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Appendix A (Reconciliation of Non-GAAP Measures) | |
FARO TECHNOLOGIES, INC.
250 Technology Park
Lake Mary, Florida 32746
PROXY STATEMENT FOR
20192021 ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is furnished in connection with the solicitation of proxies on behalf of the Board of Directors (the “Board of Directors” or the “Board”) of FARO Technologies, Inc. (“FARO,” the “Company,” “we,” “us” or “our”) for use at the 20192021 Annual Meeting of Shareholders (the “Annual Meeting”), to be held on May 30, 201928, 2021 at 9:00 a.m., Eastern time, via a live webcast on the Internet at our principal executive offices, located at 250 Technology Park, Lake Mary, Florida 32746, and at any adjournment or postponementwww.virtualshareholdermeeting.com/FARO2021. The Annual Meeting will be held entirely online this year due to the ongoing public health impact of the coronavirus outbreak (COVID-19). You will be able to attend and participate in the Annual Meeting online by visiting www.virtualshareholdermeeting.com/FARO2021, where you will be able to vote electronically and submit questions. You will not be able to attend the Annual Meeting in person. You will need the 16-digit control number included in your Notice of Internet Availability or your proxy card (if you received a printed copy of the proxy materials) to attend the Annual Meeting. The telephone number at our principal executive offices is (407) 333-9911.
In accordance with the e-proxy rules adopted by the Securities and Exchange Commission (“SEC”), we are providing access to our proxy materials primarily by furnishing the proxy materials to our shareholders on the Internet, rather than mailing paper copies of the materials to each shareholder. On or about April 17, 2019,15, 2021, we will mail a Notice of Internet Availability of Proxy Materials (the “Notice”) to the majority of our shareholders, and on or about the same date, we will mail a printed copy of the Proxy Statement and a proxy card to shareholders who have requested to receive them. On the mailing date of the Notice, all shareholders will have the ability to access all of the proxy materials, including the Proxy Statement, on a website referred to in the Notice and this Proxy Statement. The Notice contains instructions on how to access and review the proxy materials, including the Proxy Statement and annual report to shareholders, over the Internet, how to request paper copies of the proxy materials and how shareholders can submit their proxies on the Internet. Brokerage firms and other nominees who hold shares on behalf of beneficial owners will be sending their own similar Notice.
Internet distribution of the proxy materials is designed to expedite receipt by shareholders, lower the cost of the Annual Meeting, and conserve natural resources. However, if you would prefer to receive printed proxy materials, please follow the instructions included in the Notice.
A list of shareholders entitled to vote at the Annual Meeting will be available for inspection by any shareholder at our principal executive offices at 250 Technology Park, Lake Mary, Florida 32746 for a period of ten days prior to the Annual Meeting and atMeeting. If you wish to inspect the list of shareholders prior to the Annual Meeting, itself.please contact Nancy Setteducati at (407) 333-9911 to schedule an appointment. In addition, the shareholder list will be available during the Annual Meeting through the meeting website for those shareholders who choose to attend.
This Proxy Statement and our 20182020 Annual Report, which includes our Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2020, are available to shareholders at: www.proxyvote.com. Our 20182020 Annual Report is not to be considered a part of these proxy materials or as having been incorporated by reference into this Proxy Statement.
ABOUT THE MEETING
What is the purpose of the Annual Meeting?
At the Annual Meeting, shareholders will vote on the following matters:
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1. | the election of three directors, John E. Caldwell, John Donofrio, and Yuval Wasserman, to the Board of Directors, each to serve for a three-year term expiring at the annual meeting of shareholders in 2022; |
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2. | the ratification of Grant Thornton LLP as our independent registered public accounting firm for 2019; and |
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3. | a non-binding resolution to approve the compensation of our named executive officers. |
1.the election of two directors, Lynn Brubaker and Jeroen van Rotterdam, to the Board of Directors, each to serve for a three-year term expiring at the annual meeting of shareholders in 2024;
2.the ratification of Grant Thornton LLP as our independent registered public accounting firm for 2021; and
3.a non-binding resolution to approve the compensation of our named executive officers.
Shareholders will also transact any other business that may properly come before the Annual Meeting. Once the business of the Annual Meeting is concluded, shareholders will have an opportunity to ask questions as time permits. Members of our management and representatives of Grant Thornton LLP, our independent registered public accounting firm, will be present to respond to appropriate questions from shareholders.
Why am I receiving these materials?
We have made these proxy materials available to you on the Internet or, upon your request, have delivered printed versions of these proxy materials to you by mail, in connection with our solicitation of proxies for use at the Annual Meeting. This Proxy Statement describes matters we would like you to vote on at the Annual Meeting. It also provides you with information about these matters so that you can make an informed decision. These proxy materials were first sent or made available to shareholders on or about April 17, 2019.15, 2021.
What is included in these proxy materials?
These proxy materials include:
•The Notice of 20192021 Annual Meeting of Shareholders;
•This Proxy Statement for the Annual Meeting; and
•Our 20182020 Annual Report, which includes our Annual Report on Form 10-K for the year ended December 31, 2018,2020, as filed with the SEC on February 21, 201917, 2021 (the “Annual Report”).
If you requested printed versions of the proxy materials by mail, we will also include the proxy card or voting instruction form for the Annual Meeting.
Why did I receive a notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?
Pursuant to rules adopted by the SEC, we are using the Internet as the primary means of furnishing proxy materials to shareholders. Accordingly, we are sending a Notice to the majority of our shareholders. All shareholders will have the ability to access the proxy materials on the website referred to in the Notice or request a printed set of the proxy materials. Instructions on how to access the proxy materials over the Internet or how to request a printed copy of the proxy materials may be found in the Notice. In addition, shareholders may request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis. We encourage shareholders to take advantage of the availability of the proxy materials on the Internet to help reduce the environmental impact of our annual meetings and reduce our cost associated with the physical printing and mailing of materials.
I share an address with another shareholder, and we received only one Notice or one paper copy of the proxy materials. How can I obtain an additional copy of the proxy materials?
We have adopted an SEC-approved procedure called “householding.” Under this procedure, we may deliver a single copy of the Notice and, if applicable, this Proxy Statement and the Annual Report to multiple shareholders who share the same address unless we have received contrary instructions from one or more of the shareholders. This procedure reduces the environmental impact of our annual meetings and reduces our printing and mailing costs. Shareholders who participate in householding will continue to receive separate proxy cards if they received a printed set of the proxy materials. Upon written or oral request, we will deliver promptly a separate copy of the Notice and, if applicable, this Proxy Statement and the Annual Report to any shareholder at a shared address to which we delivered a single copy of any of these documents.
To receive free of charge a separate copy of the Notice and, if applicable, this Proxy Statement or the Annual Report, or separate copies of any future notice, proxy statement or annual report, or if you are receiving multiple copies of the Notice, Proxy Statement and/or Annual Report and would like to receive only one copy, shareholders may write or call us at the following:
FARO TECHNOLOGIES, INC.
Attn: Nancy Setteducati
250 Technology Park
Lake Mary, Florida 32746
1-800-736-0234
How can I get electronic access to the proxy materials?
The Notice will provide you with instructions regarding how to use the Internet to:
•View our proxy materials for the Annual Meeting; and
•Instruct us to send future proxy materials to you by e-mail.
Our proxy materials are also available at www.proxyvote.com. This website address is included for reference only. The information contained on, or accessible through, this website or our website is not incorporated by reference into this Proxy Statement.
Choosing to receive future proxy materials by e-mail will reduce the impact of our annual meetings on the environment and will save us the cost of printing and mailing documents to you. If you choose to receive future proxy materials by e-mail, you will receive an e-mail message next year with instructions containing a link to those materials and a link to the proxy voting website. Your election to receive proxy materials by e-mail will remain in effect until you terminate it.
What is a proxy?
A proxy is your legal designation of another person, also referred to as a “proxy,” to vote your shares of stock on your behalf. The written document providing notice of the Annual Meeting and describing the matters to be considered and voted on is called a “proxy statement.” The document used to designate a proxy to vote your shares of stock is called a “proxy card.” Our Board has designated John Donofrio, independent Chairman of the Board, and Jody S. Gale, our Senior Vice President, General Counsel and Secretary,Allen Muhich, Chief Financial Officer, as proxies for the Annual Meeting.
Who is entitled to vote?
Holders of our common stock outstanding as of the close of business on March 29, 201926, 2021 (the “Record Date”) are entitled to vote at the Annual Meeting. Each shareholder is entitled to one vote for each share of common stock he or shesuch shareholder held on the Record Date.
If your shares are held by a bank or brokerage firm, you are considered the “beneficial owner” of shares held in “street name.” If your shares are held in street name, your bank or brokerage firm (the record holder of your shares) will forward a Notice or, if applicable, a printed set of these proxy materials, along with a voting instruction card, to you. As the beneficial owner, you have the right to direct your record holder how to vote your shares, and the record holder is required to vote your shares in accordance with your instructions. If you do not give instructions to your bank or brokerage firm, it will nevertheless be entitled to vote your shares with respect to “routine” items, but it will not be permitted to vote your shares with respect to “non-routine” items. In the case of a non-routine item, your shares will be considered “broker non-votes” on that proposal. Only Proposal 2, the ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm for 2021, is considered a routine matter on which brokers are permitted to vote shares held by them without instruction. If your shares are held through a broker, those shares will not be voted on Proposal 1 or Proposal 3 unless you affirmatively provide the broker instructions on how to vote.
Who can attend the Annual Meeting?
All FARO shareholders, or individuals holding their duly appointed proxies, may attend the Annual Meeting.Meeting online. Appointing a proxy in response to this solicitation will not affect a shareholder’s right to attend the Annual Meeting andonline. You will be able to vote your shares electronically during the meeting by logging in person. Please note using the 16-digit control number included in your Notice of Internet Availability of the proxy materials, on your proxy card or on the voting instructions form accompanying these proxy materials.
Participation in the Virtual Annual Meeting
This year our Annual Meeting will be a completely virtual meeting. There will be no physical meeting location.
To participate in the virtual meeting, visitwww.virtualshareholdermeeting.com/FARO2021 and enter the 16-digit control number included on your Notice of Internet Availability or your proxy card (if you received a printed copy of the proxy materials). You may begin to log into the meeting platform beginning at 8:45 a.m. Eastern Time on May 28, 2021. The meeting will begin promptly at 9:00 a.m. Eastern Time on May 28, 2021.
Stockholders will also have the opportunity to submit questions prior to the annual meeting at www.proxyvote.com by logging on with your control number or during the annual meeting through www.virtualshareholdermeeting.com/FARO2021. A technical support telephone number will be posted on the log-in page of www.virtualshareholdermeeting.com/FARO2021 that you can call if you hold your shares in “street name,” you will need to bring a copy of your bankencounter any difficulties accessing the virtual meeting during the check-in or brokerage statement reflecting your stock ownership as ofduring the Record Date to gain admission to the Annual Meeting. Shareholders must also present a form of personal photo identification to be admitted to the Annual Meeting.
meeting.
How do I vote?
If you own shares registered directly with our transfer agent on the close of business on the Record Date, you may vote:
•By Internet (before the Annual Meeting).You may vote over the Internet, throughby going to www.proxyvote.com. You will need the website shown on16-digit control number included in your Notice of Internet Availability or your proxy card;card (if you received a printed copy of the proxy materials).
•By Telephone.You may vote by telephone, by calling toll-free 1-800-690-6903 in the United States from any touch-tone telephone and following the instructions;instructions. You will need the 16-digit control number included in your Notice of Internet Availability or your proxy card (if you received a printed copy of the proxy materials).
•By Mail. If you received a printed set of proxy materials, by mailing your signed proxy card in the postage paid envelope provided.
•During the Annual Meeting. You may vote during the annual meeting by going to wwww.virtualshareholdermeeting.com/FARO2021. You will need the 16-digit control number included in your Notice of Internet Availability or your proxy card (if you received a printed copy of the proxy materials). If you previously voted via the Internet (or by telephone or mail), you will not limit your right to vote online at the Annual Meeting.
If your shares are held in street name, your bank or brokerage firm will forward a Notice or, if applicable, a printed set of these proxy materials, as well as a voting instruction card, to you. Please follow the instructions on the Notice or voting instruction card to vote your shares. Your bank or brokerage firm may also allow you to vote by telephone or the Internet.
If you are a registered shareholder and you attend the Annual Meeting, you may deliver a completed proxy card in person. Additionally, we will pass out written ballots to registered shareholders who wish to vote in person at the meeting. Beneficial owners of shares held in street name who wish to vote at the Annual Meeting will need to obtain a power of attorney or legal proxy from their record holder to do so.
How many shares must be present to hold the meeting?
A quorum of shareholders is necessary to hold a valid shareholders meeting and for shareholders to take action on a matter at the meeting. A majority of the 17,318,87518,154,164 shares of common stock outstanding on the Record Date and entitled to be cast on any matter at the Annual Meeting must be represented, in persononline or by proxy, to constitute a quorum for action on such matter at the Annual Meeting. If you vote, your shares will be included in the number of shares to establish the quorum. Shares that are voted “ABSTAIN,” properly executed proxy cards or voting instruction cards that are returned without voting instructions and shares treated as “broker non-votes” will be counted as present for the purpose of determining whether the quorum requirement is satisfied.
Once a share is represented at the Annual Meeting, it will be deemed present for quorum purposes throughout the Annual Meeting (including any adjournment or postponement of the Annual Meeting unless a new record date is or must be set for such adjournment or postponement).
If a quorum is not present at the scheduled time of the Annual Meeting, a majority of the shareholders who are present online or represented in person or by proxy, at the meeting may adjourn the Annual Meeting until a quorum is present.to another date. The time and place of the adjourned meeting will be announced at the meeting at the time of adjournment, and no other notice will be given unless the Board of Directors fixes a new record date.
How are proxies voted?
All shares represented by valid proxies received prior to the taking of the vote at the Annual Meeting will be voted and, where a shareholder specifies by means of the proxy a choice with respect to any matter to be acted upon, the shares will be voted in accordance with the shareholder’s instructions.
What is the effect of not voting?
If you are a registered shareholder and you submit a proxy but do not provide any voting instructions, your shares will be voted:
•FOR the election of John E. Caldwell, John Donofrio,Lynn Brubaker and Yuval WassermanJeroen van Rotterdam to the Board of Directors;
•FOR the ratification of Grant Thornton LLP as our independent registered public accounting firm for 2019;2021; and
•FOR the approval of the compensation of our named executive officers.
If you are a registered shareholder and you do not vote, your un-votednon-voted shares will not count toward the quorum requirement for the Annual Meeting or any proposal considered at the Annual Meeting. If a quorum is obtained, your un-votednon-voted shares will not affect the outcome of any proposal.
If you own shares in street name and do not instruct your bank or brokerage firm how to vote your shares, your bank, broker, or other holder of record may not vote your shares on non-routine matters such as Proposal 1—Election of Directors and Proposal 3—Advisory Vote on Executive Compensation, and your shares will be considered broker non-votes on those proposals. However, it may vote your shares in its discretion on routine proposals such as Proposal 2—Ratification of Independent Registered Public Accounting Firm.
Abstentions (or “Withhold” votes for the election of directors) and broker non-votes will not affect the outcome of any proposals considered at the Annual Meeting.
Can I change my vote after I return my proxy card or vote by telephone or the Internet?
Yes. If you are a registered shareholder, even after you have submitted your proxy, you can change your vote by:
•properly completing and signing another proxy card with a later date and returning the proxy card prior to the Annual Meeting;
•voting again by telephone or the Internet until 11:59 pm, Eastern time, on May 29, 2019;28, 2020;
•giving written notice of your revocation to FARO Technologies, Inc., Attention: Secretary,Nancy Setteducati, 250 Technology Park, Lake Mary, Florida 32746, prior to or at the Annual Meeting; or
•voting in person atonline during the Annual Meeting.
Your presence online at the Annual Meeting will not in itself revoke your proxy; you must obtain a ballot and vote atduring the Annual Meeting electronically to revoke your proxy. Unless properly changed or revoked, the shares represented by proxies received prior to the Annual Meeting will be voted at the Annual Meeting.
If you hold your shares in street name, the above options for changing your vote do not apply, and you must instead follow the instructions received from your bank or broker to change your vote.
What are the Board’s recommendations on the proposals?
The Board recommends that you vote your shares as follows:
Proposal 1—FOR the election of the threetwo nominees for director, John E. Caldwell, John Donofrio,Lynn Brubaker and Yuval Wasserman,Jeroen van Rotterdam, each with a three-year term expiring at the annual meeting of shareholders in 2022;2024;
Proposal 2—FOR the ratification of Grant Thornton LLP as our independent registered public accounting firm for 2019;2021; and
Proposal 3—FOR the approval of the compensation of our named executive officers.
What vote is required to elect the director nominees?
The affirmative vote of a plurality of the votes cast is required for the election of directors, which means that the threetwo nominees for director receiving the greatest number of votes will be elected. If you vote “Withhold” with respect to one or more nominees, your shares will not be voted with respect to the person or persons indicated, although they will be counted for purposes of determining whether there is a quorum. Broker non-votes will have no impact on the outcome of the election of directors.
What happens if a nominee is unable to stand for election?
If a nominee is unable to stand for election, the Board of Directors may either reduce the number of directors to be elected or select a substitute nominee. If a substitute nominee is selected, the proxy holders will vote your shares for the substitute nominee, unless you have voted “Withhold” with respect to the original nominee.
How many votes are required to ratify the appointment of the Company’s independent registered public accounting firm?
The ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm for 20192021 requires the affirmative vote of a majority of the votes cast by the shareholders. Abstentions will have no impact on the outcome of this matter. Because this matter is a routine proposal, there will be no broker non-votes associated with this proposal.
How many votes are required to approve the non-binding resolution on the compensation of the Company’s named executive officers?
The approval of the non-binding resolution to approve the compensation of our named executive officers requires the affirmative vote of a majority of the votes cast by the shareholders. Abstentions and broker non-votes will have no impact on the outcome of this matter.
Are there any other items to be discussed during the Annual Meeting?
We are not aware of any other matters that you will be asked to vote on at the Annual Meeting. If other matters are properly brought before the Annual Meeting and you have returned a proxy card, with or without voting instructions, or have voted by telephone or the Internet, the proxy holders will use their discretion in voting your shares on these matters as they may arise.
Who will count the vote?
Broadridge Financial Solutions, Inc. will count the vote and will serve as the inspector of election.
Who pays to prepare, mail, and solicit the proxies?
Proxies may be solicited by personal meeting, Internet, e-mail, advertisement, telephone, and facsimile machine, as well as by use of the mails. Solicitations may be made by our directors, officers, and other employees, none of whom will receive additional compensation for such solicitations. We will bear the cost of soliciting proxies and have engaged Alliance Advisors, LLC to assist in the solicitation of proxies. Alliance Advisors, LLC will receive a fee of approximately $10,000 plus reasonable out-of-pocket expenses for this work. In addition, arrangements will be made, as appropriate, with banks, brokerage houses, and other custodians, nominees or fiduciaries to forward soliciting materials to the beneficial owners of our common stock, and we will reimburse such persons for their out-of-pocket expenses incurred in providing those services.
Where can I find the voting results of the Annual Meeting?
Preliminary voting results will be announced at the Annual Meeting. Final voting results will be tallied by the inspector of election after the taking of the vote at the Annual Meeting. We will publish the final voting results in a Current Report on Form 8-K, which we are required to file with the SEC within four business days following the Annual Meeting.
Will I receive a copy of the Annual Report?
You may obtain a copy of the Annual Report by writing to our Investor Relations department at 250 Technology Park, Lake Mary, Florida 32746, by calling 1-800-736-0234, by e-mailing our Investor Relations department at InvestorRelations@faro.com or by accessing www.proxyvote.com. Our Annual Report is not incorporated by reference into this Proxy Statement and is not considered proxy soliciting material.
Where can I find Corporate Governance materials for the Company?
Our Amended and Restated Articles of Incorporation, Amended and Restated Bylaws (the “Bylaws”), Code of Ethics for Senior Financial Officers, Global Ethics Policy and Corporate Governance Guidelines and the charters for the Audit Operational Audit,Committee, the Talent, Development and Compensation Committee and the Nominating, Governance and Nominating CommitteesSustainability Committee of ourthe Board of Directors are published on our website at www.faro.com/about-faro/leadership-and-governance. We are not including the information contained on or accessible through our website as a part of, or incorporating such information by reference into, this Proxy Statement.
How can I contact the members of the Board?
Shareholders may communicate with the full Board or individual directors by submitting such communications in writing to FARO Technologies, Inc., Attention: Board of Directors (or the individual director(s)), 250 Technology Park, Lake Mary, Florida 32746. Communications should be sent by overnight or certified mail, return receipt requested. Such communications will be delivered directly to the Board or the individual director(s), as designated on such communication. However, we reserve the right not to forward to Board members any abusive, threatening or otherwise inappropriate materials.
PROPOSAL 1
ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR” THE ELECTION OF EACH OF JOHN E. CALDWELL, JOHN DONOFRIO,LYNN BRUBAKER AND YUVAL WASSERMANJEROEN VAN ROTTERDAM TO THE BOARD OF DIRECTORS.
The Board is divided into three classes, as nearly equal as possible, with one class of directors elected each year for a three-year term. Each director’s term is subject to the election and qualification of his or her respective successor, or such director’s earlier death, resignation or removal. The Board currently consists of seveneight members. Three directors have terms that expire at the Annual Meeting, one director has a term that expires at the 2020 annual meeting of shareholders, and three directors have terms that expire at the 2021 annual meeting of shareholders.
We do not know of any reason why any nominee would be unable or, if elected, would decline to serve as a director. If any nominee is unable or unwilling to serve as a director, the Board may either reduce the number of directors to be elected or select a substitute nominee. If the Board selects a substitute nominee, the shares represented by all valid proxies will be voted for the substitute nominee, other than shares voted “Withhold” with respect to the original nominee.
The threetwo nominees for director, John E. Caldwell, John Donofrio,Lynn Brubaker and Yuval Wasserman,Jeroen van Rotterdam, are currently directors of the Company and are proposed to be elected at the Annual Meeting to serve until the 20222024 annual meeting of shareholders. Effective as of the Annual Meeting, Mr. John E. Caldwell is retiring from the Board. In addition, on March 11, 2021, Dr. Jeffrey A. Graves communicated his decision not to stand for re-election to the Board. Accordingly, Dr. Graves' term will end effective as of the Annual Meeting. Mr. Caldwell's retirement and Dr. Graves' decision not to stand for re-election are not the result of any disagreement with the Company. The remaining four directors, whose terms do not expire at the Annual Meeting, will continue to serve as members of the Board for the terms set forth below. Dr. Raab will retire from the Board on June 16, 2019 upon his retirement as our President and CEO.
