize our investment in the project.
In fiscal 2018, we received an aggregate of approximately $0.3 million from Total and its affiliates under EPC services and O&M services agreements, in respect of projects in which Total has a direct or indirect material interest. As of December 30, 2018, we had $0.02 million of “Contract assets” and $3.8 million of “Accounts receivable, net” on our Consolidated Balance Sheets related to projects in which Total and its affiliates have a direct or indirect material interest.
Supply Agreements
On November 9, 2016, we and Total executed a four-year, up to 200-megawatt (MW) supply agreement to support the solarization of certain Total facilities. This agreement, which was amended and restated in March 2017 with changes not material to us, covers the supply of 150 MW of Maxeon 2 (formally known as E-series) panels with an option to purchase up to another 50 MW of P-Series solar panels. As of December 30, 2018, we had $18.4 million of “Contract liabilities, current portion” and $45.3 million of “Contract liabilities, net of current portion” on our Consolidated Balance Sheets related to the aforementioned supply agreement.
On March 19, 2018, we and Total, each through certain affiliates, entered into an agreement whereby we agreed to sell 3.42 MW of photovoltaic modules to Total for a development project in Chile. This agreement provided for payment from Total in the amount of approximately $1.3 million, 10% of which was paid upon execution of the agreement.
On January 7, 2019, we and Total, each through certain affiliates, entered into an agreement whereby we agreed to sell 3.7 MW of photovoltaic modules to Total for a ground-mounted solar installation in Dubai. This agreement provided for payment from Total in the amount of approximately $1.35 million, 10% of which was paid after execution of the agreement.
On March 4, 2019, we and Total, each through certain affiliates, entered into an agreement whereby we agreed to sell 10 MW of photovoltaic modules to Total for commercial rooftop solar installations in Dubai. This agreement provided for payment from Total in the amount of approximately $3.16 million, 10% of which is payable in April 2019.
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The Audit Committee of our Board serves as the representative of the Board with respect to its oversight of:
| • | our accounting and financial reporting processes and the audit of our financial statements; |
| • | the integrity of our financial statements; |
| • | our internal controls; |
| • | our compliance with legal and regulatory requirements and efficacy of and compliance with our corporate policies; |
| • | the independent registered public accounting firm’s appointment, qualifications, and independence; and |
| • | the performance of our internal audit function. |
The Audit Committee also reviews the performance of our independent registered public accounting firm, Ernst & Young LLP, in the annual audit of financial statements and in assignments unrelated to the audit, and reviews the independent registered public accounting firm’s fees.
The Audit Committee provides the Board 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 reviews our financial disclosures and meets privately, outside the presence of our management, with our independent registered public accounting firm. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the audited financial statements in our Annual Report on Form 10-K for our fiscal year ended December 30, 2018 with management, including a discussion of the quality and substance of the accounting principles, the reasonableness of significant judgments made in connection with the audited financial statements, and the clarity of disclosures in the financial statements. The Audit Committee reports on these meetings to our Board.
Our management has primary responsibility for preparing our financial statements and for our financial reporting process. In addition, our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our independent registered public accounting firm, Ernst & Young LLP, is responsible for expressing an opinion on the conformity of our financial statements to generally accepted accounting principles and the effectiveness of our internal control over financial reporting.
The Audit Committee reports as follows:
| (1) | The Audit Committee has reviewed and discussed the audited financial statements for fiscal 2018 with our management. |
| (2) | The Audit Committee has discussed with Ernst & Young LLP, our independent registered public accounting firm, the matters required to be discussed by Auditing Standard No. 1301, “Communications with Audit Committees” issued by the Public Company Accounting Oversight Board. |
| (3) | The Audit Committee has received the written disclosures and the letter from Ernst & Young LLP required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee regarding independence, and has discussed with Ernst & Young LLP its independence, including whether Ernst & Young LLP’s provision of non-audit services to us is compatible with its independence. |
The Audit Committee has adopted a policy that requires advance approval of all audit, audit-related, tax, and other services performed by the independent registered public accounting firm. The policy provides for pre-approval by the Audit Committee (or its Chair pursuant to delegated authority) of specifically defined audit and non-audit services. Unless the specific service has been previously pre-approved with respect to that fiscal year, the Audit Committee (or its Chair pursuant to delegated authority) must approve the specific service before the independent registered public accounting firm is engaged to perform such services for us.
Based on the review and discussion referred to in items (1) through (3) above, the Audit Committee recommended to our Board, and the Board approved, the inclusion of our audited financial statements in our Annual Report on Form 10-K for the fiscal year ended December 30, 2018, as filed with the SEC.
The foregoing report was submitted by the Audit Committee of the Board and shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A promulgated by the SEC or Section 18 of the Exchange Act, and shall not be deemed incorporated by reference into any prior or subsequent filing by us under the Securities Act of 1933 or the Exchange Act.
|
|
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
|
|
|
|
|
|
Thomas McDaniel, Chair
|
|
|
Catherine Lesjak
|
|
|
Patrick Wood III
|
27
The following table sets forth a summary of the compensation we paid to our non-employee directors for fiscal 2018. The table does not include Mr. Werner, who did not receive separate compensation for his service on the Board.
2018 Director Compensation Table
|
Name
|
Fees Earned or
Paid in Cash ($)(1) |
Stock Awards
($)(2)(3) |
Total
($) |
|
Total-designated members of the Board
|
—
|
—
|
—
|
|
Catherine Lesjak
|
100,000
|
300,009
|
400,009
|
|
Thomas McDaniel
|
100,000
|
300,009
|
400,009
|
|
Pat Wood III
|
125,000
|
300,009
|
425,009
|
| (1) | The amounts reported in this column represent the aggregate cash retainers received by the non-employee directors for fiscal 2018, but do not include amounts reimbursed to the non-employee directors for expenses incurred in connection with attending Board and committee meetings. |
| (2) | The amounts reported in this column represent the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board (or FASB) Accounting Standards Codification (“ASC”) Topic 718 for restricted stock units granted to our non-employee directors in fiscal 2018, as further described below. Restricted stock units are fully vested on the date of grant. Each non-employee director received the following grants of restricted stock units on the following dates with the following grant date fair values (please note that some amounts reported may not add up exactly due to rounding on an award-by-award basis): |
|
Non-Employee Director
|
Grant Date
|
Restricted Stock Units (#)
|
Grant Date Fair Value ($)
|
|
Catherine Lesjak
|
02/12/2018
|
10,886
|
75,005
|
|
05/11/2018
|
8,611
|
75,002
|
|
|
08/13/2018
|
10,745
|
75,000
|
|
|
11/12/2018
|
11,830
|
75,002
|
|
|
Thomas McDaniel
|
02/12/2018
|
10,886
|
75,005
|
|
05/11/2018
|
8,611
|
75,002
|
|
|
08/13/2018
|
10,745
|
75,000
|
|
|
11/12/2018
|
11,830
|
75,002
|
|
|
Pat Wood III
|
02/12/2018
|
10,886
|
75,005
|
|
05/11/2018
|
8,611
|
75,002
|
|
|
08/13/2018
|
10,745
|
75,000
|
|
|
11/12/2018
|
11,830
|
75,002
|
| (3) | As of December 30, 2018, no other non-employee directors held stock awards and no non-employee directors held stock options. |
2018 Director Compensation Program
Our outside director compensation policy provides for the compensation set forth below for our non-employee directors, other than the Total-nominated directors:
| • | an annual fee of $400,000 ($100,000 quarterly) for our non-employee directors (other than the Chairman of the Board) for service on our Board and on Board committees; |
| • | if our Chairman is an independent director, an annual fee of $450,000 ($112,500 quarterly) to our Chairman of the Board for service on our Board and on Board committees; and |
| • | an additional annual fee of $25,000 ($6,250 quarterly) to the lead independent director. |
The Compensation Committee assessed the competitiveness of director compensation from multiple perspectives. The assessment included a review of market data from several groups, including:
| • | the same compensation peers used to assess named executive officer compensation; |
| • | a group of public U.S. companies with majority outside ownership by another company; and |
| • | a broader market of all U.S. companies with annual revenues between $500 million and $5 billion. |
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As part of its assessment, the Compensation Committee also considered the relative workload and responsibilities borne by the independent directors, which we believe are higher than many other public companies for a number of reasons, including the fact that we have a controlling stockholder, that there are relatively fewer independent directors on our Board, and that each of them serves on, or chairs, multiple committees. We review director pay on an annual basis to monitor for changes in competitive pay levels and workload and responsibilities.
Our policy provides that these annual fees are prorated on a quarterly basis for any director that joins the Board during the year. The $25,000 additional fee payable to the lead independent director is paid in cash. Any fees payable to the Chairman of the Board are paid in the form of restricted stock units. The other fees are paid on a quarterly basis, 25% in cash on or about the date of the quarterly Board meeting and 75% in the form of fully-vested restricted stock units on the eleventh day in the second month of each quarter (or on the next trading day if such day is not a trading day). Any fractional shares resulting from this calculation are rounded up to a full share. The restricted stock units are settled in shares of our common stock within seven days of the date of grant. Because Mr. Werner is our Chief Executive Officer, he is not separately compensated for his service as Chairman of the Board. Similarly, because each of our Total-nominated directors do not qualify as independent directors under our director compensation policy, such individuals receive no director compensation.
In 2015, we adopted stock ownership guidelines for our chief executive officer, certain executive officers, and non-employee directors. Under the guidelines and subject to certain exceptions, non-employee directors are expected to own shares of our common stock that have a value equal to five times the annual cash retainer they receive for serving on our Board, with ownership measured at the end of each calendar year. Shares may be owned directly by the individual, owned by the individual’s spouse, or held in trust for the benefit of the individual’s family. Each non-employee director is expected to maintain ownership at or above the threshold applicable to them beginning the later of December 31, 2020 or five years after first becoming subject to the guidelines.
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ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION
As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and Section 14A of the Exchange Act, we are asking our stockholders to again vote to approve, on an advisory (non-binding) basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the SEC’s rules.
As described in detail under the headings “Compensation Discussion and Analysis” and “Executive Compensation,” we have adopted an executive compensation philosophy designed to deliver competitive total compensation to our executive officers upon the achievement of financial and strategic performance objectives. In order to implement that philosophy, the Compensation Committee has established a disciplined process for adopting executive compensation programs and individual executive officer pay actions that includes the analysis of competitive market data, a review of each executive officer’s role, performance assessments, and consultation with the Compensation Committee’s independent compensation consultant. Please read the “Compensation Discussion and Analysis” and “Executive Compensation” sections for additional details about our executive compensation programs, including information about the fiscal 2018 compensation of our named executive officers.
2018 Compensation Features. Our compensation programs are intended to attract, retain and reward executive officers who contribute to SunPower’s success and to align with the Company’s short-term and long-term performance. The Compensation Committee annually reviews the compensation programs for our named executive officers to ensure they achieve the desired goals. In fiscal 2018, among the program features incorporated by the Compensation Committee to implement the executive compensation philosophy stated above are the following:
| • | Actual payouts under our performance-based cash bonus programs (specifically, the 2018 Corporate Annual Bonus Program and the Executive Semi-Annual Incentive Bonus Plan) for our named executive officers were determined based on performance against a number of objectives: Non-GAAP revenue, adjusted EBITDA, and cash and cash equivalents metrics2 and corresponding performance targets, along with corporate milestone performance targets, a safety modifier based on company safety performance, and individual modifiers assigned based on individual performance. |
| • | Long-term incentives in the form of time- and performance-based restricted stock units comprised a large portion of each named executive officer’s compensation and are linked to the long-term performance of our stock. Restricted stock units generally vest over four years, and performance-based restricted stock units are earned only after the achievement of corporate performance targets and also generally vest over a four-year period. |
| • | Earning performance-based restricted stock units depends on the achievement of performance targets corresponding to our non-GAAP revenue, adjusted EBITDA, adjusted cash and cash equivalents, and operating expense and cost of goods sold overhead reduction metrics, as well as other individualized metrics (in the case of certain of our executive officers). |
| • | Individual performance was also measured for each half of the fiscal year based on each named executive officer’s achievement of his or her personal Key Results, which support our corporate, strategic, and operational milestones, as well as other individual performance factors, as evaluated by our chief executive officer (or, in the case of our chief executive officer, by the Board) in connection with the assignment of an individual modifier to each named executive officer. |
| • | Our change of control severance agreements do not entitle our named executive officers to payment without termination of employment following a change of control (a “double trigger”). |
Our financial and operational performance was the key factor in the compensation decisions and outcomes for fiscal 2018, as further described in the “Compensation Discussion and Analysis” and “Executive Compensation” sections. One of the core tenets of our executive compensation philosophy is our emphasis on performance pay. As highlighted in the Compensation Components chart in the “Compensation Discussion and Analysis” section, in fiscal 2018, a large portion of our named executive officers’ target compensation (87% for our chief executive officer and averaging 79% for our other named executive officers) consisted of annual and semi-annual incentive bonus programs and long-term equity incentives.
| 2 | Non-GAAP revenue and adjusted EBITDA (defined as net income before income taxes, interest income, depreciation, and amortization) are non-GAAP financial measures. See Appendix A,“Use of Non-GAAP Financial Measures.” |
30
The Compensation Committee believes that our executive compensation programs, executive officer pay levels, and individual pay actions approved for our executive officers, including our named executive officers, are directly aligned with our executive compensation philosophy and fully support its goals. In fiscal 2018: (i) performance with respect to our annual revenue metric exceeded the minimum performance level but fell short of the target performance level, (ii) performance with respect to our adjusted EBITDA metric exceeded the relevant target performance levels but did not reach the maximum performance level, (iii) performance with respect to our adjusted cash and cash equivalents metric exceeded the minimum performance level but fell short of the target performance level, and (iv) performance with respect to our operating expense and cost of goods sold overhead reduction metric exceeded the minimum performance level but fell short of the target performance level, which, combined, resulted in regular performance-based restricted stock awards granted to our named executive officers other than the chief executive officer and William Mulligan (our former Executive Vice President, Global Operations) being earned at 97.1% of the target level. Our corporate performance in fiscal 2018 also resulted in aggregate cash bonus awards under our performance-based cash bonus programs at approximately 97.4% of the target level.
In fiscal 2018, our chief executive officer and Dr. Mulligan earned the majority of the annual performance-based restricted stock awards awarded to them based on: (i) performance with respect to our annual revenue metric which exceeded the minimum performance level but fell short of the target performance level, (ii) performance with respect to our adjusted EBITDA metric which exceeded the relevant target performance levels but did not reach the maximum performance level, and (iii) performance with respect to our adjusted cash and cash equivalents metric which exceeded the minimum performance level but fell short of the target performance level, which, combined, resulted in performance-based restricted stock awards granted to our chief executive officer being earned at 99.4% of the target level.
In fiscal 2018, our chief executive officer earned additional performance-based restricted stock awards based on (i) performance with respect to operating expense and cost of goods sold overhead reduction metric which exceeded the minimum performance level but fell short of the target performance level and (ii) performance with respect to reorganization of corporate operating expenses into the business units achieved at the maximum level, which, combined, resulted in additional performance-based restricted stock awards granted to our chief executive officer being earned at 120% of the target level.
In fiscal 2018, Dr. Mulligan earned additional performance-based restricted stock awards based on (i) performance with respect to operating expense and cost of goods sold overhead reduction metric which exceeded the minimum performance level but fell short of the target performance level and (ii) performance with respect to business unit cash flow metric which exceeded the relevant target performance level but did not reach the maximum performance level, which, combined, resulted in additional performance-based restricted stock awards granted to Dr. Mulligan being earned at 117.7% of the target level.
We are asking our stockholders to indicate their support for our named executive officer compensation as described in this proxy statement. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their views on our named executive officers’ compensation. This vote is not intended to address any specific compensation item, but rather the overall compensation of our named executive officers and the philosophy, policies, and practices described in this proxy statement. Accordingly, the Board recommends that our stockholders vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that, on an advisory basis, the compensation of SunPower’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables, and related narratives and descriptions in SunPower’s proxy statement for the Annual Meeting, is hereby APPROVED.”
Vote Required
The non-binding advisory vote on named executive officer compensation requires the affirmative vote of the holders of a majority of our stock having voting power and in attendance or represented by proxy at the Annual Meeting. “Broker non-votes” have no effect and will not be counted towards the vote total for this proposal. Abstentions will have the effect of votes against this proposal.
31
Although the say-on-pay vote is advisory, and therefore not binding on us, the Compensation Committee, or our Board, our Board and our Compensation Committee value the opinions of our stockholders. To the extent there is any significant vote against our named executive officers’ compensation as disclosed in this proxy statement, we expect to consider our stockholders’ concerns and the Compensation Committee expects to evaluate whether any actions are necessary to address those concerns.
THE BOARD RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE SEC, ON A NON-BINDING, ADVISORY BASIS.