Directors are elected by a plurality of the votes cast, meaning that the threetwo nominees receiving the highest number of affirmative votes cast for the election of directors at the Annual Meeting will be elected as directors. Shares may not be voted cumulatively, and proxies cannot be voted for a greater number of persons than the number of nominees named. If you received a printed set of proxy materials, shares voted by the accompanying proxy card will be voted “FOR” John E. Caldwell, John DonofrioLynn Brubaker and Yuval Wasserman,Jeroen van Rotterdam, unless the proxy card is marked to withhold authority. If you vote “Withhold” with respect to one or more nominees, your shares will not be voted with respect to the person or persons indicated. Broker non-votes on the election of directors will have no impact on the outcome of the election. We have a director resignation policy for those director nominees who receive more “withhold” than “for” votes in uncontested elections, which requires such director nominees to tender their resignation to the Board following certification of the shareholder vote. The Nominating, Governance and NominatingSustainability Committee will then act to determine whether to accept the director’s resignation and submit such recommendation for prompt consideration by the Board.
The names, ages, and principal occupations for at least the past five years of each of the currentnominees and directors andwhose terms will continue after the nomineesAnnual Meeting, and the names of any other public companies of which each has served as a director during the past five years are set forth below. There are no family relationships between any of our directors or executive officers.
Nominees for Election at the Annual Meeting
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| Name | | Age | | Director
Since | | Term
Expires | | Position |
| Lynn Brubaker | | 63 | | | 2009 | | 2021 | | Director and Nominee |
| Jeroen van Rotterdam | | 56 | | | 2021 | | 2021 | | Director and Nominee |
| | | | | | | | |
Lynn Brubaker has served as a director of the Company since July 2009. Ms. Brubaker is a seasoned executive with over 35 years of experience in aviation and aerospace in a variety of executive, operations, sales, marketing, customer support and independent consultant roles. She has over 20 years of board experience and over ten years of experience advising high technology, international, multi-industry and global companies. Since 2005, Ms. Brubaker has had an advisory practice focused on strategy and business development. She is currently a director of QinetiQ Group plc, a London Stock Exchange–listed leading research and technology company. Ms. Brubaker previously served on the Board of Directors of Hexcel Corporation, a New York Stock Exchange-listed company in leading advanced materials and technology, Nordam Group, a private aerospace company in high technology manufacturing and repair, and Force Protection, Inc., a developer and manufacturer of military survivability technology listed on the Nasdaq Stock Market (“Nasdaq”) from March 2011 until its merger with an affiliate of General Dynamics Corporation in December 2011. Ms. Brubaker spent 10 years at Honeywell International, Inc., retiring as Vice President and General Manager—Commercial Aerospace for Honeywell International, a position she held from 1999 to 2005. Prior to Honeywell International, Ms. Brubaker held a variety of management positions with McDonnell Douglas Corporation, Northwest Airlines Corporation, and ComAir Limited. Ms. Brubaker currently serves on the board of a variety of private companies and other business organizations.
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| | | | | | | | | |
| Name | | Age | | Director Since | | Term Expires | | Position |
| John E. Caldwell | | 69 |
| | 2002 | | 2022 | | Director and Nominee |
| John Donofrio | | 57 |
| | 2008 | | 2022 | | Director and Nominee |
| Yuval Wasserman | | 64 |
| | 2017 | | 2022 | | Director and Nominee |
The Board believes that Ms. Brubaker’s qualifications to sit on our Board include her strong experience and skills in sales and marketing management, executive management, technology, business development, international operations, manufacturing, financial reporting, and audit, the talent, development and compensation and the nominating, governance and sustainability committee matters.
John E. CaldwellJeroen van Rotterdam has served as a director of the Company since March 2021. Since September 2016 to December 2020, Mr. van Rotterdam served as Executive Vice President of Cloud, R&D, and Global Security for Citrix Systems, Inc ("Citrix"), a server, application and desktop virtualization, networking, software as a service (SaaS), and cloud computing technologies company. Prior to Citrix, Mr. van Rotterdam served as Chief Technology Officer, Vice President and Distinguished Engineer for DELL EMC’s ("EMC") Enterprise Content Division from July 2007 to September 2016. In the period of 1996 to 2007, Mr. van Rotterdam was Chief Executive Officer of X-Hive Corporation, a company he founded, which was acquired by EMC Corporation in 2007. Mr. van Rotterdam is the (co)author of more than 50 patents in various stages with the US Patent Office.
The Board believes that Mr. van Rotterdam's qualifications to sit on our Board include his strong experience and skills in server, application and desktop virtualization, networking, software as a service (SaaS), and cloud computing technologies.
Directors Whose Terms Will Continue After the Annual Meeting
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Age | | Director
Since | | Term
Expires | | Position |
| Michael D. Burger | | 62 | | | 2019 | | 2023 | | Director |
| Stephen R. Cole | | 69 | | | 2020 | | 2023 | | Director |
| John Donofrio | | 59 | | | 2008 | | 2022 | | Director |
| Yuval Wasserman | | 66 | | | 2017 | | 2022 | | Director |
Michael D. Burger was appointed as our President and CEO on June 17, 2019. Prior to joining the Company, Mr. Burger was President and Chief Executive Officer and a member of the board of directors of Electro Scientific Industries, Inc., a leading supplier of innovative laser-based microfabrication solutions for industries reliant on microtechnologies, from October 2016 to February 2019, when it was acquired by MKS Instruments, Inc. Prior to joining Electro Scientific Industries, Inc., Mr. Burger was President and Chief Executive Officer of Cascade Microtech, Inc., a manufacturer of advanced wafer probing, thermal and reliability solutions for the electrical measurement and testing of high performance semiconductor devices, from July 2010 to June 2016. From April 2007 to February 2010, Mr. Burger served as the President and Chief Executive Officer and as a member of the board of directors of Merix Corporation (“Merix”), a printed circuit board manufacturer. Mr. Burger also served as a member of the Board of Directors of ViaSystems Group, Inc. from February 2010 after it acquired Merix until May 2015. From November 2004 until joining Merix, Mr. Burger served as President of the Components Business of Flextronics Corporation. From 1999 to November 2004, Mr. Burger was employed by ZiLOG, Inc., a supplier of devices for embedded control and communications applications. From May 2002 until November 2004, Mr. Burger served as ZiLOG's President and a member of its board of directors. Mr. Burger holds a B.S. degree in Electrical Engineering from New Mexico State University and a certificate from the Stanford University International Executive Management Program.
The Board believes that Mr. Burger’s qualifications to sit on our Board include his strong experience and skills in executive management, technology, manufacturing, international operations, sales and marketing management, and research and development management.
Stephen R. Cole has been a director of the Company since 2002. In March 2011,2000 and served as Lead Director from 2005 until May 2018. Since May 2013, Mr. Caldwell retired asCole has been President of Seeonee Inc., a financial valuation advisory firm. From 1975 until June 2010, Mr. Cole was President and Chief Executive OfficerFounding Partner of Cole & Partners, a Toronto, Canada based mergers and acquisition and corporate finance advisory service company. In June 2010, Cole & Partners was sold to Duff & Phelps Corporation and from that time to May 2013, Mr. Cole was President of Duff & Phelps Canada Limited. Mr. Cole is a Fellow of the boardInstitute of directorsChartered Accountants of SMTCOntario, Fellow of the Canadian Chartered Institute of Business Valuators, Senior Member of the American Society of Appraisers and Full Member of the ADR Institute of Canada, Inc. He serves as lead director of The Westaim Corporation, (“SMTC”), a publicly-held electronics manufacturing servicesTSX Venture Exchange listed company whose shares are traded onwhere he also serves as a member of the Nasdaq Global Marketaudit committee and onchairman of the Toronto Stock Exchange (“TSX”).compensation committee. Previously, Mr. Caldwell had served as President and CEO and asCole was a director of SMTC since 2003. Before joining SMTC, Mr. Caldwell held positions in the Mosaic Group,H. Paulin & Co. Limited, a marketing services provider,TSX-listed company, where he also served as Chairchairman of the Restructuring Committee of the Board of Directors from October 2002 to September 2003; in GEAC Computer Corporation Limited, a computer software company, as President and Chief Executive Officer from October 2000 to December 2001; and in CAE Inc., a provider of simulation technologies and integrated training solutions for the civil aviation and defense industries, as President and Chief Executive Officer from June 1993 to October 1999. In addition,audit committee. Mr. Caldwell served in a variety of senior executive positions in finance, including Senior Vice President of Finance and Corporate Affairs of CAE and Executive Vice President of Finance and Administration of Carling O’Keefe Breweries of Canada. Over the course of his career, Mr. Caldwell has served on the audit committees of 11 public companies. Also, for the past several years, Mr. Caldwell has been an instructor on board risk oversight for the Institute of Corporate Directors in Canada. Mr. Caldwell is currently Chairman of the Board of Advanced Micro Devices, Inc., an innovative semiconductor provider, where he has served as a director since 2006. Mr. CaldwellCole has also been aheld or currently holds positions as an advisory committee member or director of IAMGOLD Corporation, a mid-tier gold producer, since 2006.various private companies and charitable and professional organizations.
The Board believes that Mr. Caldwell has also servedCole’s qualifications to sit on the board of directors of ATI Technologies Inc. from 2003 to 2006, Rothmans Inc. from 2004 to 2008, Cognos Inc. from 2000 to 2008, Stelco Inc. from 1997 to 2006 and Sleeman Breweries Ltd. from 2003 to 2005. Mr. Caldwell holds a Bachelor of Commerce degree and is a Chartered Professional Accountant.
Relevantour Board include his strong experience and skills: executive of electronics, other complex manufacturing and software businesses,skills in mergers and acquisitions, financial management, corporate finance, financial reporting, accounting, oversight of financial performance, and corporate governance, and audit committee experience.governance.
John Donofrio has served as a director of the Company since January 2008, served as Lead Director from May 2018 until April 5, 2019, and has served as independent Chairman of the Board since April 5, 2019. Mr. Donofrio currently serves as Executive Vice President and General Counsel of Johnson Controls International plc (“Johnson Controls”), a global diversified and multi-industrial leader. Mr. Donofrio is also a member of the Board of Trustees of the Medical College of Wisconsin. Before joining Johnson Controls in November 2017, Mr. Donofrio was Vice President, General Counsel and Secretary of Mars, Incorporated (“Mars”), a global food manufacturer, from October 2013 until November 2017. Before joining Mars in October 2013, Mr. Donofrio was Executive Vice President, General Counsel and Secretary for The Shaw Group Inc., a global engineering and construction company, from October 2009 until February 2013 and Senior Vice President, General Counsel and Chief Compliance Officer at Visteon Corporation (“Visteon”), a global automotive supplier, from 2005 until October 2009. Before joining Visteon, Mr. Donofrio was with Honeywell International (or its predecessor company AlliedSignal Inc.) from 1996 until 2005. At Honeywell International, Mr. Donofrio was Vice President for Intellectual Property and later also served as Vice President and General Counsel for Honeywell Aerospace. Previously he was a Partner at Kirkland & Ellis LLP, where he worked from 1989 through 1996. Before joining Kirkland & Ellis LLP, Mr. Donofrio was a law clerk at the U.S. Court of Appeals for the Federal Circuit and he worked as a Patent Examiner at the U.S. Patent and Trademark Office.
RelevantThe Board believes that Mr. Donofrio’s qualifications to sit on our Board include his strong experience and skills:skills in legal, risk management, intellectual property protection and licensing, corporate governance, manufacturing, and government regulation.
Yuval Wasserman has served as a director of the Company since December 2017. Mr. Wasserman has served as President and Chief Executive Officer and a director of Advanced Energy Industries, Inc., a leading manufacturer of power conversion products that transform electrical power into various usable forms, sincefrom October 2014.2014 until his retirement date of March 1, 2021. Mr. Wasserman previously served as President of Advanced Energy Industries’ Thin Films Business Unit from August 2011 to October 2014 and Executive Vice President and Chief Operating Officer from April 2009 to August 2011. He previously held roles at Advanced Energy Industries of Executive Vice President, Sales, Marketing and Service from October 2007 to April 2009, and Senior Vice President, Sales, Marketing and Service from August 2007 to October 2007. Prior to joining Advanced Energy Industries, Mr. Wasserman served as the President, and later as Chief Executive Officer, of Tevet Process Controls Technologies, Inc., a semiconductor metrology company, from May 2002 to July 2007. Prior to that, he held senior executive and general management positions at Boxer Cross, a metrology company acquired by Applied Materials, Inc., Fusion Systems, a plasma strip company that is a division of Axcelis Technologies, Inc., and AG Associates, a semiconductor capital equipment company focused on rapid thermal processing. Mr. Wasserman started his career at National Semiconductor, Inc., where he held various engineering and management positions. Mr. Wasserman served as a director of Syncroness, Inc. from 2010 to 2017. Mr. Wasserman is a National Association of Corporate Directors (NACD) Governance Fellow.
RelevantThe Board believes that Mr. Wasserman’s qualifications to sit on our Board include his strong experience and skills:skills in senior operations and engineering management, executive and financial management, and research and development management.
Board Planning
Directors Whose Terms Will Continue AfterAs the Annual MeetingCompany executes its transformational strategy, with an emphasis on software-enabled solutions, the Company expects to make further Board additions over time.
|
| | | | | | | | | |
| Name | | Age | | Director Since | | Term Expires | | Position |
| Stephen R. Cole | | 67 |
| | 2000 | | 2020 | | Director |
| Lynn Brubaker | | 61 |
| | 2009 | | 2021 | | Director |
| Jeffrey A. Graves, Ph.D. | | 57 |
| | 2017 | | 2021 | | Director |
| Simon Raab, Ph.D. | | 66 |
| | 1982 | | 2021 | | Director |
Stephen R. Cole
CORPORATE GOVERNANCE
SHAREHOLDER ENGAGEMENT AND COMMUNICATIONS
At FARO, we believe that corporate governance includes frequent, clear, and honest communication with our shareholders. We actively engage with a portion of our shareholders, including our top institutional investors, to discuss topics of interest including, among other things, our operating performance, corporate governance, and environmental and social matters. We do this as part of our commitment to be responsive to our shareholders and to listen to our shareholders' insights into emerging issues which include feedback on our efforts. More information about investor relations is available on our website at has beenwww.faro.com/about-faro/investor-relations. Information on our Shareholder Engagement and Communications efforts, are available through our website, and are not part of or incorporated by reference into this Proxy Statement.
Shareholders may contact our Board of Directors about genuine issues or questions by sending a directorletter to the following address: c/o FARO Technologies, Inc. 250 Technology Park, Lake Mary, Florida, 32746, Attention: Board of Directors (or the individual director(s)). Communication should be sent by overnight or certified mail, with return receipt requested. The letter should be specific and include the addressee or addressees to be contacted, the topic of the Company since 2000communication, and served as Lead Director from 2005 until May 2018. Since May 2013, Mr. Cole has been Presidentthe number of Seeonee Inc.,shares of our stock that are owned of record (if a financialrecord holder) or beneficially. We reserve the right not to forward communication to Board members containing any abusive, threatening or otherwise inappropriate materials.
GOVERNANCE, SUSTAINABILITY & STRATEGY
The Board of Directors approves and valuation advisory firm. From 1975 until June 2010, Mr. Cole was President and Founding Partner of Cole & Partners, a Toronto, Canada-based mergers and acquisition and corporate finance advisory service company. In June 2010, Cole & Partners was sold to Duff & Phelps Corporation. From June 2010 to May 2013, Mr. Cole was President of Duff & Phelps Canada Limited. Mr. Cole is a Fellowresponsible for the implementation of the Institute of Chartered Accountants of Ontario, Fellow ofCompany's mission, vision, and values. During the Canadian Chartered Institute of Business Valuators, Senior Member of the American Society of Appraisers and Full Member of the ADR Institute of Canada, Inc. He serves as lead director of The Westaim Corporation, a TSX Venture Exchange-listed company where he also serves as a member of the audit committee and chairman of the compensation committee and nominating and governance committee. Previously, Mr. Cole was a director of H. Paulin & Co. Limited, a TSX-listed company, where he also served as chairman of the audit committee. Mr. Cole has also held or currently holds positions as an advisory committee member or director of various private companies and charitable and professional organizations.
Relevant experience and skills: mergers and acquisitions, financial management, corporate finance, financial reporting, accounting, oversight of financial performance, and corporate governance.
Lynn Brubaker has served as a director of the Company since July 2009. Ms. Brubaker is a seasoned executive with over 35 years of experience in aviation and aerospace in a variety of executive, operations, sales, marketing, customer support and independent consultant roles. She has over 15 years of board experience and over ten years of experience advising high technology, international, multi-industry and global companies. Since 2005, Ms. Brubaker has had an advisory practice focused on strategy and business development. She is currently a director of Hexcel Corporation, a New York Stock Exchange-listed company in leading advanced materials and technology, and QinetiQ Group plc, a London Stock Exchange–listed leading research and technology company. Ms. Brubaker previously served on the board of directors of Force Protection, Inc., a developer and manufacturer of military survivability technology listed on the Nasdaq Stock Market (“Nasdaq”) from March 2011 until its merger with an affiliate of General Dynamics Corporation in December 2011. Ms. Brubaker spent 10 years at Honeywell International, Inc., retiring as Vice President and General Manager—Commercial Aerospace for Honeywell International, a position she held from 1999 to 2005. Prior to Honeywell International, Ms. Brubaker held a variety of management positions with McDonnell Douglas Corporation, Northwest Airlines Corporation, and ComAir Limited. Ms. Brubaker currently serves on the board of a variety of private companies and other business organizations.
Relevant experience and skills: sales and marketing management, executive management, technology, business development, international operations, manufacturing, financial reporting, and audit, nominating and compensation committee experience.
Jeffrey A. Graves Ph.D. has served as a director of the Company since December 2017. Dr. Graves has served as President and Chief Executive Officer and a director of MTS Systems Corporation, a leading global supplier of high-performance test systems and sensors, since May 2012. From July 2005 to May 2012, he served as President, Chief Executive Officer and a director of C&D Technologies, Inc., a manufacturer, marketer and distributer of electrical power storage systems for the standby power storage market. Dr. Graves previously served in various executive positions at Kemet Electronics Corporation from 2001 to 2005, including Chief Executive Officer; various leadership positions with General Electric Company’s Power Systems Division and Corporate Research & Development Center from 1995 to 2001; and prior to 1995, various positions of increasing responsibility at Rockwell International Corporation and Howmet Corporation. Dr. Graves has served as a director of Hexcel Corporation since 2007 and previously served as a director of Teleflex Incorporated from 2007 to 2017.
Relevant experience and skills: senior operations and engineering management, executive and financial management, and research and development management.
Simon Raab, Ph.D. is a co-founder of the Company and served as Chairman ofyear, the Board of Directors is provided an update on our sustainability progress. Management of economic, environmental, and social topics is delegated to our CEO and his staff, which is comprised of senior executives responsible for our corporate functions. We renamed our Governance and Nominating Committee to the Nominating, Governance and Sustainability Committee due to a change in the Committee's charter to focus on our sustainability efforts and strategy.
We embrace our responsibility and commitment to minimize the impact of our operations on others. For us, sustainability is about reducing our energy usage, protecting workers, partnering with suppliers that subscribe to our supplier code of conduct, and maintaining relationships with others to share sustainable solutions for a better world. Environmental considerations are an integral part of our business practices. We endeavor to reduce or eliminate solid waste, wastewater and air emissions through the implementation of appropriate conservation measures in our production, maintenance and facility processes.
While the Board is attentive to sustainability, it is a primary focus of our Nominating, Governance and Sustainability Committee. Our sustainability strategy includes the following:
•Supply increasingly sustainable products and services;
•Promote a culture focused on sustainability and attract employees that want to make a difference;
•Lead partnerships with our suppliers and customers that increase our sustainability impact;
•Monitor and improve our sustainability performance through metrics and tracking progress; and
•Show our commitment from the top of our organization.
We strive to incorporate effective corporate governance practices and we encourage sound policy and decision making at both the Board of Directors and management level. In April 2020, we amended and restated the Nominating and Governance Committee charter to, among other things, change the name of the committee to the “Nominating, Governance and Sustainability Committee” and to task the committee with responsibility of overseeing the Company’s sustainability strategy. In February 2021, the Company announced two new strategic goals to support its environment, social and governance efforts. The first goal is to reduce the Company's carbon emissions 25% by 2025 through activities that improve environmental performance. The second goal is to establish middle and high school partnerships to improve curriculum in science, technology, engineering and mathematics ("STEM") for minorities and females from low-income and disadvantaged areas. We have made a commitment to year-one STEM funding of $50,000 across the United States, Canada, Germany, Portugal, the United Kingdom, and India.
We publish our corporate governance guidelines, board committee charters, company code of ethics and corporate responsibility documents on our website at www.faro.com/about-faro/leadership-and-governance, including our articles of incorporation, bylaws, committee charters, company code of ethics, conflict minerals policy and supplier code of conduct.
These documents serve as a framework to assist our Board of Directors in the exercise of its inceptiongovernance responsibilities, among other matters. Our Code of Ethics provides guidelines for business conduct and applies to members of our Board of Directors, our executive officers, employees, contractors, consultants, and others working on our behalf. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of our code of conduct by posting such information on our website at the address specified above. Our governance, sustainability and strategy efforts, and the information on or accessible through our website, are not part of or incorporated by reference into this Proxy Statement.
DIVERSITY & INCLUSION
FARO believes in 1982 until April 5, 2019. Dr. Raab has served asthe benefits workforce diversity can provide. Innovation is critical for any technology company – and we believe that it benefits by the creative thinking that happens when people with different perspectives and backgrounds come together. We believe diverse teams can better relate to the many and varied needs of our Presidentcustomers. We promote a culture of inclusion where individual differences are valued which also allows us to attract the very best talent further encouraging our people to reach their full potential. As part of this cultural commitment, we are making the investment in formal programs that will foster diversity and CEO since December 2015. Dr. Raab previously served as CEOinclusion at FARO.
We take a people-first approach to diversity and inclusion. We live inclusion by ensuring that employees can regularly provide input through regular workforce engagement surveys to take the “pulse” of our people and gather their insights.
FARO believes that a diverse and inclusive organization starts with investing in our employee journey. Our commitment to diversity extends from the most junior positions at the Company to the most senior. Approximately 30% of our CEO's staff is comprised of women and one of the Company from its inceptionseven independent members of our Board of Directors is a female and chairs our Nominating, Governance and Sustainability Committee.
As a part of our commitment to inclusion we invest in 1982 until January 2006,formal programs designed to foster diversity through networking, talent management and targeted career development. We are committed to making all benefit and employment-related decisions in compliance with established equal employment opportunity statutes and without regard to religion, national origin, age, gender, race, color, ancestry, sexual orientation, disability, marital status, citizenship, pregnancy, medical condition or any other protected class status, as Co-Chief Executive Officer from January 2006 until December 2006,defined by local, state or federal laws.
We believe strongly in building a global workforce that is diverse and that can build strong working relationships with the customers in the countries we operate. Our human resource programs promote diversity hiring, which enables our leaders to hire based on merit and strive to remove biases related to age, race, gender, religion, sexual orientation and other attributes that are unrelated to job performance. We support an inclusive culture and approximately 55% of our United States workforce is comprised of underrepresented groups, which includes minorities and women. We are committed to providing our employees with a positive and safe work environment that is free of discrimination, harassment and workplace violence. We encourage our employees to embrace different ideas, strengths, interests and cultural backgrounds and encourage all employees and partners to act as Presidentallies to support each other.