32
Biographical information for our executive officers, other than Mr. Werner, is listed below. Biographical information for Mr. Werner, who is both a director and an executive officer of the Company, can be found in the section entitled “Proposal One—Re-Election of Class II Directors.”
|
Name
|
Age
|
Position
|
|
Kenneth Mahaffey
|
50
|
Executive Vice President and General Counsel
|
|
William Mulligan III
|
58
|
Former Executive Vice President, Global Operations
|
|
Douglas Richards
|
60
|
Executive Vice President, Administration
|
|
Manavendra Sial
|
42
|
Executive Vice President and Chief Financial Officer
|
Kenneth Mahaffey is the Executive Vice President, General Counsel, and Chief Ethics and Compliance Officer of SunPower with responsibility for the Company’s global legal organization. He is an accomplished executive with more than 20 years of legal experience. Mr. Mahaffey joined SunPower in 2006 as a founding member of our legal department. During his tenure, Mr. Mahaffey has managed attorneys and professionals around the globe who handle all legal, contract, regulatory, and compliance matters in support of the Company’s core business segments. He has also provided lead support for the Company’s corporate functions, including finance, mergers and acquisitions, marketing, policy, and communication. Mr. Mahaffey has deep expertise in renewable energy law, finance, corporate governance, and compliance matters. Before joining SunPower, he worked as an attorney in private practice managing a variety of commercial and litigation matters. Mr. Mahaffey has a Bachelor of Arts degree from University of California, San Diego, and a Juris Doctor degree from McGeorge School of Law, University of the Pacific.
William Mulligan III served as our Executive Vice President, Global Operations, from February 2017 to March 2019, and was responsible for leading our global operations and worldwide materials sourcing. Dr. Mulligan originally joined SunPower in 1998 and worked for more than 12 years as Vice President of research and development, where he led the development of our photovoltaic cell technology and the world’s highest efficiency commercial solar panel. He left SunPower in 2010, but returned four years later with our acquisition of SolarBridge, where he was serving as President and Chief Executive Officer. Most recently, he was SunPower’s Vice President, Upstream Strategy. He also served on the board of directors of Dongfang Huansheng Photovoltaic (Jiangsu) Co., Ltd., our manufacturing joint venture in China. Dr. Mulligan has more than 30 years of solar and microelectronics industry experience, and prior to SunPower served in various engineering and management positions at JX Crystals, Inc., the National Renewable Energy Laboratory, AstroPower, and Fairchild/National Semiconductor. Dr. Mulligan received dual undergraduate degrees in chemistry and history from the University of Washington, a master’s of science in chemical engineering from the University of Michigan, and his doctorate in materials science from the Colorado School of Mines. He holds 10 patents and has authored more than 30 publications related to solar energy.
Douglas Richards has served as our Executive Vice President, Administration, since November 2011. From April 2010 to October 2011, Mr. Richards served as our Executive Vice President, Human Resources and Corporate Services. From September 2007 to March 2010, Mr. Richards served as our Vice President, Human Resources and Corporate Services. From 2006 to 2007, Mr. Richards was Vice President of Human Resources and Administration for SelectBuild, a construction services company and a wholly owned subsidiary of BMHC, and from 2000 to 2006, Mr. Richards was Senior Vice President of Human Resources and Administration for BlueArc, a provider of high performance unified network storage systems to enterprise markets. Before BlueArc, Mr. Richards spent 10 years at Compaq Computer Corporation and five years at Apple Computer, Inc. in various management positions. Mr. Richards graduated from California State University, Chico, with a Bachelor of Arts degree in public administration.
Manavendra Sial has served as our Executive Vice President and Chief Financial Officer since May 2018, leading the Company’s treasury, project finance, investor relations, financial planning, and accounting organizations. Previously, he served as the chief financial officer for VECTRA, a $1 billion technology-driven diversified industry business, which was a portfolio company of certain funds managed by affiliates of Apollo Global Management, LLC. Prior to VECTRA, Mr. Sial was with SunEdison in various global finance and operations leadership roles from 2011 to 2015, including chief financial officer of MEMC’s solar energy and materials divisions. He also spent 11 years with General Electric (GE) in a variety of roles, from FP&A leader for the Energy Services unit to Chief Financial Officer of Power Delivery for GE’s Transmission and Distribution group. He earned his master’s degree in business administration from Duke University’s Fuqua School of Business and his Bachelor of Commerce from Delhi University in India.
33
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis provides a detailed review and analysis of our compensation policies and programs that applied to our named executive officers during the fiscal year ended December 30, 2018. Our named executive officers, as set forth in the following table, were our chief executive officer, our chief financial officer and former chief financial officer, and the next three most highly compensated executive officers serving as of December 30, 2018.
|
Name
|
Title
|
|
Thomas Werner
|
Chief Executive Officer
|
|
Charles Boynton(1)
|
Former Executive Vice President and Chief Financial Officer
|
|
Manavendra Sial(2)
|
Executive Vice President and Chief Financial Officer
|
|
Kenneth Mahaffey
|
Executive Vice President and General Counsel
|
|
William Mulligan III
|
Former Executive Vice President, Global Operations
|
|
Douglas Richards
|
Executive Vice President, Administration
|
| (1) | Mr. Boynton served as our Chief Financial Officer until May 9, 2018 and remained an Executive Vice President of the Company through July 1, 2018. |
| (2) | Mr. Sial became Chief Financial Officer of the Company on May 9, 2018. |
Our compensation programs are intended to align our named executive officers’ interests with those of our stockholders by rewarding performance that meets or exceeds the goals that the Compensation Committee establishes, with the ultimate objective of increasing stockholder value. We have adopted an executive compensation philosophy designed to deliver competitive total compensation upon the achievement of financial and strategic performance objectives. The total compensation received by our named executive officers varies based on corporate and individual performance, as measured against performance goals. Therefore, a significant portion of each named executive officer’s total pay is tied to Company performance (see the “2018 Compensation Components” chart below).
In fiscal 2018, we achieved $1.815 billion in non-GAAP revenue and Adjusted EBITDA of $111 million (a GAAP net loss of $5.76 per diluted share), and ended the year with $309 million in cash and cash equivalents in fiscal 20183, exceeding our performance target for Adjusted EBITDA, and exceeding the minimum performance target level for revenue and cash and cash equivalents.
For fiscal 2018, our financial performance and performance against other strategic initiatives were the key factors in the compensation decisions and outcomes for the year, consistent with our commitment to pay for performance. Highlights of our named executive officer compensation program in 2018 were as follows:
| • | Commitment to pay for performance. A significant majority of our named executive officers’ target compensation (87% for our chief executive officer, and averaging 79% for our other named executive officers) consisted of semi-annual and annual bonus programs and long-term equity incentives. |
| • | Cash bonus payouts below target. Our annual bonus program incorporated financial metrics that we believe align our compensation practices with our business goals and, correspondingly, align executives’ interests with stockholders’ interests. Achievement of performance targets related to our revenue, adjusted EBITDA, and cash and cash equivalents, along with achievement of our corporate milestone performance targets and individual modifiers assigned based on individual performance determined the actual payouts under our performance-based cash bonus programs (specifically, the 2018 Corporate Annual Bonus Program and the Amended and Restated Executive Semi-Annual Incentive Bonus Plan, which we refer to as our Executive Semi-Annual Plan) for our named executive officers. In 2018, we introduced a safety modifier in the 2018 Corporate Annual Bonus Program to reinforce our safety culture. Our corporate performance in fiscal 2018 resulted in aggregate cash bonus awards under these programs at approximately 97%. Performance metrics, thresholds, and targets are further described below in “Executive Compensation—Non-Equity Incentive Plan Compensation.” |
| 3 | To supplement its consolidated financial results presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses non-GAAP measures that are adjusted for certain items from the most directly comparable GAAP measures, as described in Appendix A, “Use of Non-GAAP Financial Measures.” |
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| • | Performance based stock units achieved below target. Certain performance-based restricted stock units granted in 2018 to each of our named executive officers other than Mr. Werner and Dr. Mulligan were only earned if we achieved performance targets set in respect of our annual revenue, Adjusted EBITDA, cash and cash equivalent metrics, and corporate restructuring performance goals targeting operating expense and cost of goods sold overhead reduction. Performance with respect to the revenue target, cash and cash equivalents target, and corporate restructuring target exceeded the minimum performance levels but fell short of the target performance levels, and performance with respect to the Adjusted EBITDA target exceeded the target performance level but fell short of the maximum, which resulted in 97% of these equity awards being earned. Performance metrics, thresholds, and targets are further described below in “Executive Compensation—Equity Incentive Plan Compensation.” |
| • | Increased focus on corporate restructuring and cash management performance. Additional performance-based restricted stock units granted in 2018 to Mr. Werner and Dr. Mulligan were only earned if we achieved performance targets set in respect of other specified metrics relating to corporate restructuring, cost and expense, and cash management. In fiscal 2018, Mr. Werner earned additional performance-based restricted stock awards based on (i) performance with respect to operating expense and cost of goods sold overhead reduction targets, which exceeded the minimum performance level but fell short of the target performance level, and (ii) performance with respect to reorganization of corporate operating expenses into the business units achieved at the maximum level, which, combined, resulted in additional performance-based restricted stock awards granted to Mr. Werner being earned at 120% of the target level. Dr. Mulligan earned additional performance-based restricted stock awards based on (i) performance with respect to operating expense and cost of goods sold overhead reduction targets, which exceeded the minimum performance level but fell short of the target performance level, and (ii) performance with respect to business unit cash flow targets, which exceeded the relevant target performance level but did not reach the maximum performance level, which, combined, resulted in additional performance-based restricted stock awards granted to Dr. Mulligan being earned at 118% of the target level. Those awards, as well as performance metrics, and achievement levels with respect to all such awards, are further described below in “Executive Compensation—Equity Incentive Plan Compensation.” |
At our 2018 Annual Meeting of Stockholders, our stockholders voted to approve, on an advisory basis, the compensation of our named executive officers, as disclosed in the proxy statement for that meeting. We refer to this vote as our Say-on-Pay vote. Our Compensation Committee considered the results of the Say-on-Pay vote (which received approximately 86% approval of the votes cast) at its meetings after the Say-on-Pay vote when it set annual executive compensation. After our Compensation Committee reviewed the stockholders’ approval of the Say-on-Pay vote in 2018, our Compensation Committee decided to maintain the general framework of our fiscal 2017 compensation policies and programs for our named executive officers in fiscal 2018, with certain modifications, including updating our peer group, introduction of a safety modifier in performance-based cash bonus awards, and the introduction of new performance metrics in equity awards focused on corporate restructuring, operating expense and cost of goods sold overhead reduction, and cash management objectives, as the Committee believed such programs continued to be in the best interest of our stockholders.
The following discussion should be read together with the information we present in the compensation tables, the footnotes and narratives to those tables, and the related disclosure appearing in “Executive Compensation” below.
General Philosophy and Objectives
In fiscal 2018, we continued to operate a compensation program designed primarily to reward our named executive officers based on our financial performance and the achievement of corporate objectives consistent with increasing long-term stockholder value. Our 2018 executive compensation program was based on the following primary objectives:
| • | to attract, retain, and reward executive officers who contribute to our success; and |
| • | to align compensation programs with our short- and long-term performance. |
35
In order to implement our philosophy, the Compensation Committee has a disciplined process for adopting executive compensation programs and individual executive officer pay actions that includes the analysis of competitive market data, a review of each executive officer’s role, performance assessments, and consultation with the Compensation Committee’s independent compensation consultant, as described below.
The Compensation Committee believes that the most effective executive compensation program is one that rewards the achievement of specific corporate and financial goals, with the ultimate objective of increasing stockholder value. In addition, we believe the mix of base salary, performance-based cash awards, and time-based and performance-based equity awards provides proper incentives without encouraging excessive risk taking. We believe that the risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on our company.
The Compensation Committee is responsible for managing the compensation of our executive officers, including our named executive officers, in a manner consistent with our compensation philosophy. In accordance with the “controlled company” exception under the applicable listing standards of The Nasdaq Stock Market, our Compensation Committee is composed of two independent directors and two directors designated by our controlling stockholder, Total. We also have a Section 16 Subcommittee of the Compensation Committee consisting solely of independent directors available to approve certain compensation matters in accordance with Rule 16b-3 of the Exchange Act.
The Compensation Committee establishes our compensation philosophy and objectives and annually reviews and, as necessary and appropriate, adjusts each named executive officer’s compensation. The Compensation Committee offered our named executive officers total target compensation opportunities ranging from the 50th percentile to the 75th percentile of our peer group of companies (as further described below) during fiscal 2018. In general, the Compensation Committee’s philosophy is to set total target compensation between the 50th percentile and 75th percentile of our peer group. Individual named executive officer compensation may be above or below this range based on experience, scope of position, and individual performance.
When determining appropriate compensation for the named executive officers, the Compensation Committee considered the advice of an independent compensation consultant, recommendations from management and internal compensation specialists, practices of companies within our peer group, our performance, our business plan, and individual performance. As part of this process, the compensation consultant prepared a competitive analysis of our compensation program, and management presented its recommendations regarding base salary, time- and performance-based equity awards, and performance targets under our 2018 Annual Bonus Programs and Executive Semi-Annual Bonus Plan to the Compensation Committee for its review and consideration. The Compensation Committee accepts, rejects, or accepts as modified, management’s various recommendations regarding compensation for the named executive officers other than our chief executive officer. The Compensation Committee also approves, after modification, management’s recommendations on various performance targets and milestones. The Compensation Committee met without our chief executive officer when reviewing and establishing his compensation.
In addition, we hired Mr. Sial as our new chief financial officer in May 2018. In consultation with the Compensation Committee, management considered peer company comparisons, internal pay equity, and Mr. Sial’s experience in determining his base salary, target bonus, new hire equity grant, and other new hire bonuses and perquisites, which are further described below in “Perquisites and Other Compensation.”
In fiscal 2018, the Compensation Committee directly engaged and retained Semler Brossy, a compensation consulting firm, as its compensation consultant. The Compensation Committee selected Semler Brossy on the basis of its experience and familiarity with the technology industry after soliciting and reviewing proposals from a number of firms, including its former compensation consultant, Radford, a compensation consulting firm. Also in fiscal 2018, the Compensation Committee directly engaged and retained Radford to identify a list of our peer group of companies. The Compensation Committee selected Radford on the basis of its experience and familiarity with both the Company and the technology industry. Radford continued to serve as the Compensation Committee’s compensation consultant through March 2018, when the role formally transitioned to Semler Brossy.
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Radford provided the Compensation Committee with market information on the peer companies, as well as aggregated data on the broader technology market with respect to base salaries, cash bonus awards as a percentage of base salaries, total cash compensation, equity awards, and total direct compensation. In fiscal 2018, Semler Brossy also advised the Compensation Committee in connection with evaluating our compensation practices, developing and implementing our executive compensation program and philosophy, establishing total compensation targets, and setting specific compensation components to reach the determined total compensation targets for fiscal 2019. Semler Brossy did not provide any services to us other than advising the Compensation Committee and management, at the direction of the Compensation Committee, on executive compensation issues. The Compensation Committee has considered and assessed all relevant factors, including, but not limited to, those set forth in Rule 10C-1(b)(4)(i) through (vi) under the Exchange Act, that could give rise to a potential conflict of interest with respect to the compensation consultants described above. Based on this review, the Compensation Committee determined that no material conflict of interest has been raised by the work performed by either Radford or Semler Brossy.
In fiscal 2018, the Compensation Committee directly engaged and retained Radford to identify, and Semler Brossy to review, a list of our peer group of companies. The Compensation Committee established the peer group used in connection with fiscal 2018 compensation decisions consistent with the Compensation Committee’s belief that the peer group should be based on companies that design and manufacture products with similar complexity, companies more likely to have robust sales channels including direct to consumers, companies offering end-to-end solutions to customers, and technology-driven companies. In comparison to our peer group used for purposes of setting fiscal 2017 compensation, our peer group in fiscal 2018 was updated to remove Advanced Micro Devices, Lam Research Corporation, Analog Devices, Inc., Linear Technology Corporation, ARRIS Group, Inc., NVIDIA Corporation, ON Semiconductor Corporation, Quanta Services, Inc., Sensata Technologies Holding, SolarCity Corporation (acquired by Tesla Motors, Inc.), Hexcel Corporation, Trimble Navigation Limited, Juniper Networks, Inc., Waters Corporation, Woodward, Inc., KLA Tencor Corporation, and Xilinx, Inc. and to add Generac Holdings, Mueller Water Products, Plexus, Canadian Solar, EnerSys, SunRun, Tetra Tech, TransAlta, and Tutor Perini. We made these changes taking into account how well the companies met our selection criteria, as well as our own restructuring changes, the refocusing of our business, and changes in solar markets. The final peer group was selected using a mix of the following factors:
| • | Publicly traded semiconductor, clean technology, and broader high-technology industry companies; and |
| • | Companies with between one-third and three times of each of our annual revenues, market value and employee headcount. |
The Compensation Committee believes the characteristics of our fiscal 2018 peer group mirror those of our core business as closely as possible. The companies included in our peer group for purposes of establishing fiscal 2018 compensation are listed below:
|
•
|
Marvell Technology Group Ltd.
|
•
|
AVX Corporation
|
|
•
|
Mueller Water Products
|
•
|
Belden Inc.
|
|
•
|
Canadian Solar
|
•
|
Plexus
|
|
•
|
EnerSys
|
•
|
SunRun
|
|
•
|
First Solar, Inc.
|
•
|
Tetra Tech
|
|
•
|
FLIR Systems, Inc.
|
•
|
TransAlta
|
|
•
|
Generac Holdings
|
•
|
Tutor Perini
|
|
•
|
Itron, Inc.
|
•
|
Viavi Solutions
|
In making its compensation decisions for our named executive officers for fiscal 2018, the Compensation Committee compared the total compensation of each named executive officer to the compensation of individuals in comparative positions at companies in the peer group based on information that management obtained from public filings, supplemented by data Radford provided from surveys. In general, the Compensation Committee evaluates base salaries relative to the 50th percentile of the peer group and both performance-based cash bonus awards and long-term time- and performance-based equity awards generally between the 50th percentile and 75th percentile of the peer group.
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In establishing incentive opportunities, the Compensation Committee focused on corporate performance so that if our corporate performance was achieved at target levels, the Compensation Committee expected that our named executive officers’ total pay would be between the 50th percentile of the peer group and the 75th percentile of the peer group. The Compensation Committee viewed comparisons to peer group and market data as just the beginning, and not the end, of its discussion regarding our named executive officers’ pay opportunities for fiscal 2018, and looked to individual performance, the named executive officer’s experience in the executive role, and the executive’s scope of responsibility being narrower or broader than that of comparable positions at our peer group companies to establish final pay opportunities either above or below the initial market data comparisons.
In fiscal 2018, target cash compensation (base salary plus target bonus opportunity) was set between the 50th and 75th percentile for each named executive officer except for Mr. Mahaffey. Mr. Mahaffey’s target cash compensation was set at the 25th percentile due to his limited time in the role. He was promoted to the position of Executive Vice President and General Counsel on November 1, 2016.
For fiscal 2018, the Compensation Committee allocated total compensation among various pay elements consisting of base salary, performance-based cash bonus awards, time-based equity awards, performance-based equity awards, and perquisites and other compensation. The table below provides an overview of each element of compensation and is followed by a further discussion and analysis of the specific decisions that we made for each element for fiscal 2018:
|
Compensation Component
|
Objective and Basis
|
Form
|
Practice
|
|
Base salary
|
Fixed compensation that is set at a competitive level for each position to reward demonstrated experience and skills.
|
Cash
|
Competitive market ranges are generally established around the 50th percentile, with consideration for experience and scope of role relative to comparable positions in one peer group.
|
|
Performance-based
cash bonus awards |
Semi-annual and annual incentives that drive our performance and align executives’ interests with stockholders’ interests.
|
Cash
|
Target incentives are set as a percentage of base salary and are set between the 50th to the 75th percentile. Actual payment is calculated based on achievement of corporate and individual goals.
|
|
Time-based equity
awards |
Long-term incentive that aligns executives’ interests with stockholders’ interests and helps retain executives through long-term vesting periods.
|
Restricted
stock units |
Target equity awards (time-based plus performance-based) generally set between the 50th percentile and the 75th percentile.
|
|
Performance-based
equity awards |
Long-term incentive that focuses and rewards our performance and aligns executives’ interests with stockholders’ interests and helps retain executives through long-term vesting periods.
|
Performance
stock units |
Target equity awards (time-based plus performance-based) generally set between the 50th percentile and the 75th percentile. Actual payment is calculated based on achievement of corporate goals.
|
|
Perquisites and
other compensation |
Offered to attract and retain talent and to maintain competitive compensation packages.
|
Various
|
We do not generally provide any special perquisites to our named executive officers. Newly hired executive officers may receive one-time signing bonuses or other similar payments to attract them to join the company. Named executive officers are eligible for certain severance benefits pursuant to their employment agreements and our 2016 Management Career Transition Plan. Named executive officers are eligible to participate in health and welfare benefits and 401(k) matching available to all employees.
|
The relative proportion of each element for fiscal 2018, as set forth below, was based generally on the Compensation Committee’s comparison of compensation that we offered our named executive officers against compensation offered by peer group companies to their named executive officers, the tax and accounting consequences of certain types of equity compensation, and a desire to allocate a higher proportion of total compensation to performance-based and equity incentive awards.
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2018 Compensation Components
| * | Other Named Executive Officers excludes Manavendra Sial, who was hired in May 2018. |
Analysis of Fiscal 2018 Compensation Decisions
Base Salary. For fiscal 2018, the Compensation Committee chose not to adjust the base salaries of our named executive officers, after taking into account target cash and total compensation levels relative to market data, executive officer performance and experience in their role, and the executive’s scope of responsibility in comparison to comparable positions at our peer group companies.
The table below sets forth the salaries in effect in fiscal 2018 compared with the salaries in effect in fiscal 2017 for each of our named executive officers:
Name |
2017 Base Salary(1) |
2018 Base Salary(2) |
||||
Thomas Werner |
428,154 | (3) |
600,000 | |||
Manavendra Sial(4) |
— | 425,000 | ||||
Charles Boynton(5) |
470,000 | 470,000 | ||||
Kenneth Mahaffey |
325,000 | 325,000 | ||||
William Mulligan III |
380,000 | 380,000 | ||||
Douglas Richards |
370,000 | 370,000 | ||||
| (1) | These amounts represent 2017 base salaries after April 1, 2017. |
| (2) | These amounts represent 2018 base salaries after April 1, 2018. |
| (3) | Reflects a reduced salary of $1, net of benefit costs, for the first fiscal quarter of 2017, which was reinstated at its previous annualized amount of $600,000 on April 1, 2017. |
| (4) | Mr. Sial joined the Company as an Executive Vice President on May 2, 2018, and became our Chief Financial Officer on May 9, 2018. |
| (5) | Mr. Boynton served as our Chief Financial Officer until May 9, 2018, and remained an Executive Vice President of the Company through July 1, 2018. |
Performance-Based Cash Bonus Awards. As in the prior fiscal year, we maintained two overall performance-based cash bonus programs during fiscal 2018 in order to link bonus payments to corporate financial goals and operational objectives and to individual performance. The first program was our Executive Performance Bonus Plan, under which we adopted the 2018 Corporate Annual Bonus Program. All of our named executive officers participated in the 2018 Corporate Annual Bonus Program, which is discussed in more detail below. The second program was our Executive Semi-Annual Incentive Bonus Plan (referenced as our Semi-Annual Bonus Plan).
The supplemental table below entitled “Estimated Possible Payouts Under Semi-Annual and Annual Bonus Programs” sets forth each named executive officer’s target and maximum payout opportunities under both the 2018 Corporate Annual Bonus Program and the Semi-Annual Bonus Plan. Under the terms of both bonus plans, failure to achieve certain corporate or individual metrics could have resulted in zero payouts to an individual for a given period. The column entitled “2018 Total Non-Equity Incentive Plan Compensation” in our 2018 Summary Compensation Table below and the footnotes thereto detail the actual payouts awarded under these two bonus plans to each named executive officer for fiscal 2018.
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Estimated Possible Payouts Under Semi-Annual and Annual Bonus Programs
Name |
2018 Semi-Annual Bonus Plan Target (Aggregate) ($) |
2018 Semi-Annual Bonus Plan Maximum (Aggregate) ($) |
2018 Corporate Annual Bonus Program Target ($) |
2018 Corporate Annual Bonus Program Maximum ($) |
||||||||
Thomas Werner |
300,000 | 468,750 | 900,000 | 1,350,000 | ||||||||
Manavendra Sial(1) |
95,625 | 149,414 | 286,875 | 430,313 | ||||||||
Charles Boynton(2) |
105,750 | 165,234 | 317,250 | 475,875 | ||||||||
Kenneth Mahaffey |
60,938 | 95,215 | 182,813 | 274,219 | ||||||||
William Mulligan III |
85,500 | 133,594 | 256,500 | 384,750 | ||||||||
Douglas Richards |
74,000 | 115,625 | 222,000 | 333,000 | ||||||||
| (1) | Mr. Sial joined the Company as an Executive Vice President on May 2, 2018, and became Chief Financial Officer of the Company on May 9, 2018. Target and Maximum possible payout are shown at an annualized rate. Actual payouts determined based on date of hire. |
| (2) | Mr. Boynton served as our Chief Financial Officer until May 9, 2018, and remained an Executive Vice President of the Company through July 1, 2018. Target and Maximum possible payout are shown at an annualized rate. Actual payouts determined based on employment through separation date. |
Because we generally set base salaries for our executive officers at the 50th percentile of the market of salaries for executive officers in similar positions and with similar responsibilities at comparable companies, we rely on performance-based cash bonus awards to elevate target total cash compensation to between the 50th percentile and the 75th percentile.
In fiscal 2018, we allocated 75% of each named executive officer’s aggregate annual target cash bonus awards under the applicable 2018 Annual Bonus Program and 25% under the Executive Semi-Annual Bonus Plan, to tie a significant proportion of our named executive officers’ incentive compensation to our full fiscal year operating and financial results.
Bonus Calculation:
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The table below summarizes the total target payout levels for each named executive officer in each of fiscal 2017 and fiscal 2018, as well as the target payout levels under the 2018 Annual Bonus Programs and the Executive Semi-Annual Bonus Plan (for fiscal 2018), expressed as a percentage of annual base salary. For fiscal 2018, the Compensation Committee maintained target payout levels under these programs at the same percentage of annual salary for each of our named executive officers, after it evaluated the market data, individual performance, and the scope of the named executive officer roles.
Name |
2017 Total Target Payout (including Annual and Semi-Annual Programs) as Percentage of Annual Salary |
2018 Total Target Payout (including Annual and Semi-Annual Programs) as Percentage of Annual Salary |
2018 Semi-Annual Bonus Plan Target Payout as Percentage of Annual Salary |
2018 Annual Bonus Programs Target Payout as Percentage of Annual Salary |
||||||||
Thomas Werner(1) |
200 | % |
200 | % |
50 | % |
150 | % |
||||
Manavendra Sial(2) |
— | 90 | % |
22.5 | % |
67.5 | % |
|||||
Charles Boynton(3) |
90 | % |
90 | % |
22.5 | % |
67.5 | % |
||||
Kenneth Mahaffey |
75 | % |
75 | % |
18.7 | % |
56.3 | % |
||||
William Mulligan III |
— | 90 | % |
22.5 | % |
67.5 | % |
|||||
Douglas Richards |
80 | % |
80 | % |
20 | % |
60 | % |
||||
| (1) | Target percentages were set based on Mr. Werner’s salary as of April 1, 2017, following reinstatement of his regular annual salary. |
| (2) | Mr. Sial joined the Company as an Executive Vice President on May 2, 2018, and became Chief Financial Officer of the Company on May 9, 2018. Actual payouts were determined based on date of hire. |
| (3) | Mr. Boynton served as our Chief Financial Officer until May 9, 2018, and remained an Executive Vice President of the Company through July 1, 2018. Actual payouts were determined based on employment through separation date. |
Actual bonus payments for each named executive officer under the 2018 Annual Bonus Programs and the Semi-Annual Bonus Plan are formula-driven, and the formulas are used to calculate actual bonus payments. See “Executive Compensation—Non-Equity Incentive Plan Compensation” below for more information about these formulas.
In fiscal 2018, we continued to use the annual revenue, Adjusted EBITDA, and cash and cash equivalents metrics, which we believe to be reflective of the results of our operations, and we added a safety modifier, based on our annual Total Recordable Injury Rate (TRIR). TRIR is a measurement of the total number of fatalities, permanent disability cases, occupational lost-time accidents, restricted work cases, and medical treatments divided by the number of worked hours, and then multiplied by 1 million. Total payout factor under the 2018 Annual Bonus Programs was subject to modification, capped at +10% or –10%, based on achievement with respect to our TRIR target.
Each of our named executive officers participated in our 2018 Corporate Annual Bonus Program, which required the achievement of corporate targets established in respect of our: annual revenue metric (33.3% of payout), annual Adjusted EBITDA metric (33.3% of payout), and cash and cash equivalents metric (33.3% of payout), as adjusted by the safety modifier.
In fiscal 2018, we achieved the following, as calculated under the 2018 Corporate Annual Bonus Program (in millions of dollars):
Metric |
Annual Revenue |
Adjusted EBITDA |
Cash and Cash Equivalents |
Safety Modifier |
Total |
||||||||||
2018 Target |
$ | 2,075 | $ | 68 | $ | 340 | .90 | ||||||||
Actual Achievement |
$ | 1,815 | $ | 111 | $ | 309 | 1.02 | ||||||||
Payout Factor |
23 | % |
46 | % |
31 | % |
98 | % |
97.4 | % |
|||||
Earned bonus amounts are reflected under “2018 Total Non-Equity Incentive Plan Compensation” in the 2018 Summary Compensation Table below.
Payments to our named executive officers under our Semi-Annual Bonus Plan required the achievement of corporate targets set in respect of our semi-annual profitability metric and quarterly corporate key results, as modified
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by an individual modifier assigned by the chief executive officer (or, in the case of our chief executive officer, by the Board) based on his or her individual performance. Such individual modifiers are expressed as a percentage, capped at 125%, and are combined with a corporate milestones factor and the level of achievement of our corporate targets, to calculate bonus payments under the plan.
Example Calculation:
We incorporate a “management by objective” system throughout our organization to establish performance goals that supplement our financial goals. Management establishes five-year corporate key results, and then derives from them annual and quarterly corporate key results, which we refer to as corporate milestones. Each corporate milestone is reviewed, revised, and approved by our Board, and subsequently the scores are reviewed and approved by our Compensation Committee. In addition, each named executive officer, other than our chief executive officer, establishes quarterly personal goals, which we refer to as Key Results, which are approved by the chief executive officer and are intended to be aligned with each quarter’s corporate milestones. Quarterly corporate milestones in fiscal 2018 included sensitive business objectives applicable to our entire company, focusing on strategic transactions, revenue and margin targets, confidential cost and production targets, technology milestones, bookings targets, major customer transactions, new product development, and manufacturing plans and enhancements. For fiscal 2018, personal Key Results objectives included confidential revenue and margin targets, product development, and achieving booking targets, among other operational goals. The Board determined the chief executive officer’s Key Results, which consisted solely of the quarterly corporate milestones selected after discussion with the chief executive officer. These Corporate Milestones and individual Key Results are typically challenging in nature and designed to encourage the individual to achieve success in his or her position during the performance period. At the end of the year, the Compensation Committee determines the chief executive officer’s individual modifier, and the chief executive officer determines the individual modifier for each other named executive officer, based on achievement of their respective individual Key Results.
In fiscal 2018, we achieved an average score of 86% on corporate milestones, and the average individual modifier assigned to our named executive officers was 97%. The maximum individual modifier was 100% and the minimum individual modifier was 90%. Factors considered in determining individual modifiers include performance against corporate, individual key results and annual objectives, and adherence to Company values.
Equity Awards. Our Compensation Committee believes that long-term Company performance is best achieved by an ownership culture that encourages long-term performance by our executive officers through the use of equity-based awards. Our SunPower Corporation 2015 Omnibus Incentive Plan, or 2015 Equity Plan, permits the grant of stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares, and other stock-based awards. Consistent with our goal to attract, retain, and reward executive officers who contribute to our long-term success in fiscal 2018, our long-term equity awards ranged from the 50th percentile to the 75th percentile of our peer group. The Compensation Committee considered the long-term equity awards made to our chief executive officer in 2017, and in fiscal 2018 set Mr. Werner’s target long-term equity awards at the 50th percentile in order to align his at-risk compensation with stockholder returns and to promote long-term retention. Our other named executive officers’ long-term equity awards were between the 50th percentile and 75th percentile, considering individual performance, the named executive officer’s experience in the executive role, the executive’s scope of responsibility being narrower or broader than that of comparable positions at our peer group companies, and equity burn-rate and shareholder dilution.
The Compensation Committee then allocated long-term equity awards between time-based and performance-based restricted stock units. To balance the advantages of both time-based and performance-based awards, the Compensation Committee decided that annual long-term equity incentive awards granted to Mr. Boynton, Mr. Mahaffey, and Mr. Richards in fiscal 2018 would be made half in the form of performance-based restricted stock
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units (which could be earned in amounts between 0% and 150% of the target amount) and half in the form of time-based restricted stock units, all of which would vest over four years. We believe that time-based restricted stock units provide a more effective retention tool while performance-based restricted stock units provide a stronger performance driver.