FARO knows that diversity and inclusion is not only an internal initiative. We are a proud to partner with local and national charities. We are also proud to provide ways for our employees and their families to get involved with philanthropic efforts. Various charitable events and fundraisers serve as a time for our family to come together with the common goal of helping those in need. We support an internal employee-based community outreach group, FARO Cares Committee, that actively seeks to serve the various communities touched by FARO employees and products. FARO has supported a variety of charitable organizations and activities, including UNICEF, the Leukemia & Lymphoma Society, local fire and police departments, and various other charity events.
FARO is committed to respecting human rights in alignment with the United Nation’s Guiding Principles on Business and Human Rights. We strive to comply with human rights laws and regulations globally and where we may have a local law conflict, we work within the laws of the Company from 1986 until 2004. Dr. Raab also servescountry whilst maintaining the underlying principles of human rights standards. We encourage all employees and partners to act as a director of two privately-held companies: Cynvenio Biosystems, Inc. and DSS, Inc. Dr. Raab holds a Ph.D. in Mechanical Engineering from McGill University, Montreal, Canada, a Masters of Engineering Physics from Cornell University and a Bachelor of Science in Physics from the University of Waterloo, Canada.allies to support each other.
Relevant experience and skills: executive management, technology, manufacturing, international operations, sales and marketing management, and research and development management.
BOARD MATTERS
Role and Risk Oversight of the Board of Directors
The Board provides general oversight and direction for the Company, monitors our performance and also acts as an advisor and counselor to senior management. In particular, the Board performs the following functions (the “Oversight Functions”):
•reviews and approves operating, organizational, financial and strategic plans;
•reviews our operational, financial and strategic performance;
•oversees and evaluates management’s systems for internal control, financial reporting and public disclosure;
•oversees our global risk management;
•establishes corporate governance standards;
•selects, evaluates and compensates our executive officers, including the President and CEO;
•oversees and evaluates senior management performance and compensation; and
•plans for effective development and succession of the President and CEO and senior management.
In its oversight of our global risk management, the Board has adopted a risk oversight framework in which it reviews the overall risk exposure of the Company in the form of a risk universe and discusses with management our risk assessment, including management’s role to identify, monitor, control and report risk exposure. In addition, the Board reviews all major risks that could materially adversely affect the Company, including external, strategic, operational, financial, organizational and compliance risks. In addition, our risk assessment has also been from time to time the subject of discussion among the independent members of the Board during their executive sessions, without the presence of Company management.
Each Board committee is also responsible for reviewing our risk exposure with respect to the respective committee’s areas of responsibility, discussing such risks with Company management, and reporting significant risks to the Board. Each independent Board member is a member of each Board committee. This helps to ensure that each independent Board member is fully informed and better able to contribute to the Oversight Functions. Dr. Raab is an invited guest to all Board committee meetings in which his presence would not present a conflict of interest.
The Audit Committee focuses on significant risks associated with financial exposures. The Talent, Development and Compensation Committee particularly reviews risks related to our compensation policies and practices.practices as well as other organizational exposures. The Operational Audit Committee focuses on significant risks associated with our operational performance. TheNominating, Governance and NominatingSustainability Committee focuses on risks relating to our corporate governance structure and practices.
Leadership Structure of the Board of Directors
The Board has the flexibility to establish a leadership structure that works best for the Company at a particular time and reviews that structure periodically. At times during our past, the positions of Chairman of the Board and President and CEO have been held by two different people and, at other times, the positions have been combined and held by the same person. During 2018 and until April 5, 2019, Simon Raab, Ph.D., one of our founders and our President and CEO, also served as Chairman of the Board. During this time, the independent members of the Board elected an independent director to serve as the Lead Director, with Stephen R. Cole serving as Lead Director until May 2018 andCurrently, John Donofrio serving as Lead Director from May 2018 until April 5, 2019. On April 5, 2019, the Board appointed Michael D. Burger as our President and CEO, effective June 17, 2019. On that same date, the Board elected John Donofrio asis our independent Chairman of the Board, effective immediately.Board. The Board believes that having an independent Chairman of the Board will allow Dr. Raab to focus on assisting Mr. Burger through this executive transition and will allowallows our CEO, Mr. Burger, to concentrate on overseeing the management of our business when he begins his service as our President and CEO, while Mr. Donofrio oversees theprovides leadership and oversight of functioning of the Board and our corporate governance.Board. Because we currently have an independent Chairman of the Board, there is currently no Lead Director.
The President and CEO, the Chairman of the Board, in addition to setting board meeting agendas and when one is appointed, the Lead Director set the agenda for Boardchairing board meetings, with input from all other directors. Board materials related to agenda items are provided to Board members sufficiently in advance of Board meetings to allow the directors to prepare for discussion of the items at the meeting.
The President and CEO, the Chairman of the Board and, when one is appointed, the Lead Director together set the schedule of Board meetings and, together with the Governance and Nominating Committee, provide advice to the Board and the other members of Company management with respect to corporate governance and recommend to the Board the composition of each of the Board committees.
The independent Chairman of the Board facilitates information flow and communication between the independent directors and Company management; coordinates the activities of the other independent directors; together with the Talent, Development and Compensation Committee and the Board, evaluates the performance of the President and CEO; recommends the retention of Board and Committee consultants; has the authority to call meetings of the independent directors; if requested by significant shareholders, ensures that he is available for consultation and direct communication; and performs such other duties and responsibilities as the Board of Directors from time to time determines.
As earlier noted, executiveExecutive sessions of independent directors are held at each regularly scheduled Board meeting for a discussion of relevant subjects, including the Oversight Functions. The independent Chairman of the Board, with input from the independent directors, prepares the agenda for executive sessions of the independent directors, although all independent directors are invitedencouraged to raise any matters for discussion. The independent Chairman of the Board presides over the executive sessions of the independent directors.
We believe that our current Board structure appropriately ensures that an independent director serves in a Board leadership position, acting as a liaison between the Board and Company management and allowing the Board to better perform its Oversight Functions. The current Board structure allows our President and CEO to focus on the day-to-day operations of the Company and also permits the independent directors to discuss and address risk management with Company management in Board meetings, as well as separate from management in executive session. The Board evaluates its leadership structure from time to time and changes it as circumstances warrant.
Director Independence
We are required to comply with Nasdaq’s listing standards, including its corporate governance rules. Nasdaq rules require the Board to be comprised of a majority of independent directors, as that term is defined by the Nasdaq Stock Market Rules.
The Board has affirmatively determined that Lynn Brubaker, John E. Caldwell, Stephen R. Cole, John Donofrio, Jeffrey A. Graves, Ph.D., and Yuval Wasserman, and Jeroen van Rotterdam are independent directors, as defined by the Nasdaq Stock Market Rules. The Board has determined that Dr. RaabMr. Burger is the only director who is not independent, because he is the President and CEO of the Company. In addition, none of our directors are a party to any agreement or arrangement that would require disclosure pursuant to Nasdaq Rule 5250(b)(3).
Board Meetings and Committees
The Board of Directors held sevensix meetings during 2018.2020. Each of our directors then in office attended all of the applicable regular meetings of the Board and of the committees on which he or she served during 2018.2020. In addition, the independent directors met in executive session without the presence of management at each regular Board meeting in 20182020 and when deemed appropriate at other meetings of the Board and of the committees. While we have not adopted a formal policy regarding Board attendance at annual shareholder meetings, we encourage each of our Board members to attend the annual shareholder meetings in person, andperson. With the exception of the 2020 annual meeting, all of our directors attended the 2018Company's annual meeting of shareholders in person.
The Board of Directors has fourthree standing committees: an Audit Committee, an Operational Audit Committee, a Talent, Development and Compensation Committee, and a Nominating, Governance and NominatingSustainability Committee. During 2019, the Board eliminated the Operational Audit Committee and operational matters are reported on during the regular Board meetings. Each committee is comprised of all of our independent Board members.
The table below shows current membership for each of the standing Board committees:
|
| | | | | | | | | | | | | |
Audit
Committee
| | Operational Audit
Talent, Development and Compensation Committee | | Compensation
Committee
| | Nominating, Governance and Nominating Sustainability Committee |
Lynn Brubaker
John E. Caldwell
Stephen R. Cole*
John Donofrio
Jeffrey A. Graves, Ph.D.
Yuval Wasserman
| | Lynn Brubaker
John E. Caldwell
Stephen R. Cole
John Donofrio
Jeffrey A. Graves, Ph.D.
Yuval Wasserman*
Jeroen van Rotterdam | | Lynn Brubaker John E. Caldwell* Stephen R. Cole John Donofrio Jeffrey A. Graves, Ph.D. Yuval Wasserman1 Jeroen van Rotterdam | | Lynn Brubaker*
John E. Caldwell
Stephen R. Cole
John Donofrio
Jeffrey A. Graves, Ph.D.
Yuval Wasserman
Jeroen van Rotterdam |
| | | | | |
| |
| |
| * | Committee Chair |
| 1 | Effective April 1, 2021, Yuval Wasserman became the chairperson of the Talent, Development and Compensation Committee as John E. Caldwell announced his retirement from the Board effective as of the Company's 2021 annual meeting of shareholders. |
Audit Committee
The Audit Committee held fivesix meetings during 2018.2020. In addition to its formal meetings, the Audit Committee Chairman and other members of the committee met frequently throughout 20182020 and in the first quarter of 20192021 with and without the presence of management, and also met with our external and internal auditors without the presence of management. At all regular meetings during 2018,2020, members of the Audit Committee met in executive session, without the presence of management, and met separately, either in-person or telephonically, with our external and internal auditors.
The Board has determined that each of the Audit Committee members is independent as defined in Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Nasdaq rules, including rules specifically governing audit committee members. The Board also has determined that Messrs. Caldwell and Cole are “audit committee financial experts” as defined under Item 407(d)(5) of Regulation S-K.
The Audit Committee acts under the terms of a written charter that is available on our website at www.faro.com/about-faro/leadership-and-governance. The Audit Committee’s responsibilities, discussed in detail in the charter, include, among other duties, the responsibility to:
•provide oversight regarding our accounting and financial reporting process, system of internal control, external and internal audit process, and our process for monitoring compliance with laws and regulations;
•review the independence and qualifications of our independent public accountants and our financial policies, control procedures and accounting staff;
•review and make appropriate inquiry of financial performance and financial position, including comparison of actual to budgeted results;
•appoint and oversee our independent public accountants;
•oversee internal audit and compliance functions;
•at least annually, discuss with management and the external auditors significant risks and exposures and the plans to minimize such risks; request that management and the external auditors provide updates to the Committee as appropriate
•review and approve our financial statements and other regulatory filings; and
•review transactions between the Company and any officer or director, any entity in which an officer or director of the Company has a material interest, or any other related person transactions.
Operational Audit Committee
The Operational Audit Committee met four times in 2018. The Operational Audit Committee acts under the terms of a written charter that is available on our website at www.faro.com/about-faro/leadership-and-governance. The primary objective of the Operational Audit Committee is to provide operating insight to the Board so as to better enable the directors to discharge the Oversight Functions of the Board. In that context, the Operational Audit Committee’s role includes:
reviewing our operational performance against certain predetermined metrics;
focusing on improving our short-termTalent, Development and long-term operating performance and continuously reviewing the metrics against which we measure our performance;
meeting with executives and department heads to review progress against operational goals; and
addressing operational risk management issues.
Compensation Committee
The Talent, Development and Compensation Committee (formerly known as the Compensation Committee) ("TDCC") held fivesix meetings during 2018.2020. In addition to its formal meetings, the Compensation CommitteeTDCC Chairman and other members of the committee met frequently throughout 2018 and in the first quarter of 20192020 among themselves without the presence of management, as well as with the Compensation Committee’sTDCC’s consultant and our President and CEO. Areas of consideration at these various meetings included but were not limited to:
examination•oversight of management and leadership development and programs;
•review of the design of incentive plans;
•review and approval of senior management annual objectives;
•evaluation of the performance of all officers at the senior executive team level;
•making bonus and equity incentive award determinations in accordance with our short-term incentive plan and our long-term equity plan, respectively;
•consultations with Compensia, Inc. (“Compensia”), the compensation consultant to the Compensation Committee for 2018 and 2019 board and executive compensation,TDCC, regarding, among other matters, updated market data and compensation trends generally and specific updated market data regarding compensation for the President and CEO and certain other named executives officers;
•establishment of overall executive compensation for 20182020; and 2019;
•addressing other compensation and employment matters, including specific review of the performance of our President and CEO;
developing the compensation arrangements and terms of our Chairman, President and CEO’s retirement and with respect to services to be provided by him during the transition period until his successor commences his employment; and
developing, with the advice of Compensia, Mr. Burger’s compensation arrangements and terms as our new President and CEO.
Each of the Compensation CommitteeTDCC members qualifies as independent for Compensation CommitteeTDCC membership, as defined in the Nasdaq rules, as a non-employee director, as defined under Rule 16b-3 of the Exchange Act, and as an outside director, as defined under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).
The Compensation CommitteeTDCC acts under the terms of a written charter that is available on our website at www.faro.com/about-faro/leadership-and-governance. As discussed in its charter, the Compensation CommitteeTDCC reviews our executive compensation policies and programs and endeavors to ensure they are aligned and implemented in accordance with our overall strategy, including enhancement of shareholder value. Although the Compensation CommitteeTDCC annually reviews and determines the President and CEO’s compensation, it works with the President and CEO in evaluating the performance of all other officers at the Vice President level and above reporting to the President and CEO and in reviewing and approving annually all compensation programs and awards (including setting the base
compensation for the upcoming year and approving bonus and equity incentive awards) for all officers at the Vice President level and above reporting to the President and CEO. The Compensation CommitteeTDCC maintains final authority in the determination of individual executive compensation packages to ensure compliance with our compensation policy objectives.
The Compensation Committee’sTDCC’s duties and responsibilities include, among other things:
ensuring that•overseeing the philosophy and operation of our compensation program that reinforce our culture and values, create a balance between risk and reward, attract, motivate and retain executives over the long-term and align their interests with those of our shareholders;
•overseeing our long-term equity plans, including reviewing and approving changes in such plans, granting equity awards to officers at the Vice President level and above reporting to the President and CEO, as well as approving the total amount of equity grants below the Vice President level and related parameters of such grants;
•advising on selection of certain executive officer positions;
•establishing the terms of all executive employment agreements and employment related polities, including severance and change-in-control benefits;provisions;
•evaluating compliance with the stock ownership requirements established by the Nominating, Governance and Sustainability Committee for the members of the Board and our executive officers;
•reviewing and approving on an annual basis long-term and short-term corporate objectives relevant to the President and CEO’s compensation, evaluating the President and CEO’s performance not less than semi-annuallyat least annually in light of those objectives and, without the input or participation of the President and CEO, approving the individual components of, and the overall compensation levels for, the President and CEO based on such evaluations;
•reviewing and approving, with the input and recommendation of the President and CEO, the annual base salaries, annual and long term incentive awards and other compensation arrangements of all other named executive officers and all other Senior Vice Presidents and Vice President-level employees, including reviewing and approving on an annual basis long-term and short-term corporate objectives relevant to their performance evaluation and compensation, as well as approving the total amount of short-term incentives below the Vice President level and related parameters;
•reviewing and monitoring all compensation and significant benefit plans that affect all employees and annually approving overall employee salary policies, as well as equity-based programs for all levels of employees;
•monitoring compliance with requirements under the Sarbanes-Oxley Act of 2002 relating to 401(k) plans and loans to directors and officers and compliance with all other applicable laws affecting employee compensation and benefits;
•reviewing and recommending any proposed changes in director compensation to the Board;
•overseeing senior level talent development and succession planning;
•reviewing and discussing with management the Compensation Discussion and Analysis that is included in our proxy statement for our annual meeting of shareholders;
•preparing the report of the Compensation CommitteeTDCC for inclusion in the proxy statement; and
•engaging, on an as-needed basis, the services of outside experts in areas of compensation and benefits practices. Specifically, the Compensation CommitteeTDCC has engaged Compensia, a compensation expert, to informally update the Compensation CommitteeTDCC on an annual basis and from time to time on matters that have been delegated to the Compensation Committee, from time to time to provide a formal director compensation study and, in 2018, to provide a formal executive compensation study, including recommended best practices and median compensation at comparable companies.TDCC.
The Compensation CommitteeTDCC may delegate its authority to grant awards under the 2014 Incentive Plan to our executive officers. The Compensation CommitteeTDCC has delegated its authority to our President and CEO, subject to the management level, aggregate amount and the parameters discussed below, to grant stock-based awards under the 2014 Incentive Plan to newly hired employees, to current employees in connection with a promotion, and to employees recognized for performance under an established Company employee award program. The grants by our President and CEO are subject to the following parameters, among others, established by the Compensation Committee:TDCC: (i) the President and CEO may not grant awards to (a) employees who are subject to the short-swing profit rules of Section 16 of the Exchange Act, or (b) employees who at the grant date are “covered employees,” or are reasonably anticipated to become “covered employees,” as defined in Section 162(m) of the Code, during the term of the award; (ii) any award granted by the President and CEO will be subject to all of the terms and conditions of the 2014 Incentive Plan; and (iii) the President and CEO must make a written report to the Compensation CommitteeTDCC at the end of each fiscal quarter that sets forth any and all awards granted by him during the preceding fiscal quarter.
As earlier noted, the Compensation CommitteeTDCC has the authority to retain consultants and to obtain advice and assistance from external legal, accounting and other advisors at our expense. Since October 2017, the Compensation CommitteeTDCC has engaged Compensia to advise it on compensation matters. In performing its services, Compensia reports to and is instructed by the Compensation Committee. For more information regarding Compensia’s services, see “2018“2020 Director Compensation,” beginning on page 1819 of this Proxy Statement and “Executive Compensation—Compensation Discussion and Analysis,” beginning on page 2726 of this Proxy Statement.
Nominating, Governance and NominatingSustainability Committee
The Governance and Nominating Committee met four times in 2018. Each of (formerly known as the Governance and Nominating Committee)
The Nominating, Governance and Sustainability Committee (formerly known as the Governance and Nominating Committee) met two times in 2020. Each of the Nominating, Governance and Sustainability Committee members is independent under the Nasdaq rules.
TheIn April 2020, we amended and restated the Nominating and Governance Committee charter to, among other things, change the name of the committee to the “Nominating, Governance and Sustainability Committee” and to task the committee with responsibility for implementing and overseeing the Company’s sustainability strategy. The Nominating, Governance and Sustainability Committee’s written charter, as amended and restated, is available on our website at www.faro.com/about-faro/leadership-and-governance. As discussed in detail in the charter, the Nominating, Governance and NominatingSustainability Committee is responsible for developing, evaluating and implementing our corporate governance policies. TheIn addition to assisting the Board in its oversight responsibilities relating to the Company's sustainability strategy, the Nominating, Governance and NominatingSustainability Committee is also responsible for selecting and recommending for Board approval director nominees and the members and chair of each of the Board committees. Current members of the Board are considered for re-election unless they have notified the Company that they do not wish to stand for re-election. The Nominating, Governance and NominatingSustainability Committee considers candidates for the Board recommended by current members of the Board or members of management. In addition, the Committee may, to the extent it deems appropriate, retain a professional search firm and other advisors to identify potential nominees for director.
The Nominating, Governance and NominatingSustainability Committee also will consider director candidates recommended by eligible shareholders. Shareholders may recommend director nominees for consideration by the Nominating, Governance and NominatingSustainability Committee by writing to the Nominating, Governance and NominatingSustainability Committee, Attention: Chairman, 250 Technology Park, Lake Mary, Florida 32746, and providing appropriate biographical information concerning each proposed nominee. Candidates proposed by shareholders for nomination are evaluated using the same criteria as candidates initially proposed by the Nominating, Governance and NominatingSustainability Committee.
The following minimum qualifications must be met by a director nominee to be recommended by the Nominating, Governance and NominatingSustainability Committee:
•each director must display high personal and professional ethics, integrity and values;
•each director must have the ability to exercise sound business judgment and demonstrate basic financial literacy;
•each director must be highly accomplished in his or her respective field, with broad experience and demonstrated senior-level leadership in business, government, education, technology or public interest;
•each director must have relevant expertise and experience, and be able to offer advice and guidance based on that expertise and experience;
•each director must be independent of any particular constituency, be able to represent all shareholders of the Company and be committed to enhancing long-term shareholder value; and
•each director must have sufficient time available to devote to activities of the Board and to enhance his or her knowledge of our business.
In identifying potential Board nominees and evaluating candidates for the Board, the Nominating, Governance and NominatingSustainability Committee considers the nominee’s experience, skills and qualifications. AlthoughDiversity is an important criteria to the Nominating, Governance and Nominating Committee has not established specific goals with respect to diversity, the Governance and NominatingSustainability Committee, in accordance with our Corporate Governance Guidelines, does consider diversity inwhen identifying potential Board nominees and evaluating Board candidates, including in the context of providing diversity in business perspectives, gender, ethnicity, education, experience and leadership qualities.
Annually, the Nominating, Governance and NominatingSustainability Committee reviews the composition of the Board to assess whether it reflects the appropriate experience, tenure, skills and qualifications expected of Board members, as well as a variety of complementary experiences and backgrounds, sufficient to provide sound and prudent guidance, particularly in the areas of
senior leadership, operations, finance, technology and governance. The Nominating, Governance and NominatingSustainability Committee assesses the effectiveness of diversity within the Board every year as part of this annual assessment. If, as a result of the assessment, the Nominating, Governance and NominatingSustainability Committee determines that adding or replacing a director is advisable, the Nominating, Governance and NominatingSustainability Committee initiates a search for a suitable candidate to fulfill the Board’s needs. In addition, our Corporate Governance Guidelines provide that any director who undergoes a change of occupation must notify the Chairman of the Board and the Chairman of the Nominating, Governance and NominatingSustainability Committee of the change and offer to submit his or her resignation.
A shareholder who wishes to nominate a person for election to the Board of Directors must submit written notice to the Company, Attention: Secretary, 250 Technology Park, Lake Mary, Florida 32746. Under our Bylaws, we must receive the written nomination for an annual meeting not less than 90 days and not more than 120 days prior to the first anniversary of the previous year’s annual meeting of shareholders, or, if no annual meeting was held the previous year or the date of the current year’s annual meeting is advanced more than 30 days before or delayed more than 60 days after the anniversary date, we must receive the written nomination not more than 120 days prior to the current year’s annual meeting and not less than the later of 90 days prior to the annual meeting or ten days following the day on which public announcement of the date of the annual meeting is first made. For a special meeting, we must receive the written nomination not less than the later of 90 days prior to the special meeting or ten days following the day on which public announcement of the date of the special meeting is first made. Under the Bylaws, the nomination must include (i) all information relating to the candidate that is required to be disclosed in solicitations of proxies for an election of directors, or is otherwise required, in each case pursuant to Regulation 14A of the Exchange Act, including the nominee’s consent to be named in the proxy statement as a nominee and to serving as a director if elected, (ii) a description of (a) all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and (b) any other material relationships, between the shareholder and any beneficial owner on whose behalf the director nomination is made, and their respective affiliates and associates or others acting in concert with the shareholder or beneficial owner, on the one hand, and each candidate and his or her respective affiliates and associates, or others acting in concert with the candidate, on the other hand, including all information required under Item 404 of Regulation S–K if the shareholder and any beneficial owner on whose behalf the nomination is made, or any affiliate or associate of or person acting in concert with the shareholder or beneficial owner, were the “registrant” for purposes of that rule and the candidate was a director or executive officer of such registrant, and (iii) as to the shareholder and any beneficial owner on whose behalf the director nomination is made, (a) their names and addresses, (b) the class and number of shares of our stock beneficially owned by them, (c) 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 short position or any borrowing or lending of shares of stock) has been made, an effect or intent of which is to mitigate loss to or manage risk of stock price changes for, or to increase the voting power of, the shareholder or the beneficial owner with
respect to any share of our stock, and (d) a representation as to whether the shareholder or any beneficial owner on whose behalf the nomination is made intends, or is or intends to be part of a group that intends, to deliver a proxy statement or form of proxy to at least the percentage of our shareholders required to elect the nominee or otherwise to solicit proxies from shareholders in support of the nomination. We may require any proposed nominee to furnish such other information as may reasonably be required to determine his or her eligibility to serve as an independent director or that could be material to a reasonable shareholder’s understanding of the nominee’s independence.
In 2019, the Governance and Nominating Committee also engaged JWC Partners to identify and vet potential candidates to serve as our President and CEO upon Dr. Raab’s retirement.
Compensation CommitteeTDCC Interlocks and Insider Participation
During 2018,2020, Lynn Brubaker, John E. Caldwell, Stephen R. Cole, John Donofrio, Jeffrey A. Graves, Ph.D., Marvin R. Sambur, Ph.D. and Yuval Wasserman served as members of the Compensation Committee.TDCC. None of the Compensation CommitteeTDCC members was, during 20182020 or formerly, an officer or employee of the Company or any of its subsidiaries or had any relationship requiring disclosure under Item 404 of Regulation S-K. During 2018,2020, none of our executive officers served as a member of the board of directors or compensation committee of any entity that had one or more executive officers serving as a member of our Board of Directors or Compensation Committee.
Code of Business Conduct and Ethics
The Board of Directors has adopted a Code of Ethics, entitled “Code of Ethics for Senior Financial Officers,” that is applicable to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. The Board of Directors has also adopted a Global Ethics Policy applicable to all of our employees. The Code of Ethics for Senior Financial Officers and the Global Ethics Policy are available at no cost on our website at www.faro.com/about-faro/leadership-and-governance or by submitting a written request to FARO Technologies, Inc., Attention: Secretary, 250 Technology Park, Lake Mary, Florida 32746.
2020 DIRECTOR COMPENSATION
The following table sets forth information regarding the compensation earned by each of our non-employee directors during the year ended December 31, 2018.2020. See the Summary Compensation Table contained within “Executive Compensation—Compensation Discussion and Analysis,” beginning on page 4126 of this Proxy Statement for the compensation earned by Dr. RaabMr. Burger for his service as Chairman of the Board,both Director and President and CEO during 2018.2020.
| | | | | | | | | | | | | | | | | | | | |
| Name | | Fees Earned or
Paid in Cash
($)
(1) | | Stock Awards ($) (2) (3) | | Total
($) |
| Lynn Brubaker | | 67,500 | | | 99,991 | | | 167,491 | |
| John E. Caldwell | | 70,000 | | | 99,991 | | | 169,991 | |
| Stephen R. Cole | | 72,500 | | | 99,991 | | | 172,491 | |
| John Donofrio | | 112,500 | | | 149,986 | | | 262,486 | |
| Jeffrey A. Graves, Ph.D. | | 62,500 | | | 99,991 | | | 162,491 | |
| Yuval Wasserman | | 62,500 | | | 99,991 | | | 162,491 | |
|
| | | | | | | | | | | | | |
| Name | | Fees Earned or Paid in Cash ($) (1) | | Stock Awards ($) (2)(4) | | All Other Compensation ($) | | | Total ($) |
| Lynn Brubaker | | 70,000 |
| | 99,987 |
| | — |
| | | 169,987 |
|
| John E. Caldwell | | 76,250 |
| | 99,987 |
| | — |
| | | 176,237 |
|
| Stephen R. Cole | | 96,250 |
| | 99,987 |
| | — |
| | | 196,237 |
|
| John Donofrio | | 90,000 |
| | 139,972 |
| | — |
| | | 229,972 |
|
| Jeffrey A. Graves, Ph.D. | | 67,500 |
| | 99,987 |
| | — |
| | | 167,487 |
|
| Marvin R. Sambur, Ph.D. (3) | | 54,375 |
| | — |
| | — |
| | | 54,375 |
|
| Yuval Wasserman | | 70,000 |
| | 99,987 |
| | — |
| | | 169,987 |
|
(1)Includes cash retainers earned by each non-employee director during the year ended December 31, 2020.
(2)Reflects the aggregate grant date fair value of restricted stock units granted to our non-employee directors in 2020, determined in accordance with Financial Accounting Standards Board Accounting Standard Codification Topic 718, Stock Compensation (“FASB ASC Topic 718”).
(3)As of December 31, 2020, our non-employee directors held the following aggregate number of shares of unvested restricted stock units (they did not hold any stock options):
| |
(1) | Includes cash retainers earned by each non-employee director during the year ended December 31, 2018. |
| |
(2) | Reflects the grant date fair value of restricted stock awards granted to our non-employee directors in 2018, determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock Compensation (“FASB ASC Topic 718”). The grant date fair value of the restricted stock awards is based upon the closing price of our common stock on the grant date. |
| |
(3) | Effective May 11, 2018, Dr. Marvin R. Sambur retired from his position as a member of the Board of Directors in adherence with the Company’s mandatory retirement policy for directors, which requires a director who attains the age of 72 during his or her term to retire from the Board immediately prior to the first annual meeting of shareholders following such director’s 72nd birthday. |
| |
(4) | As of December 31, 2018, our non-employee directors held the following aggregate number of shares of restricted stock (they did not hold any stock options): |
|
| | | |
| Name | | Unvested Restricted Stock Awards Units (#)
|
| Lynn Brubaker | | 1,8831,742 |
|
| John E. Caldwell | | 1,8831,742 |
|
| Stephen R. Cole | | 1,8831,742 |
|
| John Donofrio | | 2,6362,613 |
|
| Jeffrey A. Graves, Ph.D. | | 3,9031,742 |
|
Marvin R. Sambur, Ph.D. | | — |
|
| Yuval Wasserman | | 3,9031,742 |
|
The following table shows the shares of restricted stock units awarded to each non-employee director then in office on May 14, 2018,June 1, 2020, and the aggregate grant date fair value for each award:
| | | Name | | Restricted Stock Awards (#) | | Full Grant Date Fair Value of Award ($) | Name | | Restricted Stock
Units (#) | | Full Grant Date Fair
Value of Award ($) |
| Lynn Brubaker | | 1,883 |
| | 99,987 |
| Lynn Brubaker | | 1,742 | | | 99,991 | |
| John E. Caldwell | | 1,883 |
| | 99,987 |
| John E. Caldwell | | 1,742 | | | 99,991 | |
| Stephen R. Cole | | 1,883 |
| | 99,987 |
| Stephen R. Cole | | 1,742 | | | 99,991 | |
| John Donofrio | | 2,636 |
| | 139,972 |
| John Donofrio | | 2,613 | | | 149,986 | |
| Jeffrey A. Graves, Ph.D. | | 1,883 |
| | 99,987 |
| Jeffrey A. Graves, Ph.D. | | 1,742 | | | 99,991 | |
| Yuval Wasserman | | 1,883 |
| | 99,987 |
| Yuval Wasserman | | 1,742 | | | 99,991 | |
The grant date fair values of the awards shown above are calculated by multiplying the number of shares of restricted stock by the closing price of our common stock on the grant date ($53.1057.40 on May 14, 2018)June 1, 2020).
Terms of Director Compensation Program
We use a combination of cash and equity compensation to attract and retain qualified candidates to serve on the Board, as detailed in the table below. In setting director compensation, we consider the significant amount of time that non-employee directors expend in fulfilling their duties to the Company, as well as the skill level required of members of the Board. No changes were made to our non-employee director compensation policy in 2018.2020.
The actual aggregate cost of Board compensation in 2018 and 20172020 was $1,164,282 and $1,178,616, respectively.$1,156,608. The following table sets forth each component of our Board compensation in 2018:2020:
|
| | | | | |
| Annual Cash Retainer: | | $ | 40,000 |
| |
| Additional Annual Retainers: | | | |
| Governance and Nominating Committee Chairperson | | $ | 10,000 |
| |
| Operational Audit Committee Chairperson | | $ | 10,000 |
| |
| Audit Committee Chairperson | | $ | 20,000 |
| |
| Compensation Committee Chairperson | | $ | 15,000 |
| |
| Governance and Nominating Committee Non-Chair Member | | $ | 5,000 |
| |
| Operational Audit Committee Non-Chair Member | | $ | 5,000 |
| |
| Audit Committee Non-Chair Member | | $ | 10,000 |
| |
| Compensation Committee Non-Chair Member | | $ | 7,500 |
| |
| Lead Director | | $ | 80,000 |
| (a) |
| Non-Employee Chairman | | $ | 100,000 |
| (a) |
| Initial Equity Grant | | $ | 100,000 |
| (b) |
| Annual Equity Grant | | $ | 100,000 |
| (c) |
| | | | | | | | | | | |
(a)Annual Cash Retainer: | Payable 50% in cash and 50% in shares of restricted stock. Shares of restricted stock will be granted annually on the day following the annual meeting of shareholders, and the number of shares to be granted will be determined by dividing the dollar value of the retainer by the closing price of our common stock on the date of grant. The shares of restricted stock will vest on the day prior to the following year’s annual meeting date, subject to the Lead Director’s or non-employee Chairman’s, as applicable, continued membership on the Board as of such date. |
| $ | 40,000 | | |
(b)Additional Annual Retainers: | Upon election to the Board, each non-employee director will receive shares of restricted stock with a value equal to $100,000, calculated by using the closing price of our common stock on the date of the non-employee director’s election to the Board. The initial restricted stock grant vests on the third anniversary of the grant date, subject to the non-employee director’s continued membership on the Board as of such date. |
| |
(c)Nominating, Governance and Sustainability Committee Chairperson | On the day following the annual meeting of shareholders, each director receives shares of restricted stock with a value equal to that indicated in the above chart, calculated by using the closing price of our common stock on the day following the annual meeting of shareholders. The annual restricted stock grant vests the day prior to the following year’s annual meeting date, subject to a director’s continued membership on the Board as of such date. | $ | 10,000 | | |
| Audit Committee Chairperson | | $ | 20,000 | | |
| Talent, Development, and Compensation Committee Chairperson | | $ | 15,000 | | |
| Nominating, Governance and Sustainability Committee Non-Chair Member | | $ | 5,000 | | |
| Audit Committee Non-Chair Member | | $ | 10,000 | | |
| Talent, Development, and Compensation Committee Non-Chair Member | | $ | 7,500 | | |
| Lead Director | | $ | 80,000 | | (a) |
| Non-Employee Chairman | | $ | 100,000 | | (a) |
| Initial Equity Grant | | $ | 100,000 | | (b) |
| Annual Equity Grant | | $ | 100,000 | | (c) |
(a)Payable 50% in cash and 50% in restricted stock units. Restricted stock units are granted annually on the day following the annual meeting of shareholders, and the number of restricted stock units to be granted are determined by dividing the dollar value of the retainer by the closing price of our common stock on the date of grant. The restricted stock units vest on the day prior to the following year’s annual meeting date, subject to the Lead Director’s or non-employee Chairman’s, as applicable, continued membership on the Board as of such date.
(b)Upon election to the Board, each non-employee director receives restricted stock units with a value equal to $100,000, calculated by using the closing price of our common stock on the date of the non-employee director’s election to the Board. The initial restricted stock unit grant vests on the third anniversary of the grant date, subject to the non-employee director’s continued membership on the Board as of such date.
(c)On the day following the annual meeting of shareholders, each director receives restricted stock units with a value equal to that indicated in the above chart, calculated by using the closing price of our common stock on the day following the annual meeting of shareholders. The annual restricted stock unit grant vests the day prior to the following year’s annual meeting date, subject to a director’s continued membership on the Board as of such date.
Mandatory Board of Director Stock Ownership and Holding Periods
Our non-employee directors are subject to minimum share ownership guidelines. Within two years after joining the Board, each non-employee director is required to own shares of our common stock with a value equal to at least $300,000. The ownership requirement may be satisfied through (i) holdings of equity awards granted by us, the values of which are calculated based on the higher of (a) the then-current value of the equity awards on the date of determining compliance with the minimum share ownership guidelines and (b) the grant date fair value of the equity awards, and/or (ii) shares of common stock purchased by the non-employee director independently, the values of which are calculated based on the closing price of our common stock on the purchase date. Also, each non-employee director must hold shares of our common stock acquired pursuant to the exercise of stock options or vesting of restricted stock for one year after exercise or vesting, as applicable, or until his or her retirement, whichever is earlier. In 2012, the Board amended the holding period requirement to permit sales byearlier; provided that non-employee directors may sell shares to the extent necessary to satisfy tax obligations arising from the vesting of their restricted stock awards. As of December 31, 2018,2020, all of our directors met or exceeded the minimum share ownership requirement, with the exception of Dr. Graves and Mr. Wasserman, who have through December 31, 2019 to attain the minimum share ownership requirement.
Director Deferred Compensation Plan
In October 2018, the Compensation Committee approved the adoption ofTDCC adopted the FARO Technologies, Inc. 2018 Non-Employee Director Deferred Compensation Plan (the “Deferred Compensation Plan”). This plan encourages our directors to hold a substantial portion of their compensation in the form of equity, which can only be monetized at the end of their tenure on the Board or in other limited circumstances.
Prior to the first day of each calendar year, beginning on or after January 1, 2019, each non-employee director may (i) elect to convert all of his or her annual cash retainer fees as well as any annual committee and chair fees other than reimbursements otherwise payable to him or her by the Company into deferred stock units, and (ii) elect to receive all of his or her annual equity grant received during the calendar year in the form of restricted stock units, or defer payment of all such restricted stock units granted to the non-employee director in the calendar year. Each deferred stock unit represents the right to receive one share of our common stock no later than 60 business days following the date the non-employee director incurs a separation of service from the Company, or, in limited circumstances upon a change in control of the Company, cash equal to the fair market value of one share of our common stock on the date of the change in control, pursuant to the 2014 Incentive Plan and the Deferred Compensation Plan.
PROPOSAL 2
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE BOARD OF DIRECTORS RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR” PROPOSAL 2, THE RATIFICATION OF GRANT THORNTON LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2019.2021.
The Sarbanes-Oxley Act of 2002 requires the Audit Committee to be directly responsible for the appointment, compensation and oversight of the audit work of our independent registered public accounting firm. Grant Thornton LLP has audited our financial statements since 2004. The Audit Committee has appointed Grant Thornton LLP as our independent registered public accounting firm for 2019.2021.
Representatives of Grant Thornton LLP will be present at the Annual Meeting. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions of shareholders.
Shareholders are not required to ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm. However, we are submitting the ratification to our shareholders as a matter of good corporate practice. If our shareholders fail to ratify the appointment of Grant Thornton LLP, the Audit Committee may reconsider the retention of Grant Thornton LLP. Even if the selection of Grant Thornton LLP is ratified, the Audit Committee in its discretion may select a different independent accounting firm at any time during the year if it determines that such change would be in the best interests of the Company and our shareholders.
The affirmative vote of a majority of the votes cast is necessary for approval of the ratification of Grant Thornton LLP. Abstentions will have no impact on the ratification of our independent registered public accounting firm. Because this matter is a routine proposal, there will be no broker non-votes associated with this proposal.
INDEPENDENT PUBLIC ACCOUNTANTS
The following table presents fees for professional audit services rendered by Grant Thornton LLP for the audit of our financial statements for the fiscal years ended December 31, 20182020 and 2017,2019, and fees for other services rendered by Grant Thornton LLP during those periods.
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| Audit fees (1) | | $ | 1,772,279 | | | $ | 1,960,207 | |
| Audit-related fees (2) | | 32,100 | | | 32,375 | |
| Tax fees | | — | | | — | |
| All other fees | | — | | | — | |
| Total fees | | $ | 1,804,379 | | | $ | 1,992,582 | |
|
| | | | | | | | |
| | | 2018 | | 2017 |
| Audit fees (1) | | $ | 1,818,514 |
| | $ | 1,934,954 |
|
| Audit-related fees (2) | | 32,552 |
| | 35,740 |
|
| Tax fees | | — |
| | — |
|
| All other fees | | — |
| | — |
|
| Total fees | | $ | 1,851,066 |
| | $ | 1,970,694 |
|
(1)Amounts for 2020 and 2019 include the audit of financial statements, review of financial statements included in Quarterly Reports on Form 10-Q, audit of the effectiveness of our internal control over financial reporting and statutory audits required internationally.
| |
(1) | Amounts for 2018 and 2017 include the audit of financial statements, review of financial statements included in Quarterly Reports on Form 10-Q, audit of the effectiveness of our internal control over financial reporting and statutory audits required internationally. Also, the amount for 2018 includes fees incurred in connection with our registration statement on Form S-8 filed with the SEC in August 2018. |
| |
(2) | Amounts for 2018 and 2017 include fees related to the audit of our employee benefit plan. |
(2)Amounts for 2020 and 2019 include fees related to the audit of our employee benefit plan.
The Audit Committee has concluded that the provision of the audit and permitted non-audit services by Grant Thornton LLP in 20182020 and 20172019 is consistent with maintaining the independence of Grant Thornton LLP.
Pursuant to the Audit Committee charter, the Audit Committee pre-approved all services provided by Grant Thornton LLP. The Audit Committee has established pre-approval policies and procedures with respect to audit and permitted non-audit services to be provided by our independent auditors. Pursuant to these policies and procedures, the Audit Committee may form and delegate authority to subcommittees consisting of one or more members, when appropriate, to grant such pre-approvals, provided that decisions of such subcommittee(s) to grant pre-approvals are presented to the full Audit Committee at its next scheduled meeting. The Audit Committee’s pre-approval policies do not permit the delegation of the Audit Committee’s responsibilities to management.
REPORT OF THE AUDIT COMMITTEE
Under the Audit Committee charter, the Audit Committee is responsible for overseeing the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the system of internal control over financial reporting and the financial reporting process. The independent accountants have the responsibility to express an opinion on the financial statements based on an audit conducted in accordance with generally accepted auditing standards. The Audit Committee has, among other things, the responsibility to monitor and oversee these processes.
The Audit Committee has:
(1) reviewed and discussed the Company’s audited financial statements with management;
(2) discussed with the independent auditors the matters required to be discussed by the applicable rulesrequirements of the Public Company Accounting Oversight Board;Board and the SEC; and
(3) received the written disclosures and the letter from the independent accountant required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with the independent accountant the independent accountant’s independence.
The Audit Committee also considered the impact of non-audit services on the auditor’s independence.
The Audit Committee reviewed with the independent accountants the overall scope and specific plans for its audit. Without management present, the Committee met with the independent accountants to review the results of their examinations, their evaluation of the Company’s internal control over financial reporting, and the overall quality of the Company’s accounting and financial reporting. The Audit Committee reviewed and discussed the Company’s audited financial statements with the independent accountants.
Based on the review and discussions described above, the Audit Committee recommended to the Board that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20182020 for filing with the SEC.
Audit Committee:
Stephen R. Cole, Audit Committee Member (Chair)
Lynn Brubaker, Audit Committee Member
John E. Caldwell, Audit Committee Member
John Donofrio, Audit Committee Member
Jeffrey A. Graves, Ph.D., Audit Committee Member
Yuval Wasserman, Audit Committee Member
PROPOSAL 3
ADVISORY VOTE ON EXECUTIVE COMPENSATION
THE BOARD OF DIRECTORS RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR” PROPOSAL 3, THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.
Section 14A of the Exchange Act provides shareholders with the opportunity to vote to approve, on a non-binding advisory basis, the compensation of our named executive officers. This advisory vote is commonly known as “Say-on-Pay.” Accordingly, the Board of Directors is asking our shareholders to indicate their support for the compensation of our named executive officers, as disclosed in this Proxy Statement. Consistent with the results of the most recent non-binding advisory vote in 2017 regarding the frequency of the “Say-on-Pay” vote, we currently intend to conduct this advisory vote annually.
This proposal is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and our executive compensation program and practices. The Compensation Committee endeavors to ensure that the philosophy and operation of our compensation program reinforces our culture and values, creates a balance between risk and reward, attracts, motivates, and retains executives over the long-term and aligns their interests with those of our shareholders. The Compensation Committee strives to provide total compensation relating to the President and CEO, the other named executive officers and all other employees at the Vice President level and above, that is fair, reasonable and achieves the objective described above. Our executive compensation program includes a significant performance-based component, in the form of a short-term annual incentive award, as well as a substantial emphasis on “at-risk,” equity-based long-term incentives. Please read the Compensation Discussion and Analysis, together with the related compensation tables and narrative disclosure below, for a detailed explanation of our executive compensation program and practices.
At our annual meetings of shareholders held in May 2016,2018, May 20172019 and May 2018,2020, approximately 98%78%, 99%96% and 78%98%, respectively, of the votes cast on the Say-on-Pay proposal at each of those meetings were voted in favor of the proposal. During 2018, before our annual meeting of shareholders, our management team discussed our executive compensation programs, policies and practices with certain of our shareholders. As a result of the lower say-on-pay approval level in 2018, and based on the discussions management had with those shareholders during 2018, the Compensation Committee decided to undertake a comprehensive review of our executive compensation programs, policies and practices, including engaging its independent compensation consultant to assist in the review of our 2018 say-on-pay voting results, shareholder outreach considerations and recommendations for the 2019 long-term equity incentive award design. As a result of this initiative, the Compensation Committee approved significant changes to our executive compensation to more closely align with current best practices, respond to shareholder concerns regarding the pay-for-performance features of our executive compensation programs, and strengthen the pay-for-performance alignment of our executive compensation programs. In 2019, the Compensation Committee developed, with the advice of Compensia, Mr. Burger's compensation arrangements and terms as our new President and CEO. For more information regarding the changes made to our executive compensation program, see “Executive Compensation—Compensation Discussion and Analysis—Consideration of Prior Year Say-on-Pay Vote,” beginning on page 2826 of this Proxy Statement.
The Board is asking our shareholders to vote “FOR” the following non-binding resolution:
“Resolved, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis and the related compensation tables and narrative disclosure, in the Proxy Statement is hereby approved on an advisory basis.”