The Compensation Committee decided that annual long-term equity incentive awards granted to Mr. Werner in fiscal 2018 would be in the form of 65,000 time-based restricted stock units, all of which would vest over two years, and 65,000 in the form of performance-based restricted stock units (which could be earned in amounts between 0% and 150% of the target amount), all of which would vest over two years based on 2018 Corporate Annual Bonus Program Revenue, Adjusted EBITDA, and Cash and Cash Equivalents performance goals. In addition to these annual awards, the Compensation Committee granted an additional 90,000 performance-based restricted stock units (which could be earned in amounts between 0% and 150% of the target amount) to Mr. Werner, to be earned based on the achievement of performance goals tied to our 2018 Corporate Annual Bonus Program and our Semi-Annual Bonus Plan, all of which would vest on March 31, 2020, as additional incentive for performance, and as a long-term retention measure. In 2018, the Compensation Committee also decided to grant an additional 50,000 performance-based restricted stock units (which could be earned in amounts between 0% and 150% of the target amount) to Mr. Werner, to be earned based on the achievement of performance goals tied to corporate restructuring objectives, all of which would vest over two years on March 31, 2020, as additional incentive for performance, and as a long-term retention measure.
The Compensation Committee decided that annual long-term equity incentive awards granted to Dr. Mulligan in fiscal 2018 would be in the form of 37,500 time-based restricted stock units, all of which would vest over four years, and 37,500 in the form of performance-based restricted stock units (which could be earned in amounts between 0% and 150% of the target amount) based on 2018 Corporate Annual Bonus Program Revenue, Adjusted EBITDA, and Cash and Cash Equivalents performance goals, all of which would vest over four years. In 2018, the Compensation Committee also decided to grant an additional 20,000 performance-based restricted stock units (which could be earned in amounts between 0% and 150% of the target amount) to Dr. Mulligan, to be earned based on the achievement of performance goals tied to corporate cost and expense management and cash management objectives for his business unit, all of which would vest over four years, as additional incentive for performance, and as a long-term retention measure.
The Compensation Committee approved a new hire grant to Mr. Sial in fiscal 2018 in the form of 100,000 time-based restricted stock units, all of which would vest over four years. In addition, the Committee approved an additional grant of 160,000 restricted stock units in December 2019, vesting over two years, as recognition for performance in the role and as an additional long-term retention measure.
Awards granted and earned in fiscal 2018 were as follows:
Name |
Time-Based Restricted Stock Units |
Performance-Based Restricted Stock Units (Target) |
Performance-Based Restricted Stock Units Earned |
||||||
Thomas Werner |
65,000 | 205,000 | 218,420 | ||||||
Manavendra Sial(1) |
260,000 | -0- | -0- | ||||||
Charles Boynton(2) |
50,000 | 50,000 | -0- | ||||||
Kenneth Mahaffey |
42,500 | 42,500 | 41,268 | ||||||
William Mulligan III |
37,500 | 57,500 | 60,815 | ||||||
Douglas Richards |
45,000 | 45,000 | 43,695 | ||||||
| (1) | Mr. Sial joined the Company as an Executive Vice President on May 2, 2018, and became Chief Financial Officer of the Company on May 9, 2018. |
| (2) | Mr. Boynton served as our Chief Financial Officer until May 9, 2018, and remained an Executive Vice President of the Company through July 1, 2018. |
We used performance-based restricted stock units as incentive compensation during fiscal 2018 to align our named executive officers’ compensation with corporate performance. In connection with our annual review of executive officer compensation, the Compensation Committee approved performance targets for performance stock unit awards to each of our executive officers other than our chief executive officer and Dr. Mulligan in respect of the following: annual revenue metric (25% of the award), Adjusted EBITDA metric (25% of the award), cash and cash
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equivalents metric (25% of the award), and corporate restructuring metrics (25% of the award), and a formula under which actual awards would be calculated after completion of fiscal 2018. The Compensation Committee also approved performance targets for a performance stock unit award to Dr. Mulligan in respect of the following: annual revenue metric (33.3% of the award), Adjusted EBITDA metric (33.3% of the award), cash and cash equivalents metric (33.3% of the award), and a formula under which the actual award would be calculated after completion of fiscal 2018.
In addition, the Compensation Committee approved performance targets for performance stock units awarded to our chief executive officer tied to actual payouts under our 2018 Corporate Annual Bonus Program and Semi-Annual Bonus Plan. See “Executive Compensation—Equity Incentive Plan Compensation” below for more information about these metrics, targets, and formulas.
These annual performance metrics for each of these awards were selected on the basis of the operating plan approved by our Board after considering expectations regarding our future growth and strategy, as well as potential challenges in achieving such growth and strategic goals. One-year performance periods provide us more flexibility in an uncertain business environment. The performance targets were established at a level that the Compensation Committee determined to be challenging for our named executive officers to achieve. In fiscal 2018, our named executive officers achieved a 17% payout factor in respect of the annual revenue target, a 34% payout factor in respect of the annual Adjusted EBITDA target, a 23% payout factor in respect of the cash and cash equivalents target, and a 23% payout factor in respect of the corporate restructuring target, resulting in a combined 97% payout for each of our executive officers other than Mr. Werner and Dr. Mulligan.
In fiscal 2018, Mr. Werner achieved a 23% payout factor in respect of the annual revenue target, a 46% payout factor in respect of the annual Adjusted EBITDA target, and a 31% payout factor in respect of the cash and cash equivalents target, resulting in a combined 99% payout on 125,000 of the performance-based stock units awarded to him. Mr. Werner achieved a 114% payout factor in respect of achievement of 2018 Semi-Annual Bonus on 30,000 of the performance-based stock units awarded to him. Mr. Werner achieved a 120% payout factor in respect of achievement of the corporate restructuring objectives on 50,000 of the performance-based stock units awarded to him.
In fiscal 2018, Dr. Mulligan achieved a 23% payout factor in respect of the annual revenue target, a 46% payout factor in respect of the annual Adjusted EBITDA target, and a 31% payout factor in respect of the cash and cash equivalents target, resulting in a combined 99% payout on 37,500 of the performance-based stock units awarded to him. Dr. Mulligan achieved a 118% payout factor in respect of achievement of cost, expense, and cash management objectives on 20,000 of the performance-based stock units awarded to him.
The performance-based restricted stock units earned by our named executive officers other than our chief executive officer began vesting in four equal annual installments, subject to continued service, starting March 1, 2019. Certain performance-based restricted stock units granted to our chief executive officer will vest in in two equal installments, subject to continued service, starting March 31, 2019, and certain other performance-based restricted stock units granted to our chief executive officer will vest in full on March 31, 2020, subject to continued service.
For fiscal 2018, our Compensation Committee continued to grant time-based restricted stock units that vest in four equal annual installments to our named executive officers (two equal annual installments for our chief executive officer), subject to continued service, starting March 1, 2019.
Perquisites and Other Compensation. As in prior years, we generally do not provide any special perquisites to our named executive officers. We provided certain perquisites and other health and welfare and retirement benefits, such as health, vision, and life insurance coverage and participation in and matching contributions under our 401(k) defined contribution plan, which benefits are generally available to all employees. In 2018, we offered housing assistance and additional travel expense reimbursement to Mr. Sial in connection with his new hire offer. The arrangement, which is limited to the first twelve months of his employment, provides for a furnished apartment, rental car, and reasonable travel expenses for weekly round-trip travel from St. Louis, Missouri, to San Jose, California.
For more information about these arrangements and benefits, see footnote 4 to the “2018 Summary Compensation Table” below.
Pension Benefits. None of our named executive officers participate in or have account balances in qualified or non-qualified defined benefit plans sponsored by us.
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Nonqualified Deferred Compensation. None of our named executive officers participate in or have account balances in non-qualified defined contribution plans or other deferred compensation plans maintained by us.
Employment and Severance Arrangements
Change in Control Arrangements. We are party to employment agreements with certain of our executive officers, including our named executive officers, which provide severance benefits for employment terminations in connection with a change of control. The change of control severance arrangements generally entitle each named executive officer to certain calculated payments tied to base salary and bonus targets and accelerated vesting of his outstanding equity awards, but only upon termination by us without cause or by the executive for good reason (as those terms are defined in the agreements) in connection with a change of control of the Company (a “double trigger” arrangement). The Compensation Committee believes that these reinforce and encourage the continued attention and dedication of our named executive officers to their assigned duties without the distraction arising from the possibility of a change of control, and to enable and encourage our named executive officers to focus their attention on obtaining the best possible outcome for our stockholders without being influenced by personal concerns regarding the possible impact of a change of control on their job security and benefits. For more information, see “Executive Compensation—Employment Agreements” and “Executive Compensation—Potential Payments Upon Termination or Change of Control.”
Severance Arrangements. We also maintain our 2016 Management Career Transition Plan, adopted in August 2015, which generally entitles each named executive officer to certain calculated payments tied to salary and bonus targets, healthcare benefits, and outplacement assistance if the individual is terminated without cause. Under his employment agreement, our chief executive officer also receives limited accelerated vesting of outstanding equity awards if terminated without cause or if he resigns for good reason.
The Compensation Committee believes that the 2016 Management Career Transition Plan provides benefits that are consistent with industry practice. We believe that entering into change of control and severance arrangements with certain of our executives has helped us attract and retain excellent executive talent and that offering standard packages avoids case-by-case negotiations. Without these provisions, our named executive officers may not have chosen to accept employment with us or remain employed by us. The severance arrangements also promote stability and continuity in our senior management team. For more information, please see “Executive Compensation―Employment Agreements,” “Executive Compensation—2016 Management Career Transition Plan” and “Executive Compensation―Potential Payments Upon Termination or Change of Control” below.
Section 162(m) of the Code generally limits the deduction a company may take for compensation paid to certain executive officers to the extent the compensation for any such individual exceeds $1 million for the taxable year, unless the compensation qualifies as “qualified performance-based compensation” under Section 162(m) of the Code. This exception has been repealed such that compensation paid to certain executives in excess of $1 million will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. Our Compensation Committee considers deductibility as one of a number of factors considered in determining appropriate levels or methods of compensation. Accordingly, we may award compensation that is not deductible for federal income tax purposes.
In 2015, our Board adopted Stock Ownership Guidelines for Executives and Directors. Under these guidelines and subject to certain exceptions, our chief executive officer is expected to own shares of our stock that have a value equal to five times his annual salary, with ownership measured at the end of each calendar year. Although Mr. Werner was required to satisfy the stock ownership guidelines beginning five years after their implementation in 2015, he already owns shares with a value in excess of the guidelines. Other named executive officers are expected to own shares that have a value equal to their annual salary beginning five years after such officer first becomes subject to the guidelines. None of our executive officers other than Mr. Werner are currently subject to the guidelines. Shares may be owned directly by the individual, or owned by the individual’s spouse, or held in trust for the benefit of the individual’s spouse or family.
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Under our insider trading policy, our executive officers, directors, and employees are prohibited from engaging in short sales of our securities, establishing margin accounts or otherwise pledging our securities, hedging our securities, or buying or selling options, puts, or calls on our securities.
We do not have a policy regarding adjustment or recovery of awards or payments if the relevant performance goals or measures upon which they are based are restated or otherwise adjusted so that awards or payments are reduced.
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The following report has been submitted by the Compensation Committee of the Board:
The Compensation Committee of the Board has reviewed and discussed our Compensation Discussion and Analysis with management. Based on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2018 and definitive proxy statement on Schedule 14A for our 2019 Annual Meeting, each as filed with the SEC. The foregoing report was submitted by the Compensation Committee of the Board and shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A promulgated by the SEC or Section 18 of the Exchange Act, and shall not be deemed incorporated by reference into any prior or subsequent filing by us under the Securities Act of 1933 or the Exchange Act.
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COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS |
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Helle Kristoffersen
Thomas McDaniel Julien Pouget Patrick Wood III, Chair |
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April 5, 2019
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Compensation of Named Executive Officers
The 2018 Summary Compensation Table below quantifies the compensation for each of our named executive officers for services rendered during fiscal 2018 and, as applicable, fiscal 2017 and fiscal 2016. The primary elements of each named executive officer’s total compensation during fiscal 2018 are reported in the table below and include, among others, base salary, performance-based cash bonuses under our 2018 Corporate Annual Bonus Program and Semi-Annual Bonus Plan, awards of restricted stock units subject to time-based vesting, and awards of performance-based restricted stock units subject to achievement of financial targets and subsequent time-based vesting.
2018 Summary Compensation Table
Name and Principal Position |
Year |
Salary ($)(1) |
Bonus ($) |
Stock Awards ($)(2) |
Non-Equity Incentive Plan Compensation ($)(3) |
All Other Compensation ($)(4) |
Total ($) |
||||||||||||
Thomas Werner Chief Executive Officer and Chairman of the Board |
2018 |
600,000 | -0- | 2,165,300 | 1,218,369 | 25,018 | 4,008,687 | ||||||||||||
2017 |
428,154 | (8) |
-0- | 2,973,600 | 819,471 | 24,991 | 4,246,216 | ||||||||||||
2016 |
347,959 | (8) |
-0- | 6,773,488 | -0- | 24,436 | 7,145,883 | ||||||||||||
Manavendra Sial Executive Vice President and Chief Financial Officer(5) |
2018 |
266,442 | 100,000 | 1,907,600 | 245,480 | 79,400 | 2,598,922 | ||||||||||||
Charles Boynton Executive Vice President and Chief Financial Officer(6) |
2018 |
253,077 | 789,000 | 231,056 | 1,098,603 | 2,371,736 | |||||||||||||
2017 |
470,000 | 30,000 | 885,000 | 406,919 | 31,372 | 1,823,291 | |||||||||||||
2016 |
465,077 | 949,592 | 90,097 | 30,949 | 1,535,715 | ||||||||||||||
Kenneth Mahaffey Executive Vice President and General Counsel |
2018 |
325,000 | -0- | 670,650 | 240,539 | 30,594 | 1,266,783 | ||||||||||||
2017 |
325,000 | -0- | 283,200 | 227,819 | 31,007 | 867,026 | |||||||||||||
2016 |
272,057 | -0- | 951,938 | 49,124 | 28,221 | 1,301,340 | |||||||||||||
William Milligan III Former Executive Vice President, Global Operations(7) |
2018 |
380,000 | -0- | 754,550 | 342,365 | 30,706 | 1,507,621 | ||||||||||||
2017 |
364,481 | -0- | 531,000 | 296,319 | 31,068 | 1,222,868 | |||||||||||||
Douglas Richards Executive Vice President, Administration |
2018 |
370,000 | -0- | 710,100 | 296,316 | 21,330 | 1,397,746 | ||||||||||||
2017 |
370,000 | -0- | 672,600 | 277,810 | 21,474 | 1,341,884 | |||||||||||||
2016 |
370,000 | -0- | 656,400 | 63,714 | 22,088 | 1,112,202 | |||||||||||||
| (1) | The amounts reported in this column for fiscal 2018 reflect each named executive officer’s salary for fiscal 2018 plus payments for paid time off and holidays. |
| (2) | The amounts reported in the “Stock Awards” column for fiscal 2018 represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 of stock awards granted during the year (time-based and performance-based restricted stock units), excluding the effect of certain forfeiture assumptions. For the performance-based restricted stock units reported in this column for fiscal 2018, such amounts are based on the probable outcome of the relevant performance conditions as of the grant date. Assuming that the highest level of performance is achieved for these awards, the grant date fair value of the performance-based restricted stock unit awards would be: Mr. Werner, $2,518,313; Mr. Boynton, $610,500; Mr. Mahaffey, $518,925; Dr. Mulligan, $702,075; and Mr. Richards, $549,450. See Note 17 to our consolidated financial statements in our 2018 Annual Report for details as to the assumptions used to determine the aggregate grant date fair value of these awards. See also our discussion of stock-based compensation under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in our 2018 Annual Report |
| (3) | The amounts reported in this column for fiscal 2018 reflect the amounts earned under our 2018 Annual Bonus Programs and our Semi-Annual Bonus Plan. Additional information about non-equity incentive plan compensation earned during fiscal 2018 is set forth in “Executive Compensation—Non-Equity Incentive Plan Compensation” below. |
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| (4) | The amounts reported in this column for fiscal 2018 as “All Other Compensation” consist of the elements summarized in the table below. |
Name |
Health Benefits ($) |
Group Life Insurance ($) |
401(k) Match ($) |
Housing & Travel Perquisite |
Severance |
Total ($) |
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Thomas Werner |
15,832 | 936 | 8,250 | 25,018 | ||||||||||||||
Manavendra Sial(1) |
11,888 | 442 | 907 | 66,163 | 79,400 | |||||||||||||
Charles Boynton(2) |
13,527 | 428 | 8,250 | 1,076,398 | 1,098,603 | |||||||||||||
Kenneth Mahaffey |
21,837 | 507 | 8,250 | 30,594 | ||||||||||||||
William Mulligan III |
21,863 | 593 | 8,250 | 30,706 | ||||||||||||||
Douglas Richards |
12,503 | 577 | 8,250 | 21,330 | ||||||||||||||
| (1) | Mr. Sial joined the Company on May 2, 2018. We offered housing assistance and additional travel expense reimbursement to Mr. Sial in connection with his new hire offer. The arrangement, which is limited to the first twelve months of his employment, provides for a furnished apartment, rental car, and reasonable travel expenses for weekly round-trip travel from St. Louis, Missouri, to San Jose, California. |
| (2) | Mr. Boynton left the Company on July 1, 2018. We entered into a Separation and Release agreement with Mr. Boynton, providing him severance consistent with the 2016 Management Career Transition Plan as set forth in “Employment and Severance Agreements” below. In addition, the agreement provided for accelerated vesting of 53,232 outstanding restricted stock units on July 1, 2018. |
| (5) | Mr. Sial joined the Company as an Executive Vice President on May 2, 2018, and became Chief Financial Officer of the Company on May 9, 2018. |
| (6) | Mr. Boynton served as our Chief Financial Officer until May 9, 2018, and remained an Executive Vice President of the Company through July 1, 2018. |
| (7) | Dr. Mulligan was promoted to Executive Vice President, Operations, on February 10, 2017, from his previous position as Vice President, Upstream Strategy. |
| (8) | Reflects an annualized salary of $600,000, which was reduced at Mr. Werner’s request as of August 1, 2016 to $1, net of benefit costs, for the remainder of fiscal 2016, and the reduction was extended through the first fiscal quarter of 2017. Mr. Werner’s full salary was reinstated as of April 1, 2017. |
During fiscal 2018, our named executive officers were granted plan-based restricted stock units and performance stock units under our SunPower Corporation 2015 Omnibus Incentive Plan, which we refer to as our 2015 Equity Plan. They were also granted cash bonus awards under our 2018 Corporate Annual Bonus Program. The following table sets forth information regarding the stock awards and cash bonus awards granted to each named executive officer during fiscal 2018.