The approval of this proposal requires the affirmative vote of a majority of the votes cast by the shareholders. Abstentions and broker non-votes will have no impact on the outcome of this matter. As an advisory vote, the result will not be binding on the Board; however, the Compensation Committee, which is comprised solely of independent directors, will consider the outcome of the vote when evaluating the effectiveness of our compensation policies and practices.
EXECUTIVE OFFICERS
The following table provides information regarding our executive officers as of March 29, 2019:
|
| | | | | | | | | | | | | |
| Name | | Age | | Principal Position |
Simon Raab, Ph.DMichael D. Burger | | 6662 |
| | President and Chief Executive Officer |
Robert E. SeidelAllen Muhich | | 4453 |
| | Chief Financial Officer |
Kathleen J. Hall | | 58 |
| | Chief Operating Officer |
Jody S. Gale | | 44 |
| | Senior Vice President, General Counsel and Secretary |
| Katrona Tyrrell | | 5657 |
| | Chief People Officer |
Yazid Tohme, Ph.DKevin Beadle | | 4563 |
| | Chief R&D OfficerSenior Vice President of Sales |
Simon Raab, Ph.D. has served as President and CEO of the Company since December 2015. Please refer to the biography of Dr. Raab provided under the heading “Proposal 1—Election of Directors—Directors Whose Terms Will Continue After the Annual Meeting,” on page 10 of this Proxy Statement.
Robert E. SeidelMichael D. Burger was appointed our Chief Financial Officer in December 2016. Prior to this appointment, Mr. Seidel served as our Vice President Finance and Investor Relations and interim principal financial officer since March 2016. Mr. Seidel previously held the positions of Vice President, Americas Finance and Accounting from November 2015 to March 2016, Vice President, Corporate Financial Planning & Analysis and Americas Finance from March 2015 to November 2015, and Director, Corporate Financial Planning and Analysis from May 2014 to March 2015.CEO on June 17, 2019. Prior to joining the Company, Mr. SeidelBurger was President and Chief Executive Officer and a member of the board of directors of Electro Scientific Industries, Inc., a leading supplier of innovative laser-based microfabrication solutions for industries reliant on microtechnologies, from October 2016 to February 2019, when it was acquired by MKS Instruments, Inc. Prior to joining Electro Scientific Industries, Inc., Mr. Burger was President and Chief Executive Officer of Cascade Microtech, Inc., a manufacturer of advanced wafer probing, thermal and reliability solutions for the electrical measurement and testing of high performance semiconductor devices, from July 2010 to June 2016. From April 2007 to February 2010, Mr. Burger served as the President and Chief Executive Officer and as a member of the board of directors of Merix Corporation (“Merix”), a printed circuit board manufacturer. Mr. Burger also served as a member of the Board of Directors of ViaSystems Group, Inc. from February 2010 after it acquired Merix until May 2015. From November 2004 until joining Merix, Mr. Burger served as President of the Components Business of Flextronics Corporation. From 1999 to November 2004, Mr. Burger was employed at Trinseo S.A.by ZiLOG, Inc., a global materials company, serving as Global Finance Managersupplier of devices for its latex chemicals segment from 2011 to 2014. Previously,embedded control and communications applications. From May 2002 until November 2004, Mr. SeidelBurger served as Plant Controller at Anheuser-Busch InBev from 2006 to 2010.ZiLOG's President and a member of its board of directors. Mr. Seidel began his finance and accounting career as a treasury intern at Exxon Mobil Corporation in 2002, then served in various financial planning and analysis roles of increasing responsibility at Air Products and Chemicals, Inc. from 2003 to 2006. HeBurger holds a Bachelor of ScienceB.S. degree in MechanicalElectrical Engineering from StanfordNew Mexico State University and a Master of Business Administrationcertificate from Cornell’s Johnson School.the Stanford University International Executive Management Program.
Kathleen J. HallAllen Muhich was appointedhas served as our Chief OperatingFinancial Officer in April 2016.since July 2019. Prior to this appointment, Ms. Hall served as Senior Vice President, Managing Director for our Americas region from July 2013 to April 2016. Between October 2012 and July 2013, Ms. Hall provided independent consulting services. Prior to that, Ms. Halljoining the Company,
Mr. Muhich served as Vice President, & General Manager of Avery Dennison Corporation’s GraphicsChief Financial Officer and Reflective Solutions and Performance Tapes Americas’ businesses from November 2008 to October 2012. From 1982 to 2008, Ms. Hall held roles of increasing responsibility at E.I. du Pont De Nemours & Company, ranging from operations and sourcing to sales, marketing and global business leadership. Ms. Hall holds a Bachelor of Science degree in Industrial Engineering from Lehigh University.
Jody S. Gale has served as Senior Vice President, General Counsel andCorporate Secretary of the Company sinceElectro Scientific Industries, Inc., a leading supplier of innovative laser-based microfabrication solutions for industries reliant on microtechnologies, from December 2017 to February 2014.2019, when it was acquired by MKS Instruments, Inc. Prior to joining the Company,Electro Scientific Industries, Inc., Mr. GaleMuhich was Chief Financial Officer of ID Experts, a provider of identity protection services, from February 2016 to
November 2017, as well as Chief Operating Officer from January 2017 to November 2017. Prior to that, Mr. Muhich served as Chief Financial Officer of Smarsh, Inc., a provider of cloud-based archiving solutions, from March 2015 to February 2016, as Chief Financial Officer and Vice President of Finance of Radisys Corporation, a leading provider of open telecom solutions, from May 2011 to March 2015, as Vice President of Finance and Associate General Counsel – M&A, Securities and GovernanceCorporate Controller at Biomet, Inc.,Merix Corporation, a global medical device company,manufacturer of the printed circuit boards from December 2008September 2006 to January 2014. Previously,May 2010, and spent the previous 15 years in financial
management in the office printing business at Tektronix, Inc. and Xerox Corporation. Mr. Gale was a Partner at Kirkland & Ellis LLP, where he worked from 1999 through 2008. Mr. GaleMuhich holds a Bachelor of ArtsB.A. degree in Accounting from Albion College in Albion, Michigan and a Juris Doctor/Master of Business Administration from Case Western ReserveWashington University.
Katrona Tyrrell has served as Chief People Officer of the Company since January 2017. Prior to joining the Company, Ms. Tyrrell served as Global Senior Vice President, Human Resources for IDT Corporation, a global telecommunications and payment services provider, from 2010 to January 2017, leading a team that was responsible for global succession planning, leadership development, performance management, employee engagement and organizational effectiveness. From 2006 to 2010, Ms. Tyrrell held roles of increasing human resources management responsibility at IDT Corporation. Prior to joining IDT Corporation in 2006, Ms. Tyrrell held leadership and management positions at Towergate Partnership, Ltd. and Robert & Partners Managed Services in the United Kingdom. Ms. Tyrrell holds a post-graduate diploma in strategic management from Crawley College in the United Kingdom.
Yazid Tohme, Ph.D.Kevin Beadle was appointed as our Chief Research and Development Officer in March 2019. Prior to his appointment, Dr. Tohmehas served as our Senior Vice President R&D, Group 1of Sales since March 2017. Dr. Tohme previously held the positions of Vice President, Engineering, Metrology Technologies from January 2014 to March 2017 and Director of Engineering, 3D Imaging from June 2011 to December 2013.2019. Prior to joining the Company, Dr. TohmeMr. Beadle served as the Chief Technology OfficerPresident of Silicon IP and Secure Protocols for Rochester Precision Optics,Inside Secure, a company that specializes in developing lightweight electro-optical products,security solutions for mobile and connected devices, providing software, silicon IP, tools and know-how needed to protect customers’ transactions, content, applications, and communications from January 2011 until June 2011.2017 to November 2019 and also served as the Vice President of Americas from January 2014 to December 2016. Prior to that, Dr. Tohmejoining Inside Secure in 2014, Mr. Beadle held various researchleadership and development leadership roles of increasing responsibilitymanagement positions at Moore Nanotechnology Systems, a company that manufactures precision machines. Dr. TohmeFairchild Semiconductor, Wolfson Microelectronics, and Intel Corporation. Mr. Beadle holds a Bachelor of ScienceB.A. degree in Mechanical Engineering Science from the University of Kentucky as well as a Master of ScienceTexas and Ph.D. in Mechanical Engineeringan Executive MBA Degree from the University of Florida and a Master of Business Administration from the University of Massachusetts.Stanford University.
On April 5, 2019, the Board appointed Michael D. Burger as the President and CEO of the Company, effective June 17, 2019, to succeed Dr. Raab, who is retiring as our President and CEO and as a member of our Board on June 16, 2019. Mr. Burger, age 60, most recently served as President and Chief Executive Officer and as a member of the board of directors of Electro Scientific Industries, Inc., a leading supplier of innovative laser-based microfabrication solutions for industries reliant on microtechnologies, from October 2016 to February 2019, when it was acquired by MKS Instruments, Inc. Prior to joining Electro Scientific Industries, Inc., Mr. Burger was President and Chief Executive Officer and a member of the board of directors of Cascade Microtech, Inc., a manufacturer of advanced wafer probing, thermal and reliability solutions for the electrical measurement and testing of high performance semiconductor devices, from July 2010 to June 2016. From April 2007 to February 2010, Mr. Burger served as the President and Chief Executive Officer and as a member of the board of directors of Merix Corporation (“Merix”), a printed circuit board manufacturer. Mr. Burger also served as a member of the board of directors of ViaSystems Group, Inc. from February 2010 after it acquired Merix until May 2015. From November 2004 until joining Merix, Mr. Burger served as President of the Components Business of Flextronics Corporation. From 1999 to November 2004, Mr. Burger was employed by ZiLOG, Inc., a supplier of devices for embedded control and communications applications. From May 2002 until November 2004, Mr. Burger served as ZiLOG’s President and a member of its board of directors. Mr. Burger holds a B.S. degree in Electrical Engineering from New Mexico State University and a certificate from the Stanford University International Executive Management Program.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The Compensation CommitteeTDCC oversees, among other things, the development of our executive compensation programs, policies and practices. This Compensation Discussion and Analysis (“CD&A”) describes our executive compensation program for 2018.2020. The guiding principles and fundamental objectives of the executive compensation program are as follows:
establish•align our senior leadership team's interests with interests of our shareholders by establishing clear performance goals that are quantifiable and focused on our success while balancing both short-term and long-term initiatives;objectives;
align our senior leadership team’s interests with the interests of our shareholders;
•attract, retain and motivate our senior leadership team;team by providing competitive compensation arrangements;
•provide operational, financial and strategic objectives to each member on our senior leadership team; and
•recognize ourcompany performance in addition to individual performance.
Following this CD&A, you will find a series of tables and narrative disclosures containing specific data about compensation earned in 20182020 by the following individuals, whom we refer to as our named executive officers:
|
| | | | |
| Name | Title |
Simon Raab, Ph.D.Michael D. Burger | President and Chief Executive Officer (“CEO”) |
Robert E. SeidelAllen Muhich | Chief Financial Officer |
Kathleen J. Hall | Chief Operating Officer |
Jody S. Gale | Senior Vice President, General Counsel and Corporate Secretary |
| Katrona Tyrrell | Chief People Officer |
Joseph ArezoneKevin Beadle | Senior Vice President of Sales |
| Yazid Tohme, Ph.D. | Former Chief CommercialR&D Officer |
Changes in Executive Leadership
Effective asAugust 24, 2020, the Company decided to eliminate the role of March 5, 2018, Joseph Arezone reduced his duties and responsibilities due to his desire to relocate to be closer to his family, stepping down from his position as Chief Commercial Officer and serving as our Senior Vice President, Corporate Strategy & Initiatives through June 5, 2018.R&D Officer. As a result, Mr. Arezone also ceased servingDr. Yazid Tohme’s employment as an “executive officer” within the meaning of Rule 3b-7 under the Exchange Act. On June 5, 2018, Mr. Arezone entered into a Transition and Separation Agreement (the “Transition Agreement”) with us and stepped down as our Senior Vice President, Corporate Strategy & Initiatives. Mr. Arezone servedCompany’s Chief R&D Officer ended. Dr. Tohme continued as an at-will employee of the Company for a transition period through NovemberOctober 30, 2018.2020.
Executive Summary
Strategy
During the second half of 2019, we entered intoour Chief Executive Officer (“CEO”) and FARO's management team formulated and began to implement a letter agreement with Dr. Raab, setting forth the terms of Dr. Raab’s retirement asnew comprehensive strategic plan for our President and CEO and as a memberbusiness. We identified areas of our business that needed enhanced focus or change in order to improve our efficiency and cost structure. As part of our strategic plan, we reassessed and redefined our go-to-market strategy, refocused our marketing engagement with our customers, re-evaluated our hardware and software product portfolio and examined how key decisions are made throughout our global organization. Additionally, we focused on other organizational optimization efforts, including the simplification of our overly complex management structure.
In February 2020, we outlined our new strategy with the primary objective of realizing profitable revenue growth that would ultimately drive increased long-term shareholder value. Our Board of Directors approved a global restructuring plan (the “Board”“Restructuring Plan”). Dr. Raab agreed, which supports our strategic plan and broadly relies on the following key tenants:
•Create a reduced cost structure that would enable us to realize our financial success model of 20% adjusted EBITDA, on relatively flat 2019 revenue, by targeting $40 million in annualized savings;
•Enable revenue growth through long-term product differentiation by better understanding our customer needs and delivering hardware and software solutions that solve their problems better than our competitors; and
•A focus on customers in our large and growing targeted markets, namely 3D Metrology, Architecture, Engineering & Construction and Public Safety Analytics.
During fiscal 2020, we made significant progress in these key tenants. We eliminated our costly vertical structure in favor of a functional structure. The elimination of our vertical structure allowed us to successfully complete our redefined go-to-market strategy which placed increased focus on our customers and enabled our sales employees, supported by our talented pool of field application engineers, to sell all product lines globally. We also globalized many administrative processes which allowed the elimination of redundant resources. Finally, we exited several business that targeted customers outside our core markets.As a result, fiscal 2020 non-GAAP operating expenses* of $163.4 million were approximately $40.9 million lower than fiscal 2019. In connection with the implementation of our Restructuring Plan, we recorded a pre-tax charge of approximately $15.8 million in fiscal 2020, which primarily consisted of severance and related benefits, professional fees and other related charges and costs.
We also made meaningful progress toward our objective of growing revenue in our target markets. Our new focus on product marketing has provided an increased understanding of customer applications and workflows which enables value-based product positioning while optimizing our customer's total cost of ownership. By strengthening our understanding of customer applications and workflows, we expect to continue to serve asdevelop high-value solutions across our Presidentproduct and CEOsoftware platforms. Additionally, our marketing team has transformed our lead generation process and to remain onimplemented technology that we believe will provide our sales organization with higher quality leads, targeted at specific workflow applications, and further optimize the Board until the appointmenttime and effort spent by our newly organized sales team.
Fiscal 2020 revenue of his successor. On April 5,$303.8 million was 20.4% lower than fiscal 2019 the Board appointed Michael D. Burger as our President and CEO, effective as of June 17, 2019. Mr. Burger has over 20 years of experienceprimarily as a global executive in the industrial technology segment. Mr. Burger’s background is discussed in more detail on page 26 of this Proxy Statement. In connection with Mr. Burger’s appointment, Dr. Raab will retire as our President and CEO and as a memberresult of the Boardeffects the COVID-19 pandemic on June 16, 2019. In addition, on April 5, 2019,our end markets.
While COVID-19 negatively impacted overall demand for our products and services, it also provided us with the Board elected John Donofrioopportunity to serve asadapt to operating in a virtual environment. We significantly increased the independent Chairmanutilization of our existing virtual sales demonstration infrastructure which has enabled ongoing customer product education. We launched an updated web-based learning system that increased the Board, effective immediately. See “Retirementcustomer attendance of Dr. Raabour virtual training and Compensation Arrangements with Mr. Burger” below forproduct information regarding Dr. Raab’s compensation duringseminars. As a result, we remain confident the actions we have taken will ultimately result in our objective of long-term profitable revenue growth.
*Note: a reconciliation of non-GAAP operating expense to the most directly comparable GAAP financial measure is provided in Appendix A to this transition and Mr. Burger’s compensation as our President and CEO.proxy statement.
Executive Summary
Company Performance in 20182020
In 2018,2020, we crossed the $400 million milestone in annual sales for the first time in our history. We recorded $403.6$303.8 million in total sales in 2018, an increase2020, a decrease of 11.8%20.4% over 2017. We achieved over $4252019. Adjusted EBITDA* was $9.9 million in new order bookings in 2018, up 12.8%2020, or 3.3% of sales, compared to 2017.Adjusted EBITDA* of $29.7 million, or 7.7% of sales, in 2019. We executed on our strategic sales growth initiative by expanding our sales organization headcount 16.2% compared to the end of 2017. Our release of new products into the market continued during 2018, with fourteen new product launches. In addition, we expanded our product portfolio through four acquisitions in 2018. We maintained a strong balance sheet with no debt and cash and cash equivalents of $185.6 million and short-term investments of $133.6 millionno debt as of December 31, 2018.2020.
*Note: Adjusted EBITDA is a non-GAAP financial measure. A reconciliation of adjusted EBITDA to the most directly comparable GAAP financial measure is provided in Appendix A to this proxy statement.
Total Shareholder Return
Our one-year Total Shareholder Return (“TSR”) as of December 31, 20182020 was 40.3%, which outpaced our industry group, peer group, and the Russell 2000 index. Our three-year TSR as of December 31, 2020 of 50.3% was above our industry group and peer group, while our three-year TSR as of December 31, 2018 was above our industry groupthe Russell 2000 index and belowapproximated our peer group. For a discussion of the companies in our peer group, see “Review of Peer Group Practices” below. We use the Global Industry Classification Standard (GICS) Subcode 4520 (Technology Hardware and Equipment) developed by Standard & Poor’s Financial Services LLC and MSCI Inc. as our industry group.
Consideration of Prior Year Say-on-PaySay-On-Pay Advisory Vote
At our 20182020 annual meeting of shareholders, approximately 78%98% of the votes cast on the annual say-on-pay vote were voted in favor of the proposal. This was a significant decrease from the 2017 annual meetingThe TDCC believes that this level of shareholders, at which approximately 99%affirmative votes conveyed our shareholders' support of the votes cast were voted in favor of the say-on-pay proposal. During 2018, beforeTDCC's decisions and our annual meeting of shareholders, our management team discussed ourexisting executive compensation programs, policiesprograms. The TDCC reviewed the final vote results and practices with certain of our shareholders. As a result of the lower say-on-pay approval level in 2018, and based on the discussions management had with those shareholders during 2018, the Compensation Committee decided to undertake a comprehensive review of our executive compensation programs, policies and practices, including engaging its independent compensation consultant, Compensia, Inc. (“Compensia”), to assist in the review of our 2018 say-on-pay voting results, shareholder outreach considerations and recommendations for the 2019 long-term equity incentive award design. As a result of this initiative, the Compensation Committee approved the following significanthas not made any material changes to our executive compensation to more closely align with current best practices, respond to shareholder concerns regardingprograms or policies as a result of the pay-for-performance featuresvote.
Overview of 2020 Compensation
The primary components of our fiscal 2020 executive compensation programs,for the named executive officers and, strengthentheir objectives are set forth in the pay-for-performance alignment of ourtable below. In determining the amount to pay each executive compensation programs:officer, the TDCC considered various factors, including market data, individual roles and responsibilities, and individual performance.
|
| | | | | | | |
Prior ApproachComponent | What We HeardDescription | Our ActionsObjective |
Short-termBase Salary | Fixed cash incentives could be earnedcompensation; reviewed annually | Provide base compensation amount aligned with market |
| Short-Term Incentives | Variable cash compensation based on theperformance against annual goals | Provides incentive and motivation for achievement of established performance metrics; however, the Compensation Committee had discretionary authority to increase (or decrease) the amount earned. The Compensation Committee approved discretionary cash bonuses to be paid to our named executive officers for 2017 even though the performance requirements were not met under our short-term cash incentive plan.
| Annual cash bonus awards are not tied to the achievement of established performance metrics. | For 2018, the short-term cash incentive plan had pre-established performance metrics, consisting of sales growth and operating income. In determining the bonuses earned by, and paid to, our named executive officers based on 2018 performance, these performance metrics were strictly adhered to, and no discretionary bonuses were awarded to our named executive officers for 2018.key objectives |
| Performance-Based Restricted Stock Units | | |
Our long-term incentiveVariable compensation with payout in recent years consisted of a mix of stock options and restricted stock units, both subject to only time-based vesting. | Long-term incentive compensation is not tied to objective performance metrics. | For 2019, the Compensation Committee redesigned the long-term equity incentive awards granted to our named executive officers to eliminate the use of stock options and introduce performance-based restricted stock units.
|
| | The Compensation Committee adjusted the mix and vesting of the equity awards granted to our named executive officers in 2019 as follows: (1) 50% of the value of the equity awards was in the form of performance-based restricted stock units, which vest at the end of three yearsshares based on the satisfaction of pre-established goals related to our total shareholder return (“TSR”) compared(relative performance to the TSR of the companies in the Russell 2000 Growth Index;Index) over a three-year performance period | Aligns executive interest with long-term shareholder value creation |
| Time-Based Restricted Stock Units | Variable compensation with payout in shares subject to annual vesting over a three-year time period | Provides retention and (2) 50% of thealigns executive interest with long-term shareholder value of the equity awards was in the form of time-based restricted stock units that vest in equal installments over three yearscreation |
Going forward, future advisory votesCompensation of our Chief Executive Officer
The compensation of our CEO, Mr. Burger, is positioned within the range of our compensation benchmark and is based on the same design elements that are applicable to our other named executive compensation will serve as an additional tool to guide the Board andofficers. In February 2020, the Compensation Committee in evaluating the alignment of our executive compensation program with the interests of the Company and our shareholders. Our management team will continue to meet with shareholders to discuss topics of interest to our shareholders, including executive compensation matters.
When determining how often to hold our advisory votes on executive compensation, our Board took into account the strong preference for an annual vote expressed by our shareholders at our 2017 annual meeting of shareholders. Consistent with this preference, the Board determined to implement an advisory vote on executive compensation on ankeep Mr. Burger's base salary unchanged, maintain his target annual basis until the next required vote on the frequency of shareholder votes on the compensation of our named executive officers, which will be conductedcash short-term incentive opportunity at our 2023 annual meeting of shareholders.