2018 Grants of Plan-Based Awards Table
Name |
Grant Date |
Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) |
Estimated Future Payouts Under Equity Incentive Plan Awards(2) |
All Other Stock Awards: Number of Shares of Stock or Units (#) |
Grant Date Fair Value of Stock and Option Awards ($) |
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Threshold ($) |
Target ($) |
Maximum ($) |
Threshold (#) |
Target (#) |
Maximum (#) |
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Thomas Werner |
— | (3) |
450,000 | 900,000 | 1,350,000 | — | — | — | — | — | |||||||||||||||||
— | (4) |
300,000 | 300,000 | 468,750 | — | — | — | — | — | ||||||||||||||||||
4/12/2018 | (5) |
— | — | — | 32,500 | 65,000 | 97,500 | — | 529,100 | ||||||||||||||||||
4/12/2018 | (5) |
— | — | — | 25,000 | 50,000 | 75,000 | — | 407,000 | ||||||||||||||||||
4/12/2018 | (6) |
— | — | — | -0- | 30,000 | 46,875 | — | 244,200 | ||||||||||||||||||
4/12/2018 | (7) |
— | — | — | 30,000 | 60,000 | 90,000 | — | 488,400 | ||||||||||||||||||
2/16/2018 | (8) |
— | — | — | — | — | — | 65,000 | 496,600 | ||||||||||||||||||
Manavendra Sial |
— | (3) |
143,438 | 286,875 | 430,313 | — | — | — | — | — | |||||||||||||||||
— | (4) |
95,625 | 95,625 | 149,414 | — | — | — | — | — | ||||||||||||||||||
5/18/2018 | (9) |
— | — | — | — | — | — | 100,000 | 930,000 | ||||||||||||||||||
12/14/2018 | (10) |
— | — | — | — | — | — | 160,000 | 977,600 | ||||||||||||||||||
Charles Boynton |
— | (3) |
158,625 | 317,250 | 475,875 | — | — | — | — | — | |||||||||||||||||
— | (4) |
105,750 | 105,750 | 165,234 | — | — | — | — | — | ||||||||||||||||||
4/12/2018 | (11) |
— | — | — | 25,000 | 50,000 | 75,000 | — | 407,000 | ||||||||||||||||||
2/16/2018 | (12) |
— | — | — | — | — | — | 50,000 | 382,000 | ||||||||||||||||||
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Name |
Grant Date |
Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) |
Estimated Future Payouts Under Equity Incentive Plan Awards(2) |
All Other Stock Awards: Number of Shares of Stock or Units (#) |
Grant Date Fair Value of Stock and Option Awards ($) |
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Threshold ($) |
Target ($) |
Maximum ($) |
Threshold (#) |
Target (#) |
Maximum (#) |
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Kenneth Mahaffey |
— | (3) |
91,407 | 182,813 | 274,220 | — | — | — | — | — | |||||||||||||||||
— | (4) |
60,938 | 60,938 | 95,216 | — | — | — | — | — | ||||||||||||||||||
4/12/2018 | (11) |
— | — | — | 21,250 | 42,500 | 63,750 | — | 345,950 | ||||||||||||||||||
2/16/2018 | (12) |
— | — | — | — | — | — | 42,500 | 324,700 | ||||||||||||||||||
William Mulligan III |
— | (3) |
128,250 | 256,500 | 384,750 | — | — | — | — | — | |||||||||||||||||
— | (4) |
85,500 | 85,500 | 133,594 | — | — | — | — | — | ||||||||||||||||||
4/12/2018 | (11) |
— | — | — | 18,750 | 37,500 | 56,250 | — | 305,250 | ||||||||||||||||||
4/12/2018 | (11) |
— | — | — | 10,000 | 20,000 | 30,000 | — | 162,800 | ||||||||||||||||||
2/16/2018 | (12) |
— | — | — | — | — | — | 37,500 | 286,500 | ||||||||||||||||||
Douglas Richards |
— | (3) |
111,000 | 222,000 | 333,000 | — | — | — | — | — | |||||||||||||||||
— | (4) |
74,000 | 74,000 | 115,625 | — | — | — | — | — | ||||||||||||||||||
04/12/2018 | (11) |
— | — | — | 22,500 | 45,000 | 67,500 | — | 366,300 | ||||||||||||||||||
02/16/2018 | (12) |
— | — | — | — | — | — | 45,000 | 343,800 | ||||||||||||||||||
| (1) | Additional information about estimated possible payouts under non-equity incentive plan awards is set forth above in the “Estimated Possible Payouts Under Semi-Annual and Annual Bonus Programs Table.” |
| (2) | The amounts reported in these columns represent performance-based restricted stock unit opportunities. The Compensation Committee approved the awards on April 12, 2018. The grant date fair value of these awards is reported based on the probable outcome of the applicable performance conditions and is consistent with the estimate of aggregate compensation cost, if any, expected to be recognized over the service period determined as of the grant date under FASB ASC Topic 718, excluding the effect of estimated forfeitures. See Note 17 to our consolidated financial statements in our 2018 Annual Report for details as to the assumptions used to determine the aggregate grant date fair value of these awards. See also our discussion of stock-based compensation under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in our 2018 Annual Report. |
| (3) | Consists of an award under our 2018 Corporate Annual Bonus Program. Achievement levels for certain performance targets could reduce payouts to zero when the applicable formula is applied, as further described below. |
| (4) | Consists of an award under our Semi-Annual Bonus Plan. Achievement levels for certain performance targets could reduce payouts to zero when the applicable formula is applied, as further described below. |
| (5) | Consists of an award of restricted stock units, subject to achievement of specific performance metrics in addition to time-based vesting requirements, under the 2015 Equity Plan. Failure to achieve certain performance metrics could result in zero restricted stock units being awarded. The maximum attainable award is 150% of target. The closing price of our common stock was $8.14 on April 12, 2018. Actual awards were determined in the first quarter of 2019 and are described in “Equity Incentive Plan Compensation” below. The earned award vests ratably on March 1, 2019 and March 1, 2020. |
| (6) | Consists of an award of restricted stock units, subject to achievement of specific performance metrics in addition to time-based vesting requirements, under the 2015 Equity Plan. Failure to achieve certain performance metrics could result in zero restricted stock units being awarded. The maximum attainable award is 156.25% of target. The closing price of our common stock was $8.14 on April 12, 2018. Actual awards were determined in the first quarter of 2019 and are described in “Equity Incentive Plan Compensation” below. The earned award vests in full on March 31, 2020. |
| (7) | Consists of an award of restricted stock units, subject to achievement of specific performance metrics in addition to time-based vesting requirements, under the 2015 Equity Plan. Failure to achieve certain performance metrics could result in zero restricted stock units being awarded. The maximum attainable award is 150% of target. The closing price of our common stock was $8.14 on April 12, 2018. Actual awards were determined in the first quarter of 2019 and are described in “Equity Incentive Plan Compensation” below. The earned award vests in full on March 31, 2020. |
| (8) | Consists of an award of restricted stock units, subject to time-based vesting requirements, under the 2015 Equity Plan. The closing price of our common stock was $7.64 on February 16, 2018. The award vests ratably on March 31, 2019 and March 31, 2020. |
| (9) | Consists of an award of restricted stock units, subject to time-based vesting requirements, under the 2015 Equity Plan. The closing price of our common stock was $9.30 on May 18, 2018. The award vests ratably on May 5, 2019, May 5, 2020, May 5, 2021, and May 5, 2022. |
| (10) | Consists of an award of restricted stock units, subject to time-based vesting requirements, under the 2015 Equity Plan. The closing price of our common stock was $6.11 on December 14, 2018. The award vests ratably on December 5, 2019 and December 5, 2020. |
| (11) | Consists of an award of restricted stock units, subject to achievement of specific performance metrics in addition to time-based vesting requirements, under the 2015 Equity Plan. Failure to achieve certain performance metrics could result in zero restricted stock units being awarded. The maximum attainable award is 150% of target. The closing price of our common stock was $8.14 on April 12, 2018. Actual awards were determined in the first quarter of 2019 and are described in “Equity Incentive Plan Compensation” below. The earned award vests ratably on March 1, 2019, March 1, 2020, March 1, 2021, and March 1, 2022. |
| (12) | Consists of an award of restricted stock units, subject to time-based vesting requirements, under the 2015 Equity Plan. The closing price of our common stock was $7.64 on February 16, 2018. The award vests ratably on March 1, 2019, March 1, 2020, March 1, 2021, and March 1, 2022. |
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Non-Equity Incentive Plan Compensation
2018 Annual Bonus Programs. In 2018, we maintained four tailored bonus programs under our Executive Annual Bonus Plan (collectively, the “Annual Bonus Programs”). Awards under each of the Annual Bonus Programs, including the 2018 Corporate Annual Bonus Program, were formula-driven. Each of our named executive officers were participants in the 2018 Corporate Annual Bonus Program, and none participated in or received payments under any of the other Annual Bonus Programs, and accordingly, those programs are not discussed in detail here.
2018 Corporate Annual Bonus Program. At the beginning of fiscal 2018, the Compensation Committee established and approved minimum, target, and maximum levels in respect of three performance criteria for the 2018 Corporate Annual Bonus Program: (1) an annual revenue metric, (2) an annual Adjusted EBITDA metric, and (3) a cash and cash equivalents metric. We refer to this score as our Combined Corporate Metrics score. In addition, we introduced a safety modifier based on the company’s Total Recordable Injury Rate for the year.
Our annual revenue metric is based on our non-GAAP annual revenue. Our annual Adjusted EBITDA metric is based on our annual earnings before interest, taxes, depreciation, and amortization, with certain adjustments such as amounts related to utility and power plant projects and the sale of operating lease assets, as further described in “Use of Non-GAAP Financial Measures.” Our cash and cash equivalents metric is as measured on the Company’s balance sheet as of the end of the fiscal year. Each of these measures is subject to adjustment to exclude the effect of certain transactions outside of the normal course of business, as well as other events as specified in the Annual Executive Bonus Plan and the applicable 2018 Annual Bonus Program. Each named executive officer would earn: (i) 33.3% of his target bonus under the 2018 Corporate Annual Bonus Program upon the achievement of the revenue target, (ii) 33.3% of his target bonus under the 2018 Corporate Annual Bonus Program upon the achievement of the Adjusted EBITDA target, and (iii) 33.3% of his target bonus under the 2018 Corporate Annual Bonus Program upon achievement of the cash and cash equivalents target. In order to encourage our named executive officers to exceed the performance targets, our Compensation Committee set the maximum payment under the program at 150% of target. Payment for each target is determined based on performance achievement relative to minimum, target, and maximum levels, as follows:
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Performance Level Achieved
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Bonus Payment as Percentage of Bonus Target
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Below minimum
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No bonus paid
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At minimum
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50% of target bonus (minimum award for minimum achievement)
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Between minimum and target
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Prorated on a straight-line basis, between 50% and 100%
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At target
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100% of target
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Between target and maximum
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Prorated on a straight-line basis, between 100% and 150%
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At or above maximum
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150% of target
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The annual performance targets, set at the beginning of fiscal 2018, were assessed at the end of the year. Based on our actual results in fiscal 2018, results were calculated for each of the targets, as presented below in the aggregate (in millions of dollars).
Performance Criterion |
Minimum |
Target |
Maximum |
Achievement |
Payment as % of Target Payment |
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Revenue |
$ | 1,660 | $ | 2,075 | $ | 2,490 | $ | 1,815 | 23 | % |
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Adjusted EBITDA |
$ | 0 | $ | 68 | $ | 125 | $ | 111 | 46 | % |
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Adjusted Cash and Cash Equivalents |
$ | 150 | $ | 340 | $ | 500 | $ | 309 | 31 | % |
|||||
The safety modifier based on the company’s Total Recordable Injury Rate (TRIR) for the year, set at the beginning of fiscal 2018, was also assessed at the end of the year, and applied to the bonus payout. The maximum payout modifier for TRIR was set to 110% for achieving a .90 TRIR or below and the minimum payout modifier for TRIR was set to 90% for achieving a TRIR of 1.10 or greater. Achieving a TRIR result of 1.00 would result in a TRIR modifier equal to 100%. Based on our actual results in fiscal 2018, results were calculated in comparison to the target, as presented below.
|
Performance Criterion
|
Minimum
|
Target
|
Maximum
|
Achievement
|
Payment as % of
Target Payment |
|
SunPower Total Recordable Injury Rate
|
1.10
|
1.00
|
.90
|
1.02
|
98%
|
51
Based on the actual results achieved, bonuses were earned and paid to our named executive officers at 97.4% in the aggregate.
Semi-Annual Bonus Plan. Awards under the Semi-Annual Bonus Plan were also formula-driven, with targets in respect of a semi-annual Adjusted EBITDA metric and corporate performance metrics, consisting of a set of corporate milestones representing key results in support our corporate business plan. The Adjusted EBITDA metric is as measured of the Company’s profitability. Each named executive officer is further assigned an individual modifier by his or her manager, or, in the case of our chief executive officer, by the Board, meant to take into account individual performance and accomplishments. These metrics were then incorporated into the plan’s formula. Each named executive officer’s individual modifier could result in no award being payable even if we achieved our quarterly profitability metric and corporate key results targets in the event that the individual modifier was determined to be zero. If threshold corporate key results were achieved and we exceeded our semi-annual Adjusted EBITDA target, bonus payments could exceed 100% of target, up to a maximum payment of 156.25% (based on the semi-annual Adjusted EBITDA metric), depending on the individual modifier.
Payments under the Semi-Annual Bonus Plan were made as follows:
|
Achievement of Semi-Annual
Profitability Metric Target |
Achievement of Corporate
Key Results |
Payment
|
|
Under target
|
Under 60%
|
No payment
|
|
Between target and maximum
|
60% or over but under 80%
|
50% payment
Payment = 2018 semi-annual salary multiplied by Semi-Annual Bonus Plan target bonus (%) multiplied by semi-annual Adjusted EBITDA metric achievement (up to a maximum of 125%) multiplied by individual modifier (up to a maximum of 125%) multiplied by 50% |
|
At target
|
80% or over
|
100% payment
Payment = 2018 semi-annual salary multiplied by Semi-Annual Bonus Plan target bonus (%) multiplied by semi-annual profitability metric achievement (up to a maximum of 125%) multiplied by individual modifier (up to a maximum of 125%) |
|
Between target and maximum
|
80% or over
|
Greater than 100% payment
Payment = 2018 semi-annual salary multiplied by Semi-Annual Bonus Plan target bonus (%) multiplied by semi-annual profitability metric achievement (up to a maximum of 125%) multiplied by individual modifier (up to a maximum of 125%) |
|
Under target
|
80% or over
|
No payment
|
Quarterly corporate milestones in fiscal 2018 included sensitive business objectives applicable to our entire company, focusing on strategic transactions, revenue and margin targets, confidential cost and production targets, technology milestones, bookings targets, major customer transactions, new product development, and manufacturing plans and enhancements. The quarterly corporate key results scores were 85.6%, 82.3%, 84.5%, and 92.2% for each quarter in fiscal 2018, respectively. Individual modifiers for the named executive officers ranged from 90% to 100%, and averaged 97%, for both the first half and the second half of fiscal 2018.
Equity Incentive Plan Compensation
In addition to time-based restricted stock unit awards, to further align executive compensation with maximizing stockholder value, our Compensation Committee granted to our named executive officers certain performance-based equity awards, consisting of restricted stock units, or RSUs, that would be released and begin time-based vesting only upon achievement of certain corporate or individual performance objectives.
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Our Compensation Committee met at the beginning of 2018 and established and approved target levels in respect of four performance criteria for our traditional performance-based equity awards to named executive officers other than Mr. Werner and Dr. Mulligan: (1) an annual revenue metric, (2) an annual Adjusted EBITDA metric, (3) an annual cash and cash equivalents metric, and (4) an annual operating expense and cost of goods sold overhead reduction metric. Each eligible named executive officer would earn 25% of his target performance-based RSUs upon the achievement of the annual revenue metric target, 25% of his target performance-based RSUs upon the achievement of the Adjusted EBITDA metric target, 25% of his target performance-based RSUs upon the achievement of the cash and cash equivalents target and the remaining 25% of his target performance-based RSUs upon the achievement of the operating expense and cost of goods sold overhead reduction target. The three financial metrics (Revenue, Adjusted EBITDA, and Cash and Cash Equivalents) and their corresponding targets are the same as those for our 2018 Corporate Annual Bonus Program (and the Corporate Metrics Score portion of each of the other 2018 Annual Bonus Programs), described above in “Executive Compensation—Non-Equity Incentive Plan Compensation.” Payment for each target was determined based on the performance metric achieved relative to minimum, target, and maximum performance levels, as shown in the table below.
The Compensation Committee approved performance targets for our traditional performance-based equity awards to Mr. Werner and Dr. Mulligan in respect of the following: annual revenue metric (33.3% of the award), Adjusted EBITDA metric (33.3% of the award), cash and cash equivalents metric (33.3% of the award). The three financial metrics and their corresponding targets are the same as those for our 2018 Corporate Annual Bonus Program (and the Corporate Metrics Score portion of each of the other 2018 Annual Bonus Programs), described above in “Executive Compensation—Non-Equity Incentive Plan Compensation.” Payment for each target was determined based on the performance metric achieved relative to minimum, target, and maximum performance levels, as shown in the table below.
The Compensation Committee approved performance targets for a special performance-based equity award with a target of 50,000 restricted stock units to Mr. Werner in respect of two performance criteria: (1) an annual operating expense and cost of goods sold overhead reduction metric, and (2) reorganization of corporate operating expense into the business units. Mr. Werner would earn 50% of these performance-based restricted stock units upon the achievement of each metric, respectively. The annual operating expense and cost of goods sold overhead reduction metrics and targets were the same as those specified in annual performance-based equity awards to the other named executive officers. Payment for each metric was determined based on the performance relative to minimum, target, and maximum performance levels, as shown in the table below.
In addition, the Compensation Committee approved performance targets for a special performance-based equity award with a target of 20,000 restricted stock units to Dr. Mulligan in respect of two performance criteria: (1) an annual operating expense and cost of goods sold overhead reduction metric, and (2) business unit cash management. Dr. Mulligan would earn 50% of these performance-based restricted stock units upon the achievement of each metric, respectively. The annual operating expense and cost of goods sold overhead reduction metrics and targets were the same as those specified in annual performance-based equity awards to the other named executive officers. Payment for each metric was determined based on the performance relative to minimum, target, and maximum performance levels, as shown in the table below.
|
Percentage of Performance Target Achieved
|
Grant of RSUs as Percentage of Target RSUs
|
|
Below minimum
|
No RSUs earned
|
|
At minimum
|
50% of target RSUs (minimum award for minimum achievement)
|
|
Between minimum and target
|
Prorated on a straight-line basis, between 50% and 100%
|
|
At target
|
100% of target
|
|
Between target and maximum
|
Prorated on a straight-line basis, between 100% and 150%
|
|
At or above maximum
|
150% of target
|
The performance-based restricted stock units earned by our named executive officers other than our chief executive officer began vesting in four equal annual installments, subject to continued service, starting March 1, 2019. Certain performance-based restricted stock units granted to our chief executive officer will vest in two equal installments, subject to continued service, starting March 31, 2019, and certain other performance-based restricted stock units granted to our chief executive officer will vest in full on March 31, 2020, subject to continued service.
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For fiscal 2018, our Compensation Committee continued to grant time-based restricted stock units that vest in four equal annual installments to our named executive officers (two equal annual installments for our chief executive officer), subject to continued service, starting March 1, 2019.
With respect to our 2018 performance-based equity awards to named executive officers other than Mr. Werner and Dr. Mulligan, we achieved 17% of our annual revenue metric target, 34% of our Adjusted EBITDA metric target, 23% of our cash and cash equivalents metric target, and 23% of our operating expense and cost of goods sold overhead reduction metric target. Based on our actual results in fiscal 2018, performance-based restricted stock units were earned by such named executive officers for achievement of each of these metric targets.
With respect to our 2018 regular performance-based equity awards to Mr. Werner and Dr. Mulligan, we achieved 23% of our annual revenue metric target, 46% of our Adjusted EBITDA metric target, and 31% of our cash and cash equivalents metric target. Based on our actual results in fiscal 2018, performance-based restricted stock units were earned by Mr. Werner and Dr. Mulligan for achievement of each of these metric targets.
With respect to our 2018 special performance-based equity award of 50,000 units to Mr. Werner, we achieved 45% of our operating expense and cost of goods sold overhead reduction metric target and 75% of our corporate operating expense reorganization metric target.
The named executive officers’ targets and earned performance-based RSUs are described above in “Compensation Discussion and Analysis—Analysis of Fiscal 2018 Compensation Decisions—Equity Awards.”
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding the outstanding equity awards held by our named executive officers as of December 30, 2018.
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Outstanding Equity Awards at 2018 Fiscal Year-End Table
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) |
||||||
Thomas Werner |
03/31/2016 | (2) |
10,275 | 51,991 | |||||
03/31/2016 | (3) |
8,610 | 43,567 | ||||||
03/31/2016 | (4) |
35,800 | 181,148 | ||||||
03/31/2016 | (5) |
120,000 | 607,200 | ||||||
03/10/2017 | (6) |
17,700 | 89,562 | ||||||
03/10/2017 | (6) |
90,000 | 455,400 | ||||||
03/10/2017 | (7) |
112,500 | 569,250 | ||||||
03/10/2017 | (8) |
112,500 | 569,250 | ||||||
02/16/2018 | (9) |
65,000 | 328,900 | ||||||
04/12/2018 | (10) |
65,000 | 328,900 | ||||||
04/12/2018 | (10) |
60,000 | 303,600 | ||||||
04/12/2018 | (11) |
60,000 | 303,600 | ||||||
04/12/2018 | (11) |
34,170 | 172,900 | ||||||
Manavendra Sial |
05/18/2018 | (12) |
100,000 | 506,000 | |||||
12/14/2018 | (13) |
160,000 | 809,600 | ||||||
Kenneth Mahaffey |
01/27/2016 | (14) |
6,930 | 35,066 | |||||
03/21/2016 | (4) |
4,250 | 21,505 | ||||||
03/21/2016 | (4) |
1,200 | 6,072 | ||||||
11/01/2016 | (15) |
25,000 | 126,500 | ||||||
03/10/2017 | (7) |
30,000 | 151,800 | ||||||
02/26/2018 | (16) |
42,500 | 215,050 | ||||||
02/26/2018 | (17) |
42,500 | 215,050 | ||||||
William Mulligan III |
03/21/2016 | (4) |
4,500 | 22,770 | |||||
03/10/2017 | (7) |
28,125 | 142,313 | ||||||
03/10/2017 | (8) |
28,125 | 142,313 | ||||||
02/16/018 | (16) |
37,500 | 189,750 | ||||||
04/12/2018 | (17) |
37,500 | 189,750 | ||||||
04/12/2018 | (17) |
23,540 | 119,111 | ||||||
Douglas Richards |
02/22/2016 | (18) |
2,153 | 10,894 | |||||
02/22/2016 | (4) |
7,500 | 37,950 | ||||||
03/10/2017 | (7) |
35,625 | 180,263 | ||||||
03/10/2017 | (8) |
35,625 | 180,263 | ||||||
02/16/2018 | (16) |
45,000 | 227,700 | ||||||
02/16/2018 | (17) |
45,000 | 227,700 | ||||||
| (1) | The closing price of our common stock on December 28, 2018 (the last trading day of fiscal 2018) was $5.06. |
| (2) | On March 31, 2016, the named executive officer was awarded a number of performance-based restricted stock units within a pre-set range, with the actual number contingent on the achievement of certain performance criteria. The actual award was determined in the first quarter of 2017. The earned award vests in four equal annual installments on March 1, 2017, March 1, 2018, March 1, 2019, and March 1, 2020, subject to the recipient’s continued employment with us. |
| (3) | On March 31, 2016, the named executive officer was awarded a number of performance-based restricted stock units within a pre-set range, with the actual number contingent on the achievement of certain performance criteria. The actual award was determined in the first quarter of 2017. The earned award vests in full on March 31, 2020, subject to the recipient’s continued employment with us. |
| (4) | Each of these awards of restricted stock units provided for vesting in four equal annual installments on each of March 1, 2017, March 1, 2018, March 1, 2019, and March 1, 2020, subject to the recipient’s continued employment with us. |
55
| (5) | Each of these awards of restricted stock units provided for one-time vesting on March 31, 2020 subject to the recipient’s continued employment with us. |
| (6) | On March 10, 2017, the named executive officer was awarded a number of performance-based restricted stock units within a pre-set range, with the actual number contingent on the achievement of certain performance criteria. The actual award was determined in the first quarter of 2018 and is described in “Equity Incentive Plan Compensation” above. The earned award vests in full on March 31, 2020, subject to the recipient’s continued employment with us. |
| (7) | On March 10, 2017, the named executive officer was awarded a number of performance-based restricted stock units within a pre-set range, with the actual number contingent on the achievement of certain performance criteria. The actual award was determined in the first quarter of 2018 and is described in “Equity Incentive Plan Compensation” above. The earned award vests in four equal annual installments on March 1, 2018, March 1, 2019, March 1, 2020, and March 1, 2021, subject to the recipient’s continued employment with us. |
| (8) | Each of these awards of restricted stock units provided for vesting in four equal annual installments on each of March 1, 2018, March 1, 2019, March 1, 2020, and March 1, 2021, subject to the recipient’s continued employment with us. |
| (9) | Each of these awards of restricted stock units provided for vesting in two equal annual installments on each of March 1, 2019 and March 1, 2020, subject to the recipient’s continued employment with us. |
| (10) | On April 12, 2018, the named executive officer was awarded a number of performance-based restricted stock units within a pre-set range, with the actual number contingent on the achievement of certain performance criteria. The actual award was determined in the first quarter of 2019 and is described in “Equity Incentive Plan Compensation” above. The earned award vests in two equal annual installments on March 1, 2019 and March 1, 2020, subject to the recipient’s continued employment with us. |
| (11) | On April 12, 2018, the named executive officer was awarded a number of performance-based restricted stock units within a pre-set range, with the actual number contingent on the achievement of certain performance criteria. The actual award was determined in the first quarter of 2019 and is described in “Equity Incentive Plan Compensation” above. The earned award will vest on March 31, 2020, subject to the recipient’s continued employment with us. |
| (12) | Each of these awards of restricted stock units provided for vesting in three equal annual installments on each of May 5, 2019, May 5, 2020, May 5, 2021, and May 5, 2022, subject to the recipient’s continued employment with us. |
| (13) | Each of these awards of restricted stock units provided for vesting in two equal annual installments on each of December 5, 2019 and December 5, 2020, subject to the recipient’s continued employment with us. |
| (14) | Each of these awards of restricted stock units provided for vesting in four equal annual installments on each of January 25, 2017, January 25, 2018, January 25, 2019, and January 25, 2020, subject to the recipient’s continued employment with us. |
| (15) | Each of these awards of restricted stock units provided for vesting in four equal annual installments on each of November 1, 2017, November 1, 2018, November 1, 2019, and November 1, 2020, subject to the recipient’s continued employment with us. |
| (16) | Each of these awards of restricted stock units provided for vesting in three equal annual installments on each of March 01, 2019, March 01, 2020, March 01, 2021, and March 01, 2022, subject to the recipient’s continued employment with us. |
| (17) | On April 12, 2018, the named executive officer was awarded a number of performance-based restricted stock units within a pre-set range, with the actual number contingent on the achievement of certain performance criteria. The actual award was determined in the first quarter of 2019 and is described in “Equity Incentive Plan Compensation” above. The earned award vests in four equal annual installments on March 1, 2019, March 1, 2020, March 1, 2021, and March 1, 2022, subject to the recipient’s continued employment with us. |
| (18) | On February 22, 2016, the named executive officer was awarded a number of performance-based restricted stock units within a pre-set range, with the actual number contingent on the achievement of certain performance criteria. The actual award was determined in the first quarter of 2017. The earned award vests in four equal annual installments on each March 1, 2017, March 1, 2018, March 1, 2019, and March 1, 2020, subject to the recipient’s continued employment with us. |
The following table sets forth the number of shares acquired pursuant to the vesting of stock awards held by our named executive officers during fiscal 2018 and the aggregate dollar amount realized by our named executive officers upon such events. Because there were no shares acquired by our named executive officers pursuant to the exercise of options during fiscal 2018, we have not included columns pertaining to option awards in the table below.
2018 Option Exercises and Stock Vested Table
Name |
Stock Awards |
|||||
Number of Shares Acquired on Vesting (#) |
Value Realized on Vesting ($)(1) |
|||||
Thomas Werner |
128,031 | 903,899 | ||||
Manavendra Sial(2) |
-0- | -0- | ||||
Charles Boynton(3) |
103,476 | 763,012 | ||||
Kenneth Mahaffey |
32,451 | 221,744 | ||||
William Mulligan III |
26,000 | 181,560 | ||||
Douglas Richards |
39,366 | 277,924 | ||||
| (1) | The aggregate dollar value realized upon the vesting of a stock award represents the fair market value of the underlying shares on the vesting date multiplied by the number of shares vested. |
| (2) | Mr. Sial joined in the company as of May 2, 2018 as Executive Vice President, and assumed the position of Chief Financial Officer on May 9, 2018. |
| (3) | Mr. Boynton served as our Chief Financial Officer until May 9, 2018, and remained an Executive Vice President of the Company through July 1, 2018. |
56
Potential Payments Upon Termination or Change of Control
Tabular Disclosure of Termination Payments. Our employment agreements with our named executive officers contain provisions that provide for payments upon certain events of termination and change of control. See “Employment and Severance Agreements” below for a detailed description of these agreements. The following tables summarize the estimated payments that would have been made on December 30, 2018 which our named executive officers would be eligible to receive upon the following termination events, assuming each such event had occurred on December 28, 2018, the last business day of fiscal 2018:
| • | termination with cause or voluntary resignation without good reason; |
| • | involuntary termination without cause or voluntary resignation for good reason in connection with a change of control; |
| • | involuntary termination without cause or voluntarily resignation for good reason not in connection with a change of control; |
| • | retirement; or |
| • | discontinued service due to death or disability. |
The dollar value identified with respect to each type of equity award is based on each named executive officer’s accelerated restricted stock units as of December 30, 2018 and is based on the $5.06 per share closing price for our common stock on December 28, 2018, the last trading day of fiscal 2018. No named executive officers held unvested stock options as of December 30, 2018. For more information on each officer’s outstanding equity awards as of December 30, 2018, please see the “Outstanding Equity Awards At 2018 Fiscal-Year End Table” above. The tables do not include unpaid regular salary, nor the impact of certain “best net” provisions of each named executive officer’s employment agreement that provides that, in the event any payments under such employment agreement would constitute parachute payments under Section 280G of the Code or be subject to the excise tax of Section 4999 of the Code, then such payments should be either delivered in full or reduced to result in no portion being subject to such tax provisions and still yield the greatest payment to the individual on an after tax basis.