CEO Pay and Company Performance Alignment
Dr. Raab’s compensation in 2018 for his role as President and CEO, as well as Chairman of the Board, consisted primarily100% of base salary, of $775,000 and target short-term cash incentivesmaintain his long-term incentive opportunity at $2.0 million in contemplation of $775,000, or total target cash compensation of $1,550,000, as well as stock options with a grant date fair value of $1,837,110. Based on our financial performance for 2018, Dr. Raab received a cash bonus of $89,100, representing a payout equal to 11.50% of his target award opportunity under our short-term incentive plan, as adjusted for his individual performance factor. Accordingly, Dr. Raab’s total cash compensation received during 2018 for his service as President, CEO and Board member. Mr. Burger's compensation consists of an annualized base salary of $700,000, target annual cash short-term incentive opportunity of $700,000, and long-term incentive grant value of $2.0 million. The decision to leave Mr. Burger’s base salary unchanged in 2020 resulted from an evaluation of peer based compensation levels and was not an indication of Mr. Burger’s performance since being appointed President & CEO was equal to $864,100. In addition, the stock options granted to Dr. Raab in 2018 had an exercise price of $61.30, which was the closing price of our common stock on the grant date. As of December 31, 2018, these stock options were all “out-of-the-money,” and therefore had no intrinsic value, as our closing price of $40.64 on December 31, 2018 was below the exercise price of the stock options.June 2019.
Executive Compensation Objectives and Philosophy
The Compensation CommitteeTDCC endeavors to ensure that the philosophy and operation of our compensation program reinforces our culture and values, creates a balance between risk and reward, attracts, motivates, and retains executives over the long-term and aligns their interests with those of our shareholders. The Compensation CommitteeTDCC strives to provide total compensation to the President and CEO, the other named executive officers and all other employees at the Vice President level and above that is fair, reasonableconsistent with market conditions and achieves the objective described above. Our executive compensation program includes a significant performance-based component in the form of a short-term annual incentive award, as well as a substantial emphasis on “at-risk,” equity-based long-term incentives, which in 20182020 took the form of stock options for Dr. Raab and a combination of stock options andtime-based restricted stock units (“RSUs”TRSUs”) for the other NEOs. In 2019, the equity awards granted to our named executive officers consist ofand performance-based RSUs (instead ofrestricted stock options) and time-based RSUs.units (“PRSUs”).
The Compensation CommitteeTDCC has responsibility for establishing, implementing and monitoring adherence with our compensation philosophy. For more information regarding the Compensation Committee’sTDCC’s duties and responsibilities, see pages 1315 through 1517 of this Proxy Statement.
Compensation Governance Highlights
The Compensation CommitteeTDCC and Company management are mindful of evolving practices in executive compensation and corporate governance. In response, we have adopted the following policies and practices:
In 2019, the•The long-term incentive equity awards granted to our named executive officers were modified to introduceinclude a performance-based equity component and eliminate stock options.representing 50% of the granted value.
•We do not offer newly hired executives any “single-trigger” change-in-control cash severance features similar to a lump sum cash payment payable solely upon the occurrence of a change in control.
•The Amended and Restated Change in Control Severance Policy does not provide anfor excise tax gross-up.
•The 2014 Incentive Plan prohibits cash buyouts of stock options.
•We maintain a compensation clawback policy, as further described on page 3935 of this Compensation Discussion and Analysis.
•We have a stock ownership policy for our non-employee directors and executive officers, as further described on pages 1920 and 3935 of this Proxy Statement, respectively. Among other things, this policy provides that our President and CEO must hold at least six times his base salary in Company common stock, our other executives must hold at least two times their respective base salaries in Company stock, and our non-employee directors must own Company stock with a value of at least $300,000.
•Our Company policyCompany's Insider Trading Policy prohibits hedging and pledging of Company securities by our directors and executive officers.
•The Compensation CommitteeTDCC has determined that the work of its current compensation consultant, Compensia, has not raised any conflicts of interest.
The Compensation CommitteeTDCC has retained compensation consultants from time to time, including for formal executive and director compensation studies in 2010, 2012 and 2015 and a formal executive compensation study in 2018.2018 and 2019. Such consultants are frequently consulted during the year on various matters and annually to informally update the Compensation CommitteeTDCC on matters that are relevant to the matters delegated to the committee under its charter.
Executive Compensation Components
The primary components of compensation for the named executive officers in 2018 were base salary, short-term annual cash incentives, and long-term equity incentives.
Base Salary
When setting base salaries, the Compensation CommitteeTDCC considers ourthe Company's overall financial performance and outlook, the compensation levels of comparable positions within our peer group, and each executive’s experience, expertise, level of responsibility, seniority, leadership qualities, professional advancement, individual accomplishment, and other significant contributions to our success. When setting the salaries for the executive officers other than the President and CEO, the Compensation CommitteeTDCC also considers the President and CEO’s recommendations and the prior performance review conducted by the President and CEO. In 2018, the Compensation CommitteeThe TDCC approved changes to the base salaries of certain of our named executive officers to the following levels:
| | | | | | | | | | | | | | |
| Name | 2020 Base Salary | | % Increase (Decrease)
from 2019 | |
Mr. Burger(1) | $ | 700,000 | | | -% | |
Mr. Muhich(2) | $ | 382,130 | | | 3% | |
Ms. Tyrrell(2) | $ | 298,982 | | | 3% | |
Mr. Beadle(3) | $ | 310,000 | | | -% | |
Dr. Tohme(2) | $ | 381,100 | | | 3% | |
(1) In February 2020, the TDCC determined to leave Mr. Burger’s salary unchanged as a result of a peer based compensation review. |
| | | | | | | |
| Name | 2018 Base Salary | | % Increase (Decrease) from 2017 | |
| Dr. Raab | $ | 775,000 |
| | 3.3 | % | |
| Mr. Seidel | $ | 334,000 |
| | 26.0 | % | (1) |
| Ms. Hall | $ | 420,000 |
| | 5.0 | % | |
| Mr. Gale | $ | 362,000 |
| | 3.1 | % | |
| Ms. Tyrrell | $ | 281,000 |
| | 12.4 | % | |
| Mr. Arezone | $ | 263,280 |
| | (32.5 | )% | (2) |
| |
(1) | Effective upon his promotion as our Chief Financial Officer in December 2016, Mr. Seidel’s base salary was set at $265,000 by the Compensation Committee. In February 2018, after evaluating Mr. Seidel’s performance as our Chief Financial Officer and reviewing and evaluating a competitive review of our executive compensation program and advice received from its executive compensation consultant, Compensia, the Compensation Committee approved an increase of Mr. Seidel’s base salary to $334,000. |
| |
(2) | Mr. Arezone’s base salary was decreased effective March 2018 due to his change in position from Chief Commercial Officer to Senior Vice President, Corporate Strategy & Initiatives. |
(3) Mr. Beadle was hired as our SVP of Sales in December 2019 and was not eligible for a merit increase in 2020 as he was hired during the fourth quarter of 2019.
Short-Term Incentives
Our short-term incentives provide management employees, including our named executive officers, the opportunity for additional cash compensation based on achievement of Company financial performance goals, other operational objectives and individual goals. These goals are established at the beginning of the year by the Compensation CommitteeTDCC with input from management. These metrics are designed to align the interests of the executives with our shareholders and require the Company and each individual executive to perform satisfactorily to achieve the target incentive amount.
Annual short-term cash incentive opportunities are expressed as a percentage of each participant’s base salary. The target award opportunity for Dr. Raab in 2018 was equal to 100% of his base salary. The target award opportunity for Ms. Hall in 2018 remained at 50% of her base salary, and the target award opportunities for Messrs. Gale and Seidel andMr. Burger, Mr. Muhich, Ms. Tyrrell, Mr. Beadle and Dr. Tohme in 2018 remained at2020 was 100%, 65%, 40%, 60% and 40% of their respective base salary, each of whichsalaries. As Dr. Tohme's employment was consistent with 2017. Mr. Arezone’s target award opportunity decreased to 30% of his base salaryterminated during 2020, he was not eligible for 2018 from 50% of his base salary in 2017 in connection with his role change from Chief Commercial Officer to Senior Vice President, Corporate Strategy & Initiatives.a short-term cash incentive payout.
The Compensation CommitteeTDCC retains the discretion to adjust the annual incentives upward or downward on a subjective basis to ensure an equitable result. The Compensation CommitteeTDCC did not exercise its discretion to adjust the annual incentives upward or downward for 2018.2020.
In accordance with its standard practice, at the beginning of fiscal year 2020, the TDCC determined that revenue and adjusted EBITDA, each at a 50% weighting, would be the metrics used for determining awards under the Company’s short-term incentive plan (“STIP”), which provides an annual cash incentive to the Company’s management team, including its executive officers. Threshold, target and maximum levels for each metric were originally established based on the Company’s 2020 annual operating plan at that time.
Primarily as a result of the COVID-19 pandemic, second quarter 2020 customer orders for the Company’s products decreased 42% year on year. These lower orders resulted in the Company’s first six month’s revenue falling $47 million or 25% below the comparable period last year. The Company also incurred a net loss of $23.8 million for the first half of the year. The Company did not expect the global economy to materially recover in the second half of 2020 and adjusted its internal forecast accordingly.
Primarily as a result of the COVID-19 pandemic and in light of the Company's year-to-date results through the second quarter of 2020, the TDCC reviewed the original STIP goals to determine whether those goals were realistically achievable and would continue to provide appropriate incentive compensation opportunities. As a result of this review, on August 4, 2020, the
TDCC concluded that retaining the original STIP goals no longer provided realistic incentives and new goals should be established for each of the previously approved metrics, namely revenue and adjusted EBITDA, taking into consideration the forecast for the second half of fiscal 2020. The new STIP goals provided a continued incentive for management to maximize the Company’s revenue and profitability performance given the impact of the COVID-19 pandemic. To ensure the new goals did not have an excessive impact on short-term incentive plan funding, the TDCC set the attainment of the new goals at a consistent level of difficulty with the original targets. The TDCC also set an upper funding limit of 75% of target which was less than the amount that would have been funded had the Company achieved the target level of performance under the original STIP.
Given the significant disruption from the COVID-19 pandemic on the Company’s operations and financial performance, the TDCC believes the new goals were better aligned and provide a more realistic incentive to drive shareholder value for fiscal 2020 while retaining the Company’s pay-for-performance philosophy. The new goals also reflect the continued execution of the Company's strategic plan, including the global restructuring announced in February 2020 and also takes into consideration the Company’s deployment of significant resources to maintain its operations, to operate in a new virtual work environment as well as supporting key customers throughout this pandemic.
Company Financial Performance. In 2018, 100% of the short-term incentive opportunities for each of our named executive officers were based on achievement of Company-wide financial performance goals. For each of the named executive officers, the Compensation Committee selected the following Company-wide performance objectives for 2018: sales growth (weighted 50%) and operating income (weighted 50%). In 2016, we reorganized our business to align our sales, marketing and product management to specific vertical markets and better redefine our end market applications and modernize our sales process to improve the efficiency of our sales organization, accelerate and maintain a consistent schedule to new product introductions and harmonize our global functions to improve efficiencies. Sales growth and operating income are key indicators of our financial performance and used to evaluate the success of our reorganization initiatives and to focus our named executive officers on growing the business. Additionally, operating income focuses our named executive officers on margin expansion, operating efficiencies and profitability and was used as a Company-wide performance objective for 2018 because the Compensation Committee determined that it was more reflective of the contributions that our executive officers made during 2018, as operating income is less impacted by external factors that are outside the control of our executive officers, as compared to net income, which was used in 2017.
Short-term cash incentives could be earned if we achieved or exceeded the threshold level of performance for either or both of the performance metrics. To satisfactorily balance the aggregate short-term incentive amounts in relation to operating income, the amount of the aggregate short-term cash incentives that could be earned by all participants was capped at 15% of our operating income, excluding short-term incentive awards, in 2018. The Compensation CommitteeTDCC reviewed and approved the updated financial performance targets, each of which is set forth below, in conjunction with the Board’sTDCC's review of the Company's updated forecast in August 2020 ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Threshold | | Target | | Maximum | | Actual | | Weighting |
| Revenue | $265.7 | | $280.7 | | $300.7 | | $304.4 | | 50% |
| Adjusted EBITDA | $(2.5) | | $3.9 | | $13.5 | | $9.9 | | 50% |
No payout would occur if second half adjusted EBITDA was below zero.
The original 2020 STIP approved with the Board's approval of the annualCompany's 2020 budget ($ in millions):
|
| | | | | | | | | | | | | | | |
| | Threshold | | Target | | Maximum | | Actual |
| Sales growth | 6.6 | % | | 18.4 | % |
| 30.3 | % | | 11.8 | % |
| Operating Income | $ | 19.5 |
| | $ | 24.4 |
|
| $ | 29.3 |
| | $ | 5.7 |
|
If we had achieved the threshold level of performance for eachFebruary 2020, included payouts equal to 50% of the performance metrics set forth above in 2018, payouts would equal 50%target at threshold, 100% at target, and 200% at maximum of the target award opportunity for each named executive officer. If we had achieved or exceededThese percentages were updated as a result of COVID-19 and the changes made to the 2020 STIP goals in August 2020. Accordingly, financial performance achievement at threshold, target and maximum level of performance for each of the performance metrics set forth abovelevels, weighted 50% on revenue and 50% on adjusted EBITDA, would result in 2018, payouts would equal 200%to 25%, 50% and 75%, respectively, of the target award opportunity for each named executive officer.award.
Individual Performance Factor. An individual performance factor adjusts themultiplier can adjust an individual's award amount, calculated based onas determined by the Company-wide financial performance measures described above, upward or downward as a multiplier, which is normalized at 1.0, based on individual performance. Rather than a strictly arithmetical calculation, the Compensation Committee determinesdownward. The Chief Executive Officer recommends the individual performance factor based upon the achievement of individual objectives, performance against operational metrics assigned to the executive for each quarter in the prior year as well as for the full prior year and overall contribution for the year, without ascribing specific percentages to each category.
The operational metrics are set by the Compensation Committee with input from the Operational Audit Committee and are designed to focus on improving both our short-term and long-term operating performance. Metrics such as failure rates, manufacturing efficiencies, service turnaround, and inventory turns are used as indicators of our overall strength and performance.
The Compensation CommitteeTDCC sets the President and CEO’s individual strategic objectives and related weights and, together with the President and CEO, the individual strategic objectives and related weights for each of the other named executive officers on an annual basis. These criteria incorporate elements of individual performance and are intended to reflect the contributions made by the named executive officer toward our overall objectives for the year and the named executive officer’s individual responsibilities. The Compensation Committee determined the individual performance factor for Messrs. Gale and Seidel and Dr. Raab was 1.0 and for Mses. Hall and Tyrrell was 1.1 due to their achievement of individual objectives, performance against operational metrics assigned to them for each quarter in the prior year as well as for the full prior year and overall contribution for the year.
Aggregate Performance Results. We exceeded the minimummaximum payout threshold for our sales growth performance but did not meetand exceeded the minimumtarget payout threshold for our operating incomeAdjusted EBITDA performance. The sales growth percentage was approximately 64% of the target sales growth goal, which exceeded the 50% payout threshold, and would have resulted in a cash bonus amount equal to approximately 33% of such executive’s short-term incentive award target, as further adjusted by their individual performance factor. However, the Company-wide short-term incentive awards were reduced so that they did not exceed 15% of our operating income in 2018 in the aggregate. As a result, the short-term incentive award earned by each named executive officer was adjusted downward to 11.5%68.7% of such executive’s short-term incentive award target, as further adjusted by their individualrepresenting the achievement of 37.5% for exceeding the maximum threshold for revenue performance factor.
Cash bonuses awarded to Dr. Raab, Messrs. Seidelmetric and Gale31.2% for the Adjusted EBITDA performance metric calculated using the linear interpolation relationship between target and Mses. Hall and Tyrrell for 2018 performance were as follows:
|
| | | | | | | | | | |
| Name | 2018 Target Award | | 2018 Short-Term Incentive Payout | | Actual Short-Term Incentive Payout as % of Target Award |
| Dr. Raab | $ | 775,000 |
| | $ | 89,100 |
| | 11.50 | % |
| Mr. Seidel | $ | 133,600 |
| | $ | 15,364 |
| | 11.50 | % |
| Ms. Hall | $ | 210,000 |
| | $ | 26,565 |
| | 12.65 | % |
| Mr. Gale | $ | 144,800 |
| | $ | 16,652 |
| | 11.50 | % |
| Ms. Tyrrell | $ | 112,400 |
| | $ | 14,219 |
| | 12.65 | % |
Due to Mr. Arezone’s separation from the Company effective November 30, 2018, he was not awarded a cash bonus for 2018.
maximum thresholds.
Long-Term Incentives
In 2019, taking into account the advice of its compensation consultant, Compensia, that a mix of performance-based and time-based equity awards is a competitive market practice within our peer group, and also considering the lower say-on-pay approval level in 2018 and the discussions our management had with certain shareholders during 2018, the Compensation Committee redesigned the long-term equity incentive awards granted to our named executive officers to eliminate the use of stock options and introduce performance-based RSUs. The Compensation Committee adjusted the mix and vesting of equity awards granted to our named executive officers in 2019 as follows: (1) 50% of the value of the equity awards was in the form of performance-based RSUs, which vest at the end of three years based on the satisfaction of pre-established goals related to our total shareholder return (“TSR”) compared to the TSR of the companies in the Russell 2000 Growth Index; and (2) 50% of the value of the equity awards was in the form of time-based RSUs that vest in equal installments over three years.
In 2018, our compensation program incorporated stock options and RSUs to attract, retain, engage and focus key employees for the long term, including the realization of financial objectives. We maintain two equity incentive plans—the 2009 Equity Incentive Plan (the “2009 Equity Plan”), and the 2014 Incentive Plan. Grants to executives of equity incentive compensation are determined by the Compensation CommitteeTDCC and are designed to align a portion of the executive compensation package with the long-term interests of our shareholders. The Compensation Committee historically granted a mix of stock options and RSUs to the named executive officers. Stock options are intended to align executive incentives with those of our shareholders and hold executives accountable for generating shareholder return because they gain value only if our stock price increases. RSUs provide a share-efficient means for retaining top talent and promoting a long-term share owner perspective. The long-term equity incentive awards granted in 20182020 to Messrs. Arezone, Gale and Seidel and Mses. Hall andBurger, Muhich, Beadle, Ms. Tyrrell, were a combination of stock options and RSUs, in a ratio of 75% and 25%, respectively.
Consistent with our entrepreneurial philosophy, the Compensation Committee and Dr. Raab believed that itTohme considered the advice of its compensation consultant, Compensia. As a result, the TDCC determined the mix and vesting of equity awards granted to our named executive officers in 2020 as follows: (1) 50% of the value of the equity awards was important that the majority, if not all, of Dr. Raab’s long-term equity incentive awards be at risk, so that his long-term goals were directly aligned with the interests of our shareholders. Accordingly, all of Dr. Raab’s long-term equity incentive awards for his service as President and CEO were issued in the form of stock optionsPRSUs, which vest at the end of three years based upon the Company's relative total shareholder return ("TSR") compared to the TSR of the companies in 2018.the Russell 2000 Growth Index and pre-established thresholds; and (2) 50% of the value of the equity awards was in the form of TRSUs that vest in equal installments over three years.
20182020 Annual Grant Guidelines. The Compensation CommitteeTDCC reviews and approves the grant of stock optionsTRSUs and RSUsPRSUs to the named executive officers in amounts appropriate for an individual’s level of responsibility, ability to affect the achievement of overall corporate goals, individual performance, tenure, potential, the retentive value of prior outstanding equity awards and potential. The Compensation Committee considers the recommendation of the President and CEO in determining the equity awards granted to the other named executive officers.CEO. The Compensation Committee also reviews and considers all prior outstanding equity awards in order to assess the performance and retention incentive strength of these awards. The Compensation Committee intends the grant dateTDCC typically grants fair value of the equity incentive awards to approximate the median of our peer group, with adjustments as necessary to suitfor the individual executive.
For the 20182020 annual long-term equity incentive award grants, in order to determine the number of shares subject to each award, the Compensation CommitteeTDCC established the long-term equity incentive awarddesired grant value, for each executive by setting a target percentage of each executive’s base salary. The resulting dollar value was then multiplied byconsidering an individual performance factor normalized at 1.0, as described below, and the resultwhich was converted into a number of stock optionsTRSUs and RSUs, or stock options in the case of Dr. Raab. The number of stock options granted was determined using the Black-Scholes valuation model. The number of RSUs granted wasPRSUs at target based on the Company's stock price on the date of determination.
Individual Performance Factor. An individual performance factor adjusts the award value described above upward or downward as a multiplier based on individual performance. Rather than a strictly arithmetical calculation, the Compensation Committee determines the individual performance factor based upon the achievement of individual objectives, performance against operational metrics assigned to the executive for each quarter in the prior year as well as for the full prior year and overall contribution for the year, without ascribing specific percentages to each category.
The operational metrics are set by the Compensation Committee with input from the Operational Audit Committee and are designed to focus on improving both our short-term and long-term operating performance. Metrics such as failure rates, manufacturing efficiencies, service turnaround, and inventory turns are used as indicators of our overall strength and performance.
The Compensation Committee sets the individual strategic objectives and related weights for the President and CEO. The Compensation Committee, in consultation with the President and CEO, sets the individual strategic objectives and related weights for each of the other named executive officers. These criteria incorporate elements of individual performance and are intended to reflect the contributions made by the named executive officer toward our overall objectives for the year and the named executive officer’s individual responsibilities.
grant.
Grant Policy. Beginning in 2008, the Compensation Committee established aWe have adopted an equity award grant policy to (i) grant stock options and other equity incentives for current employees annually on the later to occur of (a) the date the award is approved and (b) the second business day following the filing of our Annual Report on Form 10-K, which usually occurs in late February or early March of each year, and (ii) grant stock options and other equity incentives for newly hired individuals on the date of hire. The annual grant of stock options and other equity incentive awards is made without regard to the timing of the release of any other material information that may not be contained in the annual earnings release, as well as without regard to whether possible positive or negative information is contained in the annual earnings release.
20182020 Annual Grants. The Compensation CommitteeTDCC established the following target long-term equity award values based on recommendations from Compensia, our compensation consultant, and market data for the 20182020 grants for Messrs. Burger, Muhich, Beadle, Ms. Tyrrell, and Dr. Raab, Messrs. Arezone, Gale and Seidel and Mses. Hall and Tyrrell, expressed as a target percentage of base salary: 200% for Dr. Raab, 100% for Ms. Hall, and 75% for Messrs. Arezone, Gale and Seidel and Ms. Tyrrell.Tohme. The Compensation CommitteeTDCC then applied individual performance factors for each executive based upon their 20172019 performance and retention considerations. The exercise price of all stock options is based on the closing price of our common stock on the date of grant. OptionsTRSUs granted in 20182020 to executives as part of the annual equity grant program are earned and vest in three annual installments, provided that the grantee is employed by us on the vesting date. RSUs granted in 2018 to executives as part of the annual equity grant program are earned and vest following the third anniversary of the grant date, provided that the grantee is employed by us on the vesting date.