57
Name |
Termination Scenario |
Continued Salary ($) |
Bonus and Accelerated Non-Equity Incentive Plan Awards ($) |
Accelerated Restricted Stock Units ($)(1)(2) |
Continued Medical Benefits and Gross Up ($) |
Outplace- ment Services ($) |
Accrued Paid Time Off and Sabbatical ($) |
Total ($) |
||||||||||||||
Thomas Werner |
Termination with cause or voluntary resignation without good reason |
— | — | — | — | — | 69,231 | 69,231 | ||||||||||||||
Involuntary termination without cause or voluntary resignation for good reason in connection with change of control |
1,200,000 | 2,400,000 | 4,001,473 | 70,325 | 15,000 | 69,231 | 7,756,029 | |||||||||||||||
Involuntary termination without cause or voluntary resignation for good reason not in connection with change of control |
1,200,000 | 1,200,000 | 1,686,498 | 70,325 | 15,000 | 69,231 | 4,241,054 | |||||||||||||||
Retirement |
— | — | — | — | — | 69,231 | 69,231 | |||||||||||||||
Death or disability |
— | — | 3,933,568 | — | — | 69,231 | 4,002,799 | |||||||||||||||
Manavendra Sial |
Termination with cause or voluntary resignation without good reason |
— | — | — | — | — | — | — | ||||||||||||||
Involuntary termination without cause or voluntary resignation for good reason in connection with change of control |
850,000 | 765,000 | 1,315,600 | 77,240 | 15,000 | — | 3,022,840 | |||||||||||||||
Involuntary termination without cause or voluntary resignation for good reason not in connection with change of control |
425,000 | 382,500 | — | 77,240 | 15,000 | — | 899,740 | |||||||||||||||
Retirement |
— | — | — | — | — | — | — | |||||||||||||||
Death or disability |
— | — | 1,315,600 | — | — | — | 1,315,600 | |||||||||||||||
Charles Boynton |
Termination with cause or voluntary resignation without good reason |
|||||||||||||||||||||
Involuntary termination without cause or voluntary resignation for good reason in connection with change of control |
— | — | — | — | — | — | — | |||||||||||||||
Involuntary termination without cause or voluntary resignation for good reason not in connection with change of control |
470,000 | 166,385 | 408,289 | 16,724 | 15,000 | 1,076,398 | ||||||||||||||||
Retirement |
||||||||||||||||||||||
Death or disability |
||||||||||||||||||||||
Kenneth Mahaffey(3) |
Termination with cause or voluntary resignation without good reason |
— | — | — | — | — | — | — | ||||||||||||||
Involuntary termination without cause or voluntary resignation for good reason in connection with change of control |
650,000 | 487,500 | 764,809 | 102,064 | 15,000 | — | 2,019,373 | |||||||||||||||
Involuntary termination without cause or voluntary resignation for good reason not in connection with change of control |
325,000 | 243,750 | — | 102,064 | 15,000 | — | 685,814 | |||||||||||||||
Retirement |
— | — | — | — | — | — | — | |||||||||||||||
Death or disability |
— | — | 771,043 | — | — | — | 771,043 | |||||||||||||||
58
Name |
Termination Scenario |
Continued Salary ($) |
Bonus and Accelerated Non-Equity Incentive Plan Awards ($) |
Accelerated Restricted Stock Units ($)(1)(2) |
Continued Medical Benefits and Gross Up ($) |
Outplace- ment Services ($) |
Accrued Paid Time Off and Sabbatical ($) |
Total ($) |
||||||||||||||
William Mulligan III(4) |
Termination with cause or voluntary resignation without good reason |
— | — | — | — | — | — | — | ||||||||||||||
Involuntary termination without cause or voluntary resignation for good reason in connection with change of control |
760,000 | 684,000 | 804,869 | 102,064 | 15,000 | — | 2,365,933 | |||||||||||||||
Involuntary termination without cause or voluntary resignation for good reason not in connection with change of control |
380,000 | 342,000 | — | 102,064 | 15,000 | — | 839,064 | |||||||||||||||
Retirement |
— | — | — | — | — | — | — | |||||||||||||||
Death or disability |
— | — | 788,095 | — | — | — | 788,095 | |||||||||||||||
Douglas Richards |
Termination with cause or voluntary resignation without good reason |
— | — | — | — | — | — | — | ||||||||||||||
Involuntary termination without cause or voluntary resignation for good reason in connection with change of control |
740,000 | 592,000 | 858,166 | 51,306 | 15,000 | — | 2,256,472 | |||||||||||||||
Involuntary termination without cause or voluntary resignation for good reason not in connection with change of control |
370,000 | 296,000 | — | 51,306 | 15,000 | — | 732,306 | |||||||||||||||
Retirement |
— | — | — | — | — | — | — | |||||||||||||||
Death or disability |
— | — | 864,769 | — | — | — | 864,769 | |||||||||||||||
| (1) | In connection with a change of control, accelerated restricted stock units’ calculation assumes that the change of control does not involve Total or one of its affiliates. |
| (2) | Awards under the SunPower Corporation 2015 Omnibus Incentive Plan provide for accelerated vesting upon death or disability. |
| (3) | Mr. Mahaffey was promoted to Executive Vice President and General Counsel on November 1, 2016, from his previous position as General Counsel, Global Business Units. |
| (4) | Dr. Mulligan was promoted to Executive Vice President, Operations, on February 10, 2017, from his previous position as Vice President, Upstream Strategy. |
Employment and Severance Agreements
We have entered into employment agreements with certain of our executive officers, including our named executive officers. In August 2015, we adopted a severance policy entitled the 2016 Management Career Transition Plan, which replaced our 2014 Management Career Transition Plan. Additionally, our named executive officers are entitled to receive certain payments from us or our affiliates in the event of certain termination events in connection with a change of control.
Employment Agreements. We are party to employment agreements with several executive officers, including the named executive officers. Each employment agreement provides that the executive’s employment is “at-will” and may be terminated at any time by either party. Each employment agreement generally provides for a three-year term that will automatically renew unless we provide notice of our intent not to renew at least 120 days before the renewal date. The agreements do not specify salary, bonus, or other basic compensation terms, but instead provide that each executive’s base salary, annual bonus, and equity compensation will be determined in accordance with our normal practices. The primary purpose of the agreements is to provide certain severance benefits for employment terminations in connection with a change of control (as defined in the agreement). In the event an executive’s employment is terminated by us without cause (as defined in the agreement), or if the executive resigns for good reason (as defined in the agreement), and if such termination or resignation occurs during the period three months prior to, and ending 36 months following, a change of control, then the agreements also provide that the executive is entitled to the following benefits:
| • | a lump-sum payment equivalent to 24 months of such executive’s base salary; |
59
| • | a lump-sum payment equal to any earned but unpaid annual bonus for a completed fiscal year; |
| • | a lump-sum payment equal to the product of (a) such executive’s target bonus for the then current fiscal year, multiplied by (b) two; |
| • | continuation of such executive’s and such executive’s eligible dependents’ coverage under our benefit plans for up to 24 months, at our expense; |
| • | a lump-sum payment equal to such executive’s accrued and unpaid base salary and paid time off; |
| • | reimbursement of up to $15,000 for services of an outplacement firm mutually acceptable to us and the executive; |
| • | annual make-up payments for taxes incurred by the executive in connection with benefit plans’ coverage; and |
| • | all of such executive’s unvested options, shares of restricted stock and restricted stock units (including performance-based restricted stock units) will become fully vested and (as applicable) exercisable as of the termination date and remain exercisable for the time period otherwise applicable to such equity awards following such termination date. In addition, Mr. Werner’s agreement provides for full accelerated vesting upon termination of employment without cause or resignation for good reason, regardless of whether such termination is in connection with a change of control; provided, however, that absent a change of control, no such accelerated vesting or lapsing shall apply to Mr. Werner’s performance-based equity awards. |
Under the employment agreements, “cause” means the occurrence of any of the following, as determined by us in good faith:
| • | acts or omissions constituting gross negligence or willful misconduct on the part of the executive with respect to the executive’s obligations or otherwise relating to our business, |
| • | the executive’s conviction of, or plea of guilty or nolo contendere to, crimes involving fraud, misappropriation or embezzlement, or a felony crime of moral turpitude, |
| • | the executive’s violation or breach of any fiduciary duty (whether or not involving personal profit) to us, except to the extent that his violation or breach was reasonably based on the advice of our outside counsel, or willful violation of any of our published policies governing the conduct of it executives or other employees, or |
| • | the executive’s violation or breach of any contractual duty to us which duty is material to the performance of the executive’s duties or results in material damage to us or our business; |
provided that if any of the foregoing events is capable of being cured, we will provide notice to the executive describing the nature of such event and the executive will thereafter have 30 days to cure such event.
In addition, under the employment agreements, “good reason” means the occurrence of any of the following without the executive’s express prior written consent:
| • | a material reduction in the executive’s position or duties, |
| • | a material breach of the employment agreement, |
| • | a material reduction in the executive’s aggregate target compensation, including the executive’s base salary and target bonus on a combined basis, excluding a reduction that is applied to substantially all of our other senior executives; provided, however, that for purposes of this clause, whether a reduction in target bonus has occurred shall be determined without any regard to any actual bonus payments made to the executive, or |
| • | a relocation of the executive’s primary place of business for the performance of his duties to us to a location that is more than 45 miles from our current business location. |
The executive shall be considered to have “good reason” under the employment agreement only if, no later than 90 days following an event otherwise constituting “good reason” under the employment agreement, the executive gives notice to us of the occurrence of such event and we fail to cure the event within 30 days following its receipt of such notice from the executive, and the executive terminates service within 36 months following a change of control.
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If any of the severance payments, accelerated vesting and lapsing of restrictions would constitute a “parachute payment” within the meaning of Section 280G of the Code and be subject to excise tax or any interest or penalties payable with respect to such excise tax, then the executive’s benefits will be either delivered in full or delivered as to such lesser extent which would result in no portion of such benefits being subject to such taxes, interest or penalties, whichever results in the executive receiving, on an after-tax basis, the greatest amount of benefits.
Before receiving the benefits described in the employment agreements, the executive will be required to sign a separation agreement and release of claims. In addition, the benefits will be conditioned upon the executive not soliciting our or our affiliates’ (as defined in the employment agreement) employees, consultants, customers, or users for one year following the termination date. Mr. Werner’s agreement also provides that, if his termination without cause or resignation for good reason is not in connection with a change of control, his severance benefits will be conditioned upon a non-competition arrangement lasting one year following employment termination.
2016 Management Career Transition Plan. In August 2015, we adopted the 2016 Management Career Transition Plan, (the “Severance Plan”), which replaced our 2014 Management Career Transition Plan. The Severance Plan generally terminates on the third anniversary of the effective date. The Severance Plan addresses severance for certain employment terminations, and payments are only made if the executive or employee is not already entitled to severance benefits under a separate employment agreement. Participants in the Severance Plan include our Chief Executive Officer, Thomas Werner, and those employees who have been employed by the Company for at least six months and report directly to him (including our other named executive officers), as well as other key employees of the Company who are provided with written notice from the chief executive officer that they are Severance Plan participants. Under the terms of the Severance Plan, Mr. Werner and the other named executive officers will be eligible for benefits following a termination of employment by us without cause (as defined in the Severance Plan). Such benefits include:
| • | a lump-sum payment equivalent to 12 months (or 24 months in Mr. Werner’s case) of such executive’s base salary; |
| • | a lump-sum payment equal to any earned but unpaid annual bonus for a completed fiscal year; |
| • | a lump-sum payment equal to the pro rata portion of such executive’s actual bonus for the then current fiscal year, based on the number of whole calendar months between the start of the fiscal year and the termination date; |
| • | continuation of such executive’s and such executive’s eligible dependents’ coverage under the Company’s health benefit plans for up to 12 months (or 24 months in Mr. Werner’s case), at the Company’s expense; |
| • | a lump-sum payment equal to such executive’s accrued and unpaid base salary and paid time off; |
| • | annual make-up payments for taxes incurred by the executive in connection with such health benefit plans’ coverage; and |
| • | reimbursement of up to $15,000 for services of an outplacement firm mutually acceptable to the Company and the executive. |
Pursuant to Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are required to provide the following information about the relationship of the annual total compensation of Thomas Werner, our chief executive officer (the “CEO”), to the median of the annual total compensation of all of our employees, excluding Mr. Werner:
For fiscal 2018, our last completed fiscal year:
| • | we have estimated the median of the annual total compensation of all our employees, excluding Mr. Werner, to be $9,450; and |
| • | Mr. Werner’s annual total compensation, for purposes of determining the CEO Pay Ratio, was $4,009,187. |
Based on this information, for fiscal 2018, the ratio of the annual total compensation of Mr. Werner, our CEO, to the median of the annual total compensation of all our employees, excluding Mr. Werner, was estimated to be 424:1. This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology and assumptions described below. Our pay ratio is not an element that the Compensation Committee considers in setting the compensation of our CEO, nor is our CEO’s compensation a material element that management considers in making compensation decisions for non-officer employees.
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Item 402(u) of Regulation S-K requires companies to identify the median employee only once every three years. We identified the median employee in 2018, and we believe that changes in our employee population or employee compensation arrangements since we identified the median employee do not result in a significant change to our pay ratio disclosure. The employee population decreased 10% during such time period with no significant change to employee compensation arrangements, and the percentage of U.S. employees of the total global workforce did not change from approximately 15%.
The median employee identified in 2018 terminated employment with the company during 2018. As allowed under Item 402(u) of Regulation S-K, we have substituted the terminated employee with another employee with substantially similar compensation as the terminated employee, based on the compensation measures used to select the original median employee. The “median employee” is a full-time, hourly employee located in Mexico. We totaled all of the elements of the employee’s compensation for fiscal 2018 in accordance with the requirements of the applicable SEC rules and converted the amounts from Mexican Pesos to U.S. dollars using the relevant monthly average currency exchange rate of 18.7152 Mexican Pesos per U.S. dollar. This resulted in an annual total compensation of $9,450, of which $6,389 is base salary and $3,061 is comprised of bonus and other compensation such as overtime pay and other cash allowances.
With respect to the annual total compensation of our chief executive officer, we took the amount reported in the “Total” column of our 2018 Summary Compensation Table.
Because the SEC rules for identifying the median of the annual total compensation of our employees 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 employee populations and compensation practices, the pay ratio reported by other companies may not be comparable to the pay ratio for our Company, as other companies have headquarters offices in different countries, have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their pay ratios.
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding beneficial ownership of our common stock as of March 21, 2019 (except as described below) by:
| • | each of our directors; |
| • | our “named executive officers”; |
| • | our directors, director nominees, and executive officers as a group; and |
| • | each person (including any “group” as that term is used in Section 13(d)(3) of the Exchange Act) who is known by us to beneficially own more than 5% of any class of our common stock. |
Applicable beneficial ownership percentages listed below are based on 142,372,724 shares of common stock outstanding as of March 21, 2019. The business address for each of our directors and executive officers is our corporate headquarters at 77 Rio Robles, San Jose, California 95134.
Common Stock Beneficially Owned(1) |
||||||||
Directors and Named Executive Officers |
Number of Shares |
% |
||||||
François Badoual |
— | — |
||||||
Charles Boynton(2) |
32,441 | * |
||||||
Helle Kristoffersen |
— | — |
||||||
Antoine Larenaudie |
— | — |
||||||
Catherine Lesjak |
110,905 | * |
||||||
Kenneth Mahaffey |
100,044 | * |
||||||
Thomas McDaniel(3) |
220,663 | * |
||||||
William Mulligan(4) |
85,505 | * |
||||||
Ladislas Paszkiewicz |
— | — |
||||||
Julien Pouget |
— | — |
||||||
Douglas Richards |
121,906 | * |
||||||
Manavendra Sial(5) |
25,000 | — |
||||||
Thomas Werner(6) |
635,931 | * |
||||||
Pat Wood III |
153,281 | * |
||||||
All Directors and Executive Officers as a Group (14 persons) |
1,485,676 | 1.04% |
||||||
Other Persons |
||||||||
Total S.A. Total Solar International SAS(7) 2 place Jean Millier La Défense 6 92400 Courbevoie France |
86,979,137 | 57.69% |
||||||
| * | Less than 1%. |
| (1) | Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to the securities. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares underlying restricted stock units and options held by that person that will vest or be exercisable within 60 days of March 21, 2019 are deemed to be outstanding. Such shares, however, are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. |
| (2) | Mr. Boynton served as our Chief Financial Officer until May 9, 2018, and remained an Executive Vice President of the Company through July 1, 2018. |
| (3) | Includes 220,547 shares of common stock held indirectly in the McDaniel Trust dtd 7/26/2000, of which Mr. McDaniel and his spouse are co-trustees. |
| (4) | Includes 2,000 shares of common stock held by Dr. Mulligan’s wife. |
| (5) | Includes 25,000 restricted stock units vesting within 60 days of March 21, 2019. Mr. Sial joined the Company as an Executive Vice President on May 2, 2018, and became Chief Financial Officer of the Company on May 9, 2018. |
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| (6) | Includes 32,500 restricted stock units vesting within 60 days of March 21, 2019 and 1,218 shares of common stock held by The Werner Family Trust (“WF Trust”), of which Mr. Werner and his wife are co-trustees and the beneficiaries are the surviving spouse between Thomas Werner and Suzanne Werner, to be followed by Jessica Werner and Katheryn Werner. Thomas and Suzanne Werner have been delegated joint control and voting power over the WF Trust. |
| (7) | Includes 5,126,775 shares of common stock issuable upon conversion of the convertible debentures issued by us to Total Energies Nouvelles Activités USA, SAS on June 11, 2014 and 3,275,680 shares of common stock issuable upon conversion of the convertible debentures issued by us to Total Energies Nouvelles Activités USA, SAS on December 15, 2015. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires certain of our executive officers and our directors, and persons who own more than 10% of a registered class of our equity securities, to file an initial report of ownership on Form 3 and reports of changes in ownership on Forms 4 or 5 with the SEC and The Nasdaq Global Select Market. Such executive officers, directors, and greater than 10% stockholders are also required by SEC regulations to furnish us with copies of all Section 16 forms that they file. We periodically remind our directors and executive officers of their reporting obligations and assist in making the required disclosures once we have been notified that a reportable event has occurred. We are required to report in this proxy statement any failure by any of the above-mentioned persons to make timely Section 16 reports.