The following RSUs and stock options were granted in relation to the 2018 annual equity grant:
|
| | | | | | | | | |
| Name | Grant Date | | RSUs | | Stock Options | |
| Dr. Raab | 3/20/2018 | | — |
| | 78,403 |
| |
| Mr. Seidel | 3/20/2018 | | 1,090 |
| | 8,563 |
| |
| Ms. Hall | 3/20/2018 | | 2,027 |
| | 15,917 |
| |
| Mr. Gale | 3/20/2018 | | 1,198 |
| | 9,412 |
| |
| Ms. Tyrrell | 3/20/2018 | | 924 |
| 924 |
| 7,260 |
| |
| Mr. Arezone | 3/20/2018 | | 932 |
| | 7,320 |
| |
Retirement of Dr. Raab and Compensation Arrangements with Mr. Burger
Pursuant to the letter agreement we entered into with Dr. Raab on January 9, 2019, as an incentive to retain his services through the transition period until his successor commences his service as our President and CEO, Dr. Raab’s base salary of $775,000 will continue until his retirement date. He will also be eligible to participate in our short-term incentive plan for 2019, with a target payout of 100% of his base salary. The payout to Dr. Raab under our short-term incentive plan could range from 0% to 200% of his base salary depending upon our achievement of our 2019 financial targets. In addition, in lieu of an annual grant of stock options and in consideration for Dr. Raab’s commitment to provide transition assistance to his successor for a period of six months following his retirement date, on January 9, 2019, Dr. Raab received a grant of 24,606 RSUs, which will vest six months following his retirement date. In addition, all of Dr. Raab’s outstanding unvested stock options will fully vest as of his retirement date, and he will be permitted to exercise such options over the full term of each option grant.
On April 5, 2019, we entered into an Employment Agreement with Mr. Burger (the “Employment Agreement”), which is effective as of June 17, 2019. In accordance with the terms of the Employment Agreement, Mr. Burger’s initial compensation for his service as our President and CEO will consist of the following:
Base salary - An annual base salary of $700,000.
Transition to short-term incentive plan - Because Mr. Burger will not be eligible to participate in our short-term incentive plan for 2019, he will be eligible to receive a target bonus of 100% of his base salary, pro-rated for the number of days he is employed by the Company during 2019, provided that he remains employed by the Company on December 31, 2019 and conditioned upon his achievement of certain performance goals established by the Compensation Committee and accepted in writing by Mr. Burger on April 5, 2019.
Short-term incentive plan - Mr. Burger will be eligible to participate in our short-term incentive plan beginning in 2020, with a target payout of at least 100% of his base salary.
Long-term incentive plan - Mr. Burger will be eligible to receive annual equity grants under our long-term incentive plan beginning in 2020, with a target value of at least $2 million. Such grants are expected to be awarded in a combination of performance-based RSUs and time-based RSUs, in ratio of 50% and 50%, respectively.
Sign-on equity grant - Mr. Burger will be granted a one-time sign-on RSU award on June 17, 2019 with a target value of $3 million. This equity grant will be comprised of a combination of performance-based RSUs and time-based RSUs, in a ratio of 50% and 50%, respectively. One-third of the time-based RSUs will vest on each of the first, second and third anniversaries of the grant date. The performance-based RSUsPRSUs will be earned based on how our total shareholder return, or TSR, compares to the TSR of the Russell 2000 Growth Index during the performance period from June 17, 2019February 21, 2020 to June 17, 2022February 21, 2023 (the “Relative TSR”). Up to 200% of the target number of performance-based RSUs granted to Mr. Burger may be earned based on our Relative TSR during the performance period. For those named executives who have been terminated during the year, no grants in 2020 vested.
Signing bonus - Mr. Burger will receive a one-time signing bonus equal to $500,000 payable The following TRSUs and PRSUs were granted in a lump sum in cash within 30 days following June 17, 2019. Mr. Burger will be required to repay the signing bonus if, prior to June 17, 2021: (i) he voluntarily terminates his employment with us other than for “good reason” (as defined in the Employment Agreement), (ii) the Employment Agreement expires as a result of his election not to renew the annual term of the Employment Agreement, or (iii) his employment is terminated by us for “cause” (as defined in the Employment Agreement).
Relocation expenses - Mr. Burger is entitled to receive reimbursement for the reasonable expenses he incurs in relocating to our headquarters location in Lake Mary, Florida. He will also be entitled to receive reimbursement for the reasonable expenses he incurs in returningrelation to the U.S. West Coast if he is terminated by us without cause or we elect not to renew the2020 annual term of the Employment Agreement.equity grant:
| | | | | | | | | | | | | | | | | |
| Name | Grant Date | | TRSUs | | PRSUs |
| Mr. Burger | 2/21/2020 | | 16,170 | | 16,171 |
| Mr. Muhich | 2/21/2020 | | 4,850 | | 4,851 |
| Ms. Tyrrell | 2/21/2020 | | 2,779 | | 2,780 |
| Mr. Beadle | 2/21/2020 | | 2,506 | | 2,506 |
| Dr. Tohme | 2/21/2020 | | 3,543 | | 3,543 |
Pursuant to the Employment Agreement, Mr. Burger will be a participant in our Amended and Restated Change in Control Severance Policy (the “Policy”), as described below under “—Employment Agreements and Change in Control Severance Policy,” with the additional provision that if the target amount of Mr. Burger’s annual cash bonus for the year in which a qualifying termination (as defined in the Policy) takes place is greater than the aggregate of (i) the bonus amount (as defined in the Policy) and (ii) the pro-rated bonus amount provided for in the Policy, then he will receive such target amount in lieu of the bonus amounts described in clauses (i) and (ii) above. In addition, if during the period of time beginning with a change in control (as defined in the Policy) and ending 12 months following such change in control, we terminate Mr. Burger’s employment other than for cause or his employment terminates due to his resignation for good reason, as of the date of such termination, (a) any outstanding and unvested stock options held by him will become fully exercisable, (b) any outstanding time-based equity awards held by him will become fully vested and payable and (c) any outstanding performance-based equity awards will become fully vested and payable at the greater of actual performance or target.
In addition, pursuant to the Employment Agreement, in the event Mr. Burger’s employment is terminated by us other than for “cause” or “disability”, if we elect not to renew the annual term of the Employment Agreement or if Mr. Burger terminates his employment for “good reason” (as such terms are defined in the Employment Agreement), Mr. Burger will be entitled to receive:
cash severance equal to the sum of (i) his annual base salary plus (ii) an amount equal to his target bonus for the annual performance period during which the date of termination occurs, pro-rated for the duration of the year that Mr. Burger was employed by us, payable in a lump sum cash payment within 90 days following the date of termination (provided that he has executed and not revoked a general release of claims and covenant not to sue in favor of us and complies with certain non-competition restrictions);
accelerated vesting of any outstanding and unvested stock options and time-based equity awards;
accelerated vesting of the target number of performance-based equity awards (other than stock options), pro-rated to reflect the portion of the performance period that had passed prior to Mr. Burger’s date of termination; and
if Mr. Burger elects to continue coverage under our group health plans, reimbursement, on an after-tax basis, for the amount by which the premium for such coverage exceeds the amount paid by us for such coverage for similarly situated Company executives for a period of up to 12 months.
Role of the Compensation Consultant
The Compensation CommitteeTDCC has the authority to retain consultants and to obtain advice and assistance from other external legal, accounting or other advisors, at ourthe Company's expense. The Compensation CommitteeTDCC engaged Compensia as its compensation consultant with respect to 2018, 2019 and 2020 board and executive compensation. In this role, the designated compensation consultant reports to and is instructed by the Compensation Committee.TDCC. Compensia provides no other services to the Company. The Compensation CommitteeTDCC has the sole authority to approve the fees and other terms and conditions of any engagement with its independent advisor. The Compensation CommitteeTDCC annually considers the independence of its designated compensation consultant relative to the six factors prescribed by the Securities and Exchange Commission (the “SEC”) and the Nasdaq Stock Market (“Nasdaq”), and has concluded that the work of Compensia as the Compensation Committee’sTDCC’s compensation consultant does not raise any conflict of interest.
During 2018,2020, Compensia’s services to the Compensation CommitteeTDCC were primarily with respect to consultations regarding, among other matters, (i) updated market data and compensation trends for new executive hires; (ii) updated market data and compensation trends generally; (ii)(iii) specific updated market data regarding compensation for each of our executive officer roles; and (iii)(iv) a high-level evaluation of our executive compensation program relative to best practices.
In the years when a full competitive review of our compensation programs is not done, the Compensation CommitteeTDCC retains the compensation consultant to informally update the Compensation CommitteeTDCC on matters that have been delegated to the Compensation CommitteeTDCC under its charter.
Role of the Executive Officers in Compensation Decisions
Executive officers play a role in the administration, oversight, and determination of executive compensation. At the beginning of each fiscal year, each executive officer sets annual performance goals for those employees who report directly to him or her, which may include other executive officers. Throughout the year, each executive officer reviews the performance of the employees who report directly to him or her and evaluates those employees against their performance goals. In addition, we conduct a comprehensive performance and compensation review annually in the first quarter of each year across all levels of the organization, which includes a final performance review by each executive for each employee who reports directly to him or her. Following those reviews, the executive officers recommend to the President and CEO any equity and non-equity awards, based upon the performance of those employees for the prior year and annual compensation adjustments for the current year.
The President and CEO similarly reviews and evaluates, on both an annual and mid-year basis, the employees who report directly to him, including the other named executive officers. The President and CEO also reviews and evaluates the recommendations made with respect to other executive officers and recommends any modifications that he deems appropriate. The President and CEO reviews his overall findings with the Compensation Committee,TDCC, including his review of the employees who report directly to him, and then recommends to the Compensation CommitteeTDCC equity and non-equity awards and annual compensation adjustments for all executive officers, other than himself.
Review of Peer Group Practices
The Compensation CommitteeTDCC reviews and analyzes the executive compensation program to determine whether it provides reasonable compensation at appropriate levels when compared to market and remains competitive and effective. The Compensation CommitteeTDCC periodically engages an independent compensation consultant to provide competitive market data to assist in this process and to update and advise the Compensation CommitteeTDCC on various executive compensation matters. The most recent comprehensive competitive market study conducted by Compensia was completed in the fourth quarter of 2017 and updated information was provided during 2018,2019 and 2020, including a summary study for purposes of assisting the Compensation CommitteeTDCC in making its 20182020 compensation decisions.
With respect to making its 20182020 compensation decisions, the following companies were selected by the Compensation CommitteeTDCC as our peer group:
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| Company | | Ticker | | Industry Description | |
Bel Fuse Inc.Axcelis Technologies | | BELFBACLS | | Electronic Components | |
Cohu, Inc. | | COHU | | Semiconductor Equipment | |
Control4 CorporationBadger Meter | | CTRLBMI | | Electronic Equipment and Instruments | |
| CMC Materials | | CCMP | | Semiconductor Equipment | |
| Cohu, Inc. | | COHU | | Semiconductor Equipment | |
| CTS Corporation | | CTS | | Electronic Components | |
Daktronics,FormFactor, Inc. | | DAKTFORM | | Semiconductor Equipment | |
| Knowles | | KN | | Electronic Components | |
| Novanta Inc. | | NOVT | | Electronic Equipment and Instruments | |
Electro Scientific Industries, Inc.* | | ESIO | | Electronic Equipment and Instruments | |
FormFactor, Inc. | | FORM | | Semiconductor Equipment | |
II-VI Incorporated | | IIVI | | Electronic Components | |
Nanometrics Incorporated | | NANO | | Semiconductor Equipment | |
Novanta Inc. | | NOVT | | Electronic Equipment and Instruments | |
| Photronics, Inc. | | PLAB | | Semiconductor Equipment | |
Rudolph Technologies, Inc.Rogers | | RTECROG | | Electronic Components | |
| Onto Innovation | | ONTO | | Semiconductor Equipment | |
| Thermon Group Holdings | | THR | | Electrical Components and Equipment | |
| Veeco Instruments Inc. | | VECO | | Semiconductor Equipment | |
| Vicor | | VICR | | Electrical Components and Equipment | |
| Vishay Precision Group, Inc. | | VPG | | Electronic Equipment and Instruments | |
Xcerra Corporation | | XCRA | | Semiconductor Equipment | |
| Xperi Corporation | | XPER | | Semiconductor Equipment | |
* This company was acquired subsequent to its selection to our peer group. While it was included in the review for purposes of setting 2018 compensation, it is not included in the TSR chart on page 28 of this Proxy Statement.
These companies were selected based on a variety of criteria, with a focus on being reasonably comparable to the Company in terms of industry focus, global operational scope, revenue size, and market value.
When setting compensation levels, the Compensation CommitteeTDCC reviews and considers the competitive market information obtained from these studies and intends for total direct compensation (base salary, annual incentive awards and the grant date fair value of long-term equity awards) to approximate the median of the peer group. The peer group data, however, is not determinative of the executives’ compensation; instead, the Compensation CommitteeTDCC uses the peer group data as one of many inputs in its deliberations, which also include discussions of economic and industry conditions, current and anticipated Company performance, individual executive performance and potential performance, and internal pay equity. In considering these and other factors, the Compensation CommitteeTDCC does not seek to specifically weight each factor but rather considers them in the aggregate and exercises judgment.
Employment Agreements and Change in Control Severance Policy
Employment Agreements. We have entered into employment agreements with Messrs. Seidel and Gale and Ms. Hall that provide for severance benefits. We also entered into an employment agreement with Mr. ArezoneBurger that provided for severance benefits. The employment agreement we entered into with Mr. Burger on April 5, 2019, which is effective as of June 17, 2019, provides for severance benefits. As described in greater detail under “Potential Payments Upon Termination or Change in Control” on page 4645 of this Proxy Statement, and forpursuant to this employment agreement, Mr. Burger above under “Retirement of Dr. Raab and Compensation Arrangements with Mr. Burger,” pursuant to the employment agreements, Messrs. Seidel and Gale and Ms. Hall are, Mr. Arezone was, and Mr. Burger will be,is entitled to severance benefits in the event of the executive’s termination of his employment by us other than for cause or disability, by our providing written notice of non-extension of the employment period set forth in the agreement or resignation by the executive officerMr. Burger for good reason. Severance protection plays an important role in attracting, motivating and retaining highly talented executives.
Amended and Restated Change in Control Severance Policy. During 2018, Messrs. Seidel and Gale and Ms. Hall wereMr. Burger is also covered by our Change in Control Severance Policy, which was amended and restated in April 2015 (the “Amended and Restated Change in Control Severance Policy”) and entitles certain employees to severance benefits inor the event their employment with us is terminated without cause or for good reason within twelve months following a change in control. Upon his commencement of service as our President and CEO, Mr. Burger will be covered by our Amended and Restated Change in Control SeveranceCIC Policy, with the additional provision set forth in his employment agreement as described above under “Retirementthat if the target amount of Dr. Raab and Compensation Arrangements with Mr. Burger.” The Compensation Committee believes that this “double trigger” provides appropriate protections to officer-level employees and encourages retentionBurger’s annual cash bonus for the year in situations that may resultwhich a qualifying termination (as defined in CIC Policy) takes place is greater than the aggregate of (i) the bonus amount (as defined in the lossCIC Policy) and (ii) the pro-rated bonus amount provided for in the Policy, then he will receive such target amount in lieu of their jobs. Thethe bonus amounts described in clauses (i) and (ii) above. In addition, if during the period of time beginning with a change in control benefits are intended to retain(as defined in the executives during the time of an actual or threatenedCIC Policy) and ending 12 months following such change in control, the Company terminates Mr. Burger’s employment other than for cause or his employment terminates due to his resignation for good reason, as of the date of such termination, (a) any outstanding and ensure that executives are able to devote their entire attention to maximizing shareholder valueunvested stock options held by him will become fully exercisable, (b) any outstanding time-vesting, stock-based awards held by him will become fully vested and safeguarding employee interests.payable and (c) any outstanding performance-vesting stock-based awards will become fully vested and payable at the greater of actual performance or target.
Executive Severance Plan. On February 14, 2019, the Board adopted the FARO Technologies, Inc. Executive Severance Plan (the “Executive Severance Plan”), which provides eligible employees at the senior vice president level or above who are not otherwise covered by an individual employment agreement that provides severance benefits with benefits in the event they are involuntarily terminated by us other than for cause or as a result of his or her death or disability. This plan was adopted to formalize severance benefits for those eligible employees. Dr. RaabMr. Muhich, Mr. Beadle and Ms. Tyrrell are participants in the Executive Severance Plan.
Transition Agreement with Mr. Arezone. Effective as of March 5, 2018, Mr. Arezone stepped down from his role as Chief Commercial Officer due to his desire to relocate to be closer to his family and served as our Senior Vice President, Corporate Strategy & Initiatives from March 5, 2018 until June 5, 2018. In connection with his reduced role, on March 5, 2018, we entered into a letter agreement with Mr. Arezone terminating his employment agreement. Pursuant to the terms of the letter agreement, Mr. Arezone also acknowledged and agreed that effective as of March 5, 2018, he Dr. Tohme was no longer a participant under our Change in Controlthe Executive Severance Policy. On June 5, 2018, we entered into the Transition Agreement with Mr. Arezone, pursuant to which Mr. Arezone agreed to resign fromPlan up until his officer position and to serve as an at-will employee through November 30, 2018, and we agreed to provide him with certain consideration during the transition period and continued vesting of certain equity awards following the end of the transition period.termination in 2020.
For more information on Messrs. Seidel’s and Gale’s and Ms. Hall’s employment agreements, our agreements with Mr. Arezone, the Amended and Restated Change in Control SeveranceCIC Policy and the Executive Severance Plan, see “Potential Payments Upon Termination or Change in Control” beginning on page 4641 of this Proxy Statement.
Policies Regarding Termination and/or Change-in-Control Benefits Payable to New Hires. It is the Compensation Committee’sTDCC’s intention that it will provide change-in-control protection to newly-hired executives in the form of (i) acceleration of vesting for outstanding equity awards, and (ii) severance benefits under the Amended and Restated Change in Control SeveranceCIC Policy. The Compensation CommitteeTDCC recognizes, however, that in the context of a change-in-control transaction, certain payments, such as retention bonuses, may be advisable. Accordingly, the Compensation CommitteeTDCC retains the discretion to enter into such arrangements in the event of an actual change-in-control transaction.
Executive Benefits and Perquisites
We provide limited perquisites and personal benefits to our named executive officers, including, among other items, relocation and temporary housing expense benefits for newly hired executive officers. We do not provide pension arrangements, post-retirement health coverage, or similar benefits for our executives.
The named executive officers participate in our Vice President and Above Life Insurance Plan (the “Life Insurance Plan”) and Executive Long-Term and Short-Term Disability Plans. Under the Life Insurance Plan, we pay all required premiums for life insurance on executive officers, which includes the named executive officers, until the executive officer reaches age 65. The named executive officers will also have a life insurance benefit of three (3) times their annual salary up to a maximum benefit of $750,000. After age 65, benefits are reduced as follows:
•35% reduction after the age of 65;
•an additional 25% of the original amount at the age of 70; and
•an additional 15% of the original amount at the age of 75.
Our Long-Term Disability Plan is intended to replace a reasonable amount of an executive officer’s income upon disability. The plan provides a total benefit in the event of a qualifying disability of up to 60% of pre-disability income, with a maximum benefit of $15,000 per month paid up until the age of 65 or longer (depending on when the participant becomes disabled).
The named executive officers also participate in various health and welfare programs generally available to all employees. All employees, including named executive officers, who participate in our 401(k) plan are eligible to receive a 100% match on the first 1% of compensation deferred and a 50% match on each additional dollar of compensation deferred, up to a maximum of 6% of their compensation, not to exceed the maximum allowed by the Internal Revenue Service.
Corporate Tax and Accounting Considerations
Historically, Section 162(m) of the Code generally disallowed a tax deduction to public companies for compensation over $1,000,000 paid to their chief executive officer and the three other highest paid executive officers, other than the chief financial officer. Qualifying performance-based compensation was not subject to the deduction limit if certain requirements were met. With the passage of the U.S. Tax Cuts and Jobs Act of 2017, Section 162(m) was amended to repeal the performance-based compensation exemption from the deduction limit and to include compensation paid to chief financial officers, effective for taxable years beginning after December 31, 2017. As a result, compensation paid in 2018 and later years to our named executive officers in excess of $1 million willis not be deductible unless it qualifies for transitional relief applicable to certain binding, written performance-based compensation arrangements that were in place as of November 2, 2017. The Compensation CommitteeTDCC considers tax deductibility when making executive compensation decisions, but reserves the right to award compensation that is not fully tax deductible when viewed as necessary to accomplish other compensation program objectives. The TDCC believes that our shareholders’ interests are best served if its discretion and flexibility in awarding compensation is not restricted, even though some compensation may result in non-deductible compensation expense.
Stock Ownership Guidelines
In February 2008, the Compensation CommitteeThe TDCC has adopted stock ownership guidelines to directly align the interests of executive officers with the interests of our shareholders. Under these guidelines, as updated by the Compensation Committee in 2014, the President and CEO is required to own stock having a value equal to six times his annual base salary and the other executive officers are required to own stock having a value equal to two times their annual base salary. The ownership requirement may be satisfied through holdings of (i) equity awards granted by the Company, the values of which are calculated based on the higher of (a) the grant date fair value of the equity awards or (b) the then-current value of the equity awards on the date compliance is determined, and/or (ii) shares of common stock purchased by the executive independently, the values of which are calculated based on the closing price of our common stock on the purchase date. Each executive officer must comply with the minimum ownership requirements within five years after he or she becomes subject to the policy or the executive will be precluded from subsequent sales and transfer of shares and options awarded to the executive under our equity incentive plans. The Compensation CommitteeTDCC periodically reviews the status of each executive’s equity holdings relative to our stock ownership guidelines. Our current executive officers are in compliance with the policy as of March 29, 2019.policy.
Compensation Clawback Policy
In April 2011, the Compensation CommitteeTDCC adopted a clawback policy with respect to the performance-based compensation awarded to our executive officers. The clawback policy requires that, in the event of a restatement of our financial statements that reduces the amount of performance-based compensation an executive officer would have received under the restated results, and if a court determines that an executive officer engaged in fraud or intentional illegal conduct that materially contributed to the need for the restatement, an independent committee of the Board must seek, subject to certain exceptions, to recover from that executive officer the after-tax difference between the performance-based compensation actually awarded to the officer and the amount the officer would have received under the restated financials.
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), all public companies will be required to adopt a formal recoupment policy relating to incentive compensation impacted by restated financial statements, and the recovery of impacted compensation will not be contingent on any person’s misconduct. The SEC has not yet issued final regulations describing the specific requirements for the policy required under the Dodd-Frank Act. If necessary, we will revise our clawback policy in accordance with the new requirements after final regulations are released.
Insider Trading Policy
In 2017, the Nominating, Governance and NominatingSustainability Committee amended our Insider Trading Policy to prohibit hedging and pledging of Company securities by our directors and executive officers. None of our directors or executive officers have any shares that are pledged to third parties. Under FARO’s Insider Trading Policy, all directors, officers and employees of the Company and their respective household members (collectively, “Covered Persons”), including any entities influenced or controlled by a Covered Person, are prohibited from engaging in short sales or hedging transactions involving FARO securities, including forward sale or purchase contracts, equity swaps or exchange funds. Covered Persons are also prohibited from engaging in puts, calls or other options or derivative instruments involving FARO securities. Further, we do not allow Covered Persons to pledge FARO securities at any time, which includes having FARO stock in a margin account or using FARO stocks as collateral for a loan.