Based solely on our review of the copies of such forms received by us, and written representations from our directors and executive officers, we are unaware of any instances of noncompliance, or late compliance, with Section 16(a) filing requirements by our directors, executive officers, or greater than 10% stockholders during fiscal 2018, except as follows: (i) the Form 4 filing for Thomas McDaniel’s acquisition of 8,611 restricted stock units on May 11, 2018 and immediate conversion of such restricted stock units to shares of common stock was made on May 23, 2018, with the delay due to technical issues with the filing, and (ii) the Form 4 filing for Vidul Prakash’s sale of shares of common stock on November 27, 2018 was made on January 8, 2019, due to delayed reporting of the transaction.
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COMPANY STOCK PRICE PERFORMANCE
The following graph compares the performance of an investment in our common stock from December 27, 2013 through December 28, 2018, with the Nasdaq Composite index and with the Guggenheim Solar ETF. The graph assumes $100 was invested on December 27, 2013 in our common stock at the closing price of $28.91 per share, at the closing price for the Nasdaq Composite and at the closing price for the Guggenheim Solar ETF. In addition, the graph assumes that any dividends were reinvested on the date of payment without payment of any commissions. The performance shown in the graph represents past performance and should not be considered an indication of future performance. The following graph is not, and shall not be deemed to be, filed as part of our Annual Report on Form 10-K. Such graph should not be deemed filed or incorporated by reference into any of our filings under the Securities Act of 1933, or the Exchange Act, except to the extent specifically incorporated by reference therein by us.
ASSUMES $100 INVESTED ON DECEMBER 27,2013
(ASSUMES DIVIDEND REINVESTED)
UNTIL FISCAL YEAR ENDED DECEMBER 30, 2018
December 26, 2014 |
December 31, 2015 |
December 30, 2016 |
December 29, 2017 |
December 28, 2018 |
|||||||||||
SunPower Corporation |
$ | 91.04 | $ | 103.80 | $ | 22.86 | $ | 29.16 | $ | 17.50 | |||||
Nasdaq Composite |
$ | 115.64 | $ | 120.47 | $ | 129.51 | $ | 166.08 | $ | 158.41 | |||||
Guggenheim Solar ETF |
$ | 100.96 | $ | 91.04 | $ | 51.67 | $ | 78.37 | $ | 57.91 | |||||
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EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain information as of December 30, 2018 with respect to our equity compensation plans under which our equity securities are authorized for issuance (in thousands, except dollar figures).
Plan Category |
Number of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) |
||||||
Equity compensation plans approved by security holders |
— | — | 11,183 | ||||||
Total(1) |
— | — | 11,183 | ||||||
| (1) | As of December 30, 2018, no options remained outstanding under our equity incentive plans, including the plan we assumed in connection with the acquisition of PowerLight Corporation, now known as SunPower Corporation, Systems, in January 2007. Under the terms of our equity incentive plans, we may issue incentive or non-statutory stock options, restricted stock awards, restricted stock units, or stock purchase rights to directors, employees, and consultants to purchase common stock. The SunPower Corporation 2015 Omnibus Incentive Plan includes an automatic share reserve increase feature effective for fiscal 2016 through fiscal 2025. This share reserve increase feature will cause an annual and automatic increase in the number of shares of our common stock reserved for issuance under the Stock Incentive Plan in an amount each year equal to the least of: 3% of the outstanding shares of our common stock measured on the last day of the immediately preceding fiscal year; 6,000,000 shares; and such other number of shares as determined by our Board. On January 1, 2019, the share reserve increase feature caused an automatic increase of 4,235,385 (3%) shares for fiscal 2019. |
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RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2019
The Board, upon recommendation of the Audit Committee, has reappointed the firm of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 29, 2019, subject to ratification by our stockholders.
Ernst & Young LLP has served as our auditor since May 3, 2012. A representative of Ernst & Young LLP is expected to be present at the Annual Meeting and will have an opportunity to make a statement if he or she desires to do so, and is expected to be available to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm is not required by our By-Laws or other applicable legal requirements. However, the Board is submitting the selection of Ernst & Young LLP to the stockholders for ratification as a matter of good corporate governance.
If the stockholders fail to ratify the selection of our independent registered accounting firm, the Audit Committee and the Board will reconsider whether or not to retain that firm. Even if the selection is ratified, the Board, at its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in our and our stockholders’ best interests.
Ernst & Young LLP
Ernst & Young LLP fees incurred by us for fiscal 2017 and 2018 were as follows:
Services |
2017 ($) |
2018 ($) |
||||
Audit Fees |
4,702,292 | 5,859,755 | ||||
Audit-Related Fees |
341,734 | 137,420 | ||||
Tax Fees |
1,588,948 | 1,440,168 | ||||
All Other Fees |
2,790 | 11,200 | ||||
Total |
6,635,764 | 7,448,544 | ||||
| • | Audit Fees: Audit fees for fiscal 2017 and 2018 were for professional services rendered in connection with audits of our consolidated financial statements, statutory audits of our subsidiary companies, quarterly reviews, and assistance with documents that we filed with the SEC (including our Forms 10-Q and 8-K) for periods covering fiscal 2017 and 2018. |
| • | Audit-Related Fees: Audit-related fees for 2017 and 2018 were for professional services rendered in connection with consultations with management on various accounting matters, including the Company’s previously announced business re-segmentation. |
| • | Tax Fees: Tax fees for 2017 and 2018 were for tax compliance and consulting services. |
| • | All Other Fees: Other fees in 2017 and 2018 were for access to technical accounting services. |
Audit Committee Pre-Approval
As required by Section 10A(i)(1) of the Exchange Act, our Audit Committee has adopted a pre-approval policy requiring that the Audit Committee pre-approve all audit and permissible non-audit services to be performed by our independent registered public accounting firm. Any proposed service that has received pre-approval but which will exceed pre-approved cost limits will require additional pre-approval by the Audit Committee. In addition, pursuant to Section 10A(i)(3) of the Exchange Act, the Audit Committee has established procedures by which the Audit Committee may from time to time delegate pre-approval authority to the Chairman of the Audit Committee. If the Chairman exercises this authority, he must report any pre-approval decisions to the full Audit Committee at its next meeting. The independent registered public accounting firm and our management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with the committee’s pre-approval, and the fees for the services performed to date.
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During fiscal 2017 and 2018, all services provided to us by Ernst & Young LLP were pre-approved by the Audit Committee in accordance with the pre-approval policy described above. The scope and services were reviewed and approved by the Audit Committee before the services were rendered. Ernst & Young LLP and our Audit Committee have each concluded that Ernst & Young LLP’s objectivity and ability to exercise impartial judgment on all issues encompassed with the audit engagement has not been impaired because (i) the services did not include prohibited non-audit related services and (ii) the fees we paid were insignificant both to Ernst & Young LLP and to SunPower.
Vote Required
The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2019 requires the affirmative vote of the holders of a majority of our stock having voting power and in attendance or represented by proxy at the Annual Meeting. We do not expect “broker non-votes” on this proposal since this proposal is considered to be a routine proposal and brokers have discretionary authority to vote on this proposal. Abstentions will have the effect of votes against this proposal.
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APPENDIX A
Use of Non-GAAP Financial Measures
Adjustments Based on International Financial Reporting Standards (IFRS)
Our non-GAAP results include adjustments to recognize revenue and profit under IFRS that are consistent with the adjustments made in connection with our reporting process as part of our status as a consolidated subsidiary of Total S.A., a foreign public registrant which reports under IFRS. Differences between GAAP and IFRS reflected in our non-GAAP results are further described below. In these situations, we believe that IFRS enables us to better evaluate our revenue and profit generation performance, and assists in aligning the perspectives of our management and noncontrolling shareholders with those of Total S.A., our controlling shareholder.
| • | 8point3. We include adjustments related to the sales of projects contributed to 8point3 Energy Partners LP (8point3), a joint YieldCo vehicle we formed with First Solar, Inc. to own, operate, and acquire solar energy generation assets, based on the difference between the fair market value of the consideration received and the net carrying value of the projects contributed, of which a portion is deferred in proportion to our retained equity stake in 8point3 and its subsidiaries. On June 19, 2018, we sold our equity interest in the 8point3 Group. |
| • | Legacy utility and power plant projects. We include adjustments related to the revenue recognition of certain utility and power plant projects based on percentage-of-completion accounting and, when relevant, the allocation of revenue and margin to our project development efforts at the time of initial project sale. |
| • | Sale-leaseback transactions. We include adjustments related to the revenue recognition on certain sale-leaseback transactions based on the net proceeds received from the buyer-lessor. Under GAAP, these transactions are accounted for under the financing method in accordance with real estate accounting guidance. |
| • | Unrealized loss in equity investments. In connection with the divestment of our microinverters business in the third quarter of fiscal 2018, we received a portion of the consideration in the form of common stock. We recognized adjustments related to the fair value of equity investments with readily determinable fair value based on the changes in the stock price of these equity investments at every reporting period. Under GAAP, unrealized gains and losses due to changes in stock prices for these securities are recorded in earnings while under International Financial Reporting Standards (“IFRS”), an election can be made to recognize such gains and losses in other comprehensive income. |
Other Non-GAAP Adjustments
| • | Impairment and sale of residential lease assets. In the fourth quarter of fiscal 2017, we made the decision to sell or refinance our interest in the residential lease portfolio and as a result of this triggering event, determined it was necessary to evaluate the potential for impairment in our ability to recover the carrying amount of the residential lease portfolio. In accordance with such evaluation, we recognized a non-cash impairment charge on our solar power systems leased and to be leased and an allowance for losses related to financing receivables. In connection with the impairment loss, the carrying values of the Company’s solar power systems leased and to be leased were reduced which resulted in lower depreciation charges. In the fourth quarter of fiscal 2018, we entered into a joint venture with HA SunStrong Capital LLC (“HA SunStrong Parent”), an affiliate of Hannon Armstrong Sustainable Infrastructure Capital, Inc., to acquire, own, manage, operate, finance, and maintain a portfolio of residential rooftop or ground-mounted solar photovoltaic electric generating systems. Pursuant to the terms of the Purchase and Sale Agreement (the “PSA”), we sold to HA SunStrong Parent, in exchange for consideration of $10.0 million, membership units representing a 49.0% membership interest in SunStrong Capital Holdings, LLC (“SunStrong”), formerly our wholly owned subsidiary. Following the closing of the PSA, we deconsolidated certain entities that have historically held the assets and liabilities comprising our residential lease business, as part of our previously announced decision to sell a portion of our interest in the portfolio of residential lease assets, and retained membership units representing a 51% membership interest in SunStrong. The loss on divestment and the remaining unsold residential lease asset impairment with its corresponding depreciation savings are excluded from the Company’s segment results as they are non-cash in nature and not reflective of ongoing operating results. |
A-1
| • | Impairment of property, plant, and equipment. In the second quarter of fiscal 2018, we announced our proposed plan to change the corporate structure into the Upstream business unit and Downstream business unit, and long-term strategy to replace IBC technology to NGT. Accordingly, the Company expects to upgrade the equipment associated with our manufacturing operations for the production of NGT over the next several years. In connection with these events, the Company determined indicators of impairment existed and therefore performed an evaluation of the recoverability of the asset group. In accordance with such evaluation, we recognized a non-cash impairment charge on our property, plant, and equipment. Such asset impairment is excluded from the Company’s segment results as it is non-cash in nature and not reflective of ongoing segment results. |
| • | Cost of above-market polysilicon. We have entered into multiple long-term, fixed-price supply agreements to purchase polysilicon for periods of up to 10 years. The prices in select legacy supply agreements, which incorporate a cash portion and a non-cash portion attributable to the amortization of prepayments made under the agreements, significantly exceed current market prices. Additionally, in order to reduce inventory and improve working capital, we have periodically elected to sell polysilicon inventory in the marketplace at prices below the Company’s purchase price, thereby incurring a loss. We believe that it is appropriate to exclude the impact of its above-market cost of polysilicon, including the effect of above-market polysilicon on product costs, losses incurred on sales of polysilicon to third parties, and inventory reserves and project asset impairments from the Company’s non-GAAP financial measures as they are not reflective of ongoing operating results and do not contribute to a meaningful evaluation of a Company’s past operating performance. |
| • | Stock-based compensation. Stock-based compensation relates primarily to our equity incentive awards, and is a non-cash expense that is dependent on market forces that are difficult to predict. We believe that this adjustment for stock-based compensation provides a basis to measure our core performance, including compared with the performance of other companies, without the period-to-period variability created by stock-based compensation. |
| • | Amortization of intangible assets. We incur amortization of intangible assets as a result of acquisitions, which includes patents, purchased technology, project pipeline assets, and in-process research and development. We believe that it is appropriate to exclude these amortization charges as they arise from prior acquisitions, are not reflective of ongoing operating results, and do not contribute to a meaningful evaluation of our past operating performance. |
| • | Depreciation of idle equipment. In the fourth quarter of 2017, we changed the deployment plan for our next generation of solar cell technology, which made certain then temporarily idle equipment obsolete, and therefore retired that affected equipment. Such asset depreciation is excluded from our non-GAAP financial measures as it is non-cash in nature and not reflective of ongoing operating results. Excluding this data provides investors with a basis to compare our performance against the performance of other companies without such charges. |
| • | Gain on business divestiture. In the third quarter of fiscal 2018, we entered into a transaction pursuant to which we sold certain assets and intellectual property related to the production of microinverters for purchase consideration comprised of both cash and stock. In connection with this sale, we recognized a gain relating to this business divestiture. We believe that it is appropriate to exclude this gain from our non-GAAP financial measures as it is non-cash in nature and not reflective of ongoing operating results. |
| • | Acquisition-related and other costs. In connection with the acquisition of certain assets of SolarWorld Americas, Inc. (“SolarWorld Americas”), which closed on October 1, 2018, we incurred legal and accounting fees. We believe that it is appropriate to exclude these costs from our non-GAAP financial measures as they would not have otherwise been incurred as part of our business operations and are therefore not reflective of ongoing operating results. |
| • | Business reorganization costs. In connection with the reorganization of our business into an upstream and downstream business unit structure, we incurred and expect to continue incurring expenses in the upcoming quarters associated with reclassifying prior period segment information, reorganization of corporate functions and responsibilities to the business units, updating accounting policies and processes and implementing systems to fulfill the requirements of the master supply agreement between the segments. We believe that it is appropriate to exclude these from our non-GAAP financial measures as they would not have otherwise been incurred as part of our business operations and are therefore not reflective of ongoing operating results. |
A-2
| • | Non-cash interest expense. We incur non-cash interest expense related to the amortization of items such as original issuance discounts on our debt. We exclude non-cash interest expense because the expense does not reflect our financial results in the period incurred. |
| • | Restructuring expense. We incur restructuring expenses related to reorganization plans aimed towards realigning resources consistent with our global strategy and improving our overall operating efficiency and cost structure. We excluded restructuring charges from non-GAAP financial measures because they are not considered core operating activities and such costs have historically occurred infrequently. |
| • | IPO-related costs. Costs incurred related to the initial public offering of 8point3 included legal, accounting, advisory, valuation, and other expenses, as well as modifications to or terminations of certain existing financing structures in preparation for sale to 8point3. As these costs are non-recurring in nature, excluding this data provides us with a basis to evaluate the Company’s performance, including compared with the performance of other companies, without similar impacts. |
| • | Tax effect. This amount is used to present each of the adjustments described above on an after-tax basis in connection with the presentation of non-GAAP net income and non-GAAP net income per diluted share. The Company’s non-GAAP tax amount is based on estimated cash tax expense and reserves. We forecast our annual cash tax liability and allocate the tax to each quarter in a manner generally consistent with its GAAP methodology. This approach is designed to enhance our ability to understand the impact of the Company’s tax expense on its current operations, provide improved modeling accuracy, and substantially reduce fluctuations caused by GAAP to non-GAAP adjustments, which may not reflect actual cash tax expense. |
| • | Adjusted EBITDA adjustments. When calculating Adjusted EBITDA, in addition to adjustments described above, we exclude the impact during the period of the following items: |
| • | Cash interest expense, net of interest income |
| • | Provision for (benefit from) income taxes |
| • | Depreciation |
We use this non-GAAP financial measure to enable us to evaluate the Company’s performance, including compared with the performance of other companies. For more information about these non-GAAP financial measures, see the tables captioned “Reconciliations of GAAP Measures to Non-GAAP Measures” set forth in our Form 8-K filed on February 13, 2019.
A-3