Talent, Development & Compensation Committee Report
The Compensation CommitteeTDCC has the overall responsibility of evaluating the performance and determining the compensation of the President and CEO and approving the compensation structure for the Company’s other executive officers. In fulfilling its responsibilities, the Compensation CommitteeTDCC has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on such review and discussion, the Compensation CommitteeTDCC recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement for the 20192021 Annual Meeting of Shareholders for filing with the SEC, and incorporated by reference into our Annual Report on Form 10-K for the year ended December 31, 2018,2020, as filed with the SEC on February 21, 2019.17, 2021.
Talent Development & Compensation Committee:
John E. CaldwellYuval Wasserman (Chair)
Lynn Brubaker
Stephen R. Cole
John Donofrio
Jeffrey A. Graves, Ph.D.
Yuval WassermanJohn Caldwell
Jeroen van Rotterdam
Summary Compensation Table
The following table sets forth information concerning compensation paid to or earned by our named executive officers for the years ended December 31, 2018,2020, and, if applicable, December 31, 20172019 and December 31, 2016.2018.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name and Principal Position | Year | | Salary
($)(1) | | Bonus
($)(2) | | Stock
Awards
($)(3) | | Option
Awards
($)(3) | | Non-Equity
Incentive Plan
Compensation
($)(4) | | All Other
Compensation
($)(5) | | Total
($) |
| Michael D. Burger | 2020 | | 700,000 | | | — | | | 2,299,778 | | | — | | | 480,900 | | | 26,778 | | | 3,507,456 | |
President and Chief Executive Officer | 2019 | | 350,000 | | | 500,000 | | | 3,653,082 | | | — | | | 377,808 | | | 77,529 | | | 4,958,419 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Allen Muhich | 2020 | | 376,223 | | | — | | | 689,847 | | | — | | | 170,640 | | | 14,477 | | | 1,251,187 | |
| Chief Financial Officer | 2019 | | 144,119 | | | 200,000 | | | 1,150,197 | | | — | | | 104,388 | | | 7,360 | | | 1,606,064 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Katrona Tyrrell | 2020 | | 294,359 | | | — | | | 395,310 | | | — | | | 82,160 | | | 11,475 | | | 783,304 | |
| Chief People Officer | 2019 | | 288,347 | | | — | | | 283,302 | | | — | | | — | | | 8,483 | | | 580,132 | |
| 2018 | | 275,635 | | | — | | | 56,641 | | | 170,114 | | | 14,219 | | | 7,053 | | | 523,662 | |
| | | | | | | | | | | | | | | |
| Kevin Beadle | 2020 | | 310,000 | | | — | | | 356,403 | | | — | | | 127,782 | | | 11,454 | | | 805,639 | |
| Senior Vice President of Sales | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Yazid Tohme, Ph.D | 2020 | | 331,022 | | | — | | | 503,885 | | | — | | | — | | | 389,767 | | | 1,224,674 | |
| Former Chief R&D Officer | 2019 | | 368,308 | | | — | | | 362,231 | | | — | | | — | | | 8,723 | | | 739,262 | |
| | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| Name and Principal Position | Year | | Salary ($)(1) | | Bonus ($)(2) | | Stock Awards ($)(3) | | Option Awards ($)(3) | | Non-Equity Incentive Plan Compensation ($)(4) | | All Other Compensation ($)(5) | | Total ($) |
| Simon Raab, Ph.D. (6) | 2018 | | 770,673 |
| | — |
| | — |
| | 1,837,110 |
| | 89,100 |
| | 7,038 |
| | 2,703,921 |
|
President and Chief Executive Officer | 2017 | | 701,923 |
| | 190,606 |
| | — |
| | 1,562,499 |
| | — |
| | 9,697 |
| | 2,464,725 |
|
| 2016 | | 590,000 |
| | 87,500 |
| | 149,968 |
| | 999,992 |
| | — |
| | 8,866 |
| | 1,836,326 |
|
| | | | | | | | | | | | | | | | |
| Robert E. Seidel | 2018 | | 322,058 |
| | — |
| | 66,817 |
| | 200,645 |
| | 15,364 |
| | 11,210 |
| | 616,094 |
|
| Chief Financial Officer | 2017 | | 258,500 |
| | 24,380 |
| | 53,691 |
| | 161,156 |
| | — |
| | 10,960 |
| | 508,687 |
|
| | 2016 | | 195,789 |
| | 22,575 |
| | 19,929 |
| | 59,988 |
| | — |
| | 6,554 |
| | 304,835 |
|
| | | | | | | | | | | | | | | | |
| Kathleen J. Hall | 2018 | | 416,539 |
| | — |
| | 124,255 |
| | 372,961 |
| | 26,565 |
| | 14,845 |
| | 955,165 |
|
| Chief Operating Officer | 2017 | | 395,192 |
| | 50,600 |
| | 114,050 |
| | 342,173 |
| | — |
| | 14,598 |
| | 916,613 |
|
| | 2016 | | 366,865 |
| | 78,750 |
| | 105,430 |
| | 317,279 |
| | — |
| | 12,300 |
| | 880,624 |
|
| | | | | | | | | | | | | | | | |
| Jody S. Gale | 2018 | | 360,096 |
| | — |
| | 73,437 |
| | 220,538 |
| | 16,652 |
| | 8,078 |
| | 678,801 |
|
Senior Vice President, General Counsel and Secretary | 2017 | | 351,000 |
| | 32,292 |
| | 74,559 |
| | 223,756 |
| | — |
| | 7,848 |
| | 689,455 |
|
| 2016 | | 339,055 |
| | 49,140 |
| | 65,803 |
| | 198,008 |
| | — |
| | 7,910 |
| | 659,916 |
|
| | | | | | | | | | | | | | | | |
| Katrona Tyrrell | 2018 | | 275,635 |
| | — |
| | 56,641 |
| | 170,114 |
| | 14,219 |
| | 7,053 |
| | 523,662 |
|
| Chief People Officer | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Joseph Arezone | 2018 | | 279,960 |
| | — |
| | 207,699 |
| | 642,679 |
| | — |
| | 132,130 |
| | 1,262,468 |
|
| Former Chief Commercial Officer (7) | 2017 | | 385,192 |
| | 44,850 |
| | 111,182 |
| | 333,556 |
| | — |
| | 28,188 |
| | 902,968 |
|
| 2016 | | 360,326 |
| | 76,650 |
| | 105,430 |
| | 317,279 |
| | — |
| | 95,920 |
| | 955,605 |
|
| | | | | | | | | | | | | | | | |
| |
(1) | Salary adjustments, if any, are applied each year in March. Accordingly, the amounts in this column, which represent actual amounts earned in the applicable fiscal year, may differ from the base salary amounts discussed in the Compensation Discussion and Analysis. |
| |
(2) | (2)The amounts shown in this column for 2017 represent the discretionary cash bonus awarded to the named executive officers for 2017 and paid in 2018, and for 2016 represent the discretionary cash bonus awarded to the named executive officer for 2016 and paid in 2017. |
| |
(3) | Reflects the grant date fair value of stock and option awards granted in the applicable year, determined in accordance with FASB ASC Topic 718. The assumptions used in the calculation of the grant date fair values of the option awards and RSUs are included in Note 14 (“Stock Compensation Plans”) to our audited financial statements for the fiscal year ended December 31, 2018, included in our Annual Report on Form 10-K filed with the SEC on February 21, 2019. |
| |
(4) | The amounts shown in this column reflect the named executive officer’s annual short-term incentive awards earned during the reported year but paid in the following year. |
|
| | | | | | | | | | | | | | | | | | | |
| | | Short-Term Disability Premiums ($) | | Long-Term Disability Premiums ($) | | Life Insurance Premiums ($) | | 401(k) Match ($) | | Tax Equalization Payments ($) | | | Total ($) |
| Dr. Raab | | 684 |
| | 503 |
| | 351 |
| | 5,500 |
| | — |
| | | 7,038 |
|
| Mr. Seidel | | 684 |
| | 361 |
| | 540 |
| | 9,625 |
| | — |
| | | 11,210 |
|
| Ms. Hall | | 684 |
| | 396 |
| | 540 |
| | 13,225 |
| | — |
| | | 14,845 |
|
| Mr. Gale | | 684 |
| | 379 |
| | 540 |
| | 6,475 |
| | — |
| | | 8,078 |
|
| Ms. Tyrrell | | 684 |
| | 329 |
| | 540 |
| | 5,500 |
| | — |
| | | 7,053 |
|
| Mr. Arezone | | 684 |
| | 326 |
| | 540 |
| | 3,463 |
| | 126,387 |
| | | 131,400 |
|
The amount shown in this column for Mr. Arezone for 2018 also includes COBRA reimbursement of $730 pursuantrepresent sign-on bonuses paid to his Transition Agreement.
| |
(6) | The amounts shown for Dr. Raab include the following compensation he received for his service as the Chairman of the Board and as a member of the Board of Directors in 2016. In February 2017, after evaluating Dr. Raab’s role as our President and CEO and as a Director and Chairman of the Board, the Compensation Committee approved an increase of Dr. Raab’s base salary to $750,000, while removing his eligibility to receive the director and Chairman cash retainers and equity grants: |
the applicable named executive officer.
|
| | | | |
| | | 2016 |
| Fees Earned or Paid in Cash (reported in the “Salary” column) | | $ | 90,000 |
|
| Stock Awards (annual director restricted stock grants) | | 149,968 |
|
| Total Director Compensation | | $ | 239,968 |
|
(4)The amounts shown in this column reflect the named executive officer’s annual short-term incentive or performance awards earned during the reported year but paid in the following year. Dr. Tohme was not eligible to receive a short-term incentive award in 2020.
(5)Includes for 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Short-Term
Disability
Premiums ($) | | Long-Term
Disability
Premiums ($) | | Life Insurance
Premiums ($) | | 401(k)
Match ($) | | Relocation Costs ($) | | Severance Benefits ($) | | Total ($) |
| Mr. Burger | | 710 | | | 919 | | | 647 | | | 9,975 | | | 14,527 | | | — | | | 26,778 | |
| Mr. Muhich | | 710 | | | 568 | | | 647 | | | — | | | 12,552 | | | — | | | 14,477 | |
| Ms. Tyrrell | | 710 | | | 478 | | | 647 | | | 9,640 | | | — | | | — | | | 11,475 | |
| Mr. Beadle | | 710 | | | 499 | | | 647 | | | 9,598 | | | — | | | — | | | 11,454 | |
| Dr. Tohme | | 605 | | | 503 | | | 522 | | | 7,037 | | | — | | | 381,100 | | | 389,767 | |
| |
(7) | The amounts shown for Mr. Arezone for 2018 in the Stock Awards and Option Awards columns include the $471,171 and $150,567 incremental fair value of the stock options and RSUs, respectively, granted to Mr. Arezone in 2016 and 2017 that were modified in 2018 so they continue to vest in accordance with their respective vesting schedules as if his employment had continued in effect through and including each applicable vesting date pursuant to his Transition Agreement. Additionally, the amounts shown for Mr. Arezone for 2018 in the Stock Awards and Option Awards columns include the grant date fair value of the stock options and RSUs granted to Mr. Arezone in 2018 that were forfeited upon his termination in November 2018. |
Chief Executive Officer Pay Ratio
We are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Dr. Raab,Mr. Burger, our President and CEO:
For 2018,2020, our last completed fiscal year:
▪the median of the annual total compensation of all employees for our Company (other than our President and CEO) was $108,547; and
| |
▪ | the median of the annual total compensation of all employees of our Company (other than our President and CEO) was $54,068; and |
| |
▪ | the annual total compensation of our President and CEO, as presented in the Summary Compensation Table, was $2,703,921. |
▪the annual total compensation of our President and CEO, was $3,507,456.
Based on this information for 2018,2020, we reasonably estimate that the ratio of our President and CEO’s annual total compensation to the annual total compensation of our median employee was 50:30:1. Our pay ratio estimate has been calculated in a manner consistent with Item 402(u) of Regulation S-K.
The median employee was identified by reviewing the base salary and wages actually paid during 2018the 12-month period ending December 31, 2020 to all of our employees, excluding ourcurrent President and CEO,Chief Executive Officer, who werewas employed by the Company onfor the year ended December 31, 2018.2020. All of our employees as of December 31, 2020 were included, whether employed on a full-time, part-time or seasonal basis. Adjustments were made to annualize the compensation of our employees who were not employed by the Company for the entire year.
After identifying the median employee based on base salary and wages, we then determined that median employee’s 20182020 annual total compensation, including any perquisites and other benefits, using the same methodology used to determine the annual total compensation of our President and CEO for purposes of the Summary Compensation Table. The total compensation of our median employee was determined to be $54,068.$108,547. This total compensation amount for our median employee was then compared to the total compensation of our current President and CEO, from the amount disclosed above in the Summary Compensation Table, of $2,703,921.Table. The elements included in the President and CEO’sCEO's total compensation are fully discussed above in the footnotes to the Summary Compensation Table. For the year ended December 31, 2020, the total compensation for our President and CEO, Mr. Burger, was $3,507,456, as reported in the “Total” column of the Summary Compensation Table on page 36.
20182020 Grants of Plan-Based Awards
The following table summarizes grants of plan-based awards made to each of the named executive officers during 2018:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Grant
Date | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | | Grant Date
Fair Value
of Stock ($)(4) |
| | |
Threshold
($) | | Target
($) | | Maximum
($) | | Threshold (#) | | Target (#) | | Maximum (#) | | |
| Mr. Burger | | — | | | 175,000 | | | 350,000 | | | 525,000 | | | | | | | | | | | |
| | 2/21/2020 | | | | | | | | | | | | | | 16,170 | | | 999,953 | |
| | 2/21/2020 | | | | | | | | 4,042 | | | 16,171 | | | 32,342 | | | | | 1,299,825 | |
| Mr. Muhich | | — | | | 62,096 | | 124,192 | | | 186,288 | | | | | | | | | | | |
| | 2/21/2020 | | | | | | | | | | | | | | 4,850 | | | 299,924 | |
| | 2/21/2020 | | | | | | | | 1,212 | | | 4,851 | | | 9,702 | | | | | 389,923 | |
| Ms. Tyrrell | | — | | | 29,898 | | | 59,796 | | | 89,695 | | | | | | | | | | | |
| | 2/21/2020 | | | | | | | | | | | | | | 2,779 | | | 171,853 | |
| | 2/21/2020 | | | | | | | | 695 | | | 2,780 | | | 5,560 | | | | | 223,456 | |
| Mr. Beadle | | — | | | 46,500 | | | 93,000 | | | 139,500 | | | | | | | | | | | |
| | 2/21/2020 | | | | | | | | | | | | | | 2,506 | | | 154,971 | |
| | 2/21/2020 | | | | | | | | 626 | | | 2,506 | | | 5,012 | | | | | 201,432 | |
| Dr. Tohme | | — | | | 38,110 | | | 76,220 | | | 114,330 | | | | | | | | | | | |
| | 2/21/2020 | | | | | | | | | | | | | | 3,543 | | | 219,099 | |
| | 2/21/2020 | | | | | | | | 885 | | | 3,543 | | | 7,086 | | | | | 284,786 | |
(1)Reflects possible payout opportunities under our short-term cash incentive award program. These amounts are annualized possible payout opportunities. Primarily as a result of the COVID-19 pandemic and in light of the Company's year-to-date results through the second quarter of 2020, the TDCC reviewed the original STIP goals to determine whether those goals were realistically achievable and would continue to provide appropriate incentive compensation opportunities. As a result of this review, on August 4, 2020, the TDCC concluded that retaining the original STIP goals no longer provided realistic incentives and new goals should be established for each metric with consideration to the second half of fiscal 2020's forecast. Additional information about our short-term cash incentive award program and the changes due to COVID-19 are included in the Compensation Discussion and Analysis under “Executive Compensation Components—Short-Term Incentives.”
(2)For the named executive officers reflects possible payout opportunities of performance-based RSUs granted under the 2014 Incentive Plan, as described in the Compensation Discussion and Analysis under “Long-Term Incentives.”
(3)Reflects time-based RSUs granted under the 2014 Incentive Plan, as described in the Compensation Discussion and Analysis.
(4)Determined pursuant to FASB ASC Topic 718. The assumptions used in the calculation of the grant date fair values of the PRSUs and TRSUs are included in Note 14 (“Stock Compensation Plans”) to our audited financial statements for the fiscal year ended December 31, 2020, included in our Annual Report on Form 10-K filed with the SEC on February 17, 2021.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Grant Date | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | | All Other Stock Awards: Number of Shares or Units of Stock (#)(2) | | All Other Option Awards: Number of Securities Underlying Options (#)(3) | | Exercise or Base Price of Option Awards ($/Sh) | | Grant Date Fair Value of Stock and Option Awards ($)(4) |
| | |
Threshold ($) | | Target ($) | | Maximum ($) | | |
| | | | | | | | | | | | | | | | | |
| Dr. Raab | | — |
| | 193,750 |
| | 775,000 |
| | 1,550,000 |
| | — |
| | — |
| | — |
| | — |
|
| | | 3/20/2018 |
| | — |
| | — |
| | — |
| | — |
| | 78,403 |
| | 61.30 |
| | 1,837,110 |
|
| Mr. Seidel | | — |
| | 33,400 |
| | 133,600 |
| | 267,200 |
| | — |
| | — |
| | — |
| | — |
|
| | | 3/20/2018 |
| | 0 |
| | — |
| | — |
| | 1,090 |
| | — |
| | — |
| | 66,817 |
|
| | | 3/20/2018 |
| | 0 |
| | — |
| | — |
| | — |
| | 8,563 |
| | 61.30 |
| | 200,645 |
|
| Ms. Hall | | — |
| | 52,500 |
| | 210,000 |
| | 420,000 |
| | — |
| | — |
| | — |
| | — |
|
| | | 3/20/2018 |
| | 0 |
| | — |
| | — |
| | 2,027 |
| | — |
| | — |
| | 124,255 |
|
| | | 3/20/2018 |
| | 0 |
| | — |
| | — |
| | — |
| | 15,917 |
| | 61.30 |
| | 372,961 |
|
| Mr. Gale | | — |
| | 36,200 |
| | 144,800 |
| | 289,600 |
| | — |
| | — |
| | — |
| | — |
|
| | | 3/20/2018 |
| | 0 |
| | — |
| | — |
| | 1,198 |
| | — |
| | — |
| | 73,437 |
|
| | | 3/20/2018 |
| | 0 |
| | — |
| | — |
| | — |
| | 9,412 |
| | 61.30 |
| | 220,538 |
|
| Ms. Tyrrell | | — |
| | 28,100 |
| | 112,400 |
| | 224,800 |
| | — |
| | — |
| | — |
| | — |
|
| | | 3/20/2018 |
| | 0 |
| | — |
| | — |
| | 924 |
| | — |
| | — |
| | 56,641 |
|
| | | 3/20/2018 |
| | 0 |
| | — |
| | — |
| | — |
| | 7,260 |
| | 61.30 |
| | 170,114 |
|
| Mr. Arezone | | — |
| | 19,746 |
| | 78,984 |
| | 157,968 |
| | — |
| | — |
| | — |
| | — |
|
| | | 3/20/2018 |
| | 0 |
| | — |
| | — |
| | 932 |
| | — |
| | — |
| | 57,132 |
|
| | | 3/20/2018 |
| | 0 |
| | — |
| | — |
| | — |
| | 7,320 |
| | 61.30 |
| | 171,508 |
|
| |
(1) | Reflects possible payout opportunities under our short-term cash incentive award program. Additional information about our short-term cash incentive award program is included in the Compensation Discussion and Analysis under “Executive Compensation Components—Short-Term Incentives.” Under Mr. Arezone’s Transition Agreement, he was not eligible to receive a short-term incentive payout for 2018. |
| |
(2) | For named executive officers other than Dr. Raab, reflects time-based RSUs granted under the 2014 Incentive Plan, as described in the Compensation Discussion and Analysis. |
| |
(3) | Reflects time-based stock options granted under the 2014 Incentive Plan, as described in the Compensation Discussion and Analysis. |
| |
(4) | Determined pursuant to FASB ASC Topic 718. The assumptions used in the calculation of the grant date fair values of the option awards and RSUs are included in Note 14 (“Stock Compensation Plans”) to our audited financial statements for the fiscal year ended December 31, 2018, included in our Annual Report on Form 10-K filed with the SEC on February 21, 2019. |
Outstanding Equity Awards at 20182020 Fiscal Year-End
The following table sets forth information on outstanding option and stock awards held by the named executive officers as of December 31, 2018.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards |
| Name | Number of Securities
Underlying Unexercised
Options (#) Exercisable | | Number of Securities
Underlying Unexercised
Options (#) Unexercisable | | Option Exercise
Price
($) | | Option
Expiration
Date | | Number of Shares
or Units of Stock
That Have Not
Vested (#) | | Market Value
of Shares or
Units of Stock
That Have
Not Vested ($)(1) | | Equity Incentive Plan Awards: Number of Unearned Shares or Units or Other Rights That Have Not Vested (#) | | Equity Incentive Plan: Market or Payout Value of Unearned Shares or Units or Other Rights That Have Not Vested ($) (1) |
| Mr. Burger | — | | | — | | | — | | | — | | | 20,842 | | (2) | 1,472,070 | | | | | |
| | | | | | | | | 16,170 | | (3) | 1,142,087 | | | | | |
| | | | | | | | | | | | | 31,263 | | (4) | 2,208,106 | |
| | | | | | | | | | | | | 16,171 | | (5) | 1,142,158 | |
| Mr. Muhich | — | | | — | | | — | | | — | | | 6,294 | | (6) | 444,545 | | | | | |
| | | | | | | | | 4,850 | | (3) | 342,556 | | | | | |
| | | | | | | | | | | | | 9,441 | | (7) | 666,818 | |
| | | | | | | | | | | | | 4,851 | | (5) | 342,626 | |
| Ms. Tyrrell | 6,495 | | | — | | | 34.55 | | | 3/3/2024 | | — | | | — | | | | | |
| 4,840 | | | 2,420 | | (8) | 61.30 | | | 3/20/2025 | | — | | | — | | | | | |
| — | | | — | | | — | | | — | | | 924 | | (9) | 65,262 | | | | | |
| | | | | | | | | 2,779 | | (3) | 196,281 | | | | | |
| — | | | — | | | — | | | — | | | 1,742 | | (10) | 123,037 | | | | | |
| | | | | | | | | | | | | 2,780 | | (11) | 196,352 | |
| — | | | — | | | — | | | — | | | | | | | 2,613 | | (5) | 184,556 | |
| Mr. Beadle | — | | | — | | | — | | | — | | | 2,506 | | (3) | 176,999 | | | | | |
| | | | | | | | | 2,017 | | (12) | 142,461 | | | | | |
| | | | | | | | | — | | | — | | | 3,025 | | (13) | 213,656 | |
| | | | | | | | | — | | | — | | | 2,506 | | (5) | 176,999 | |
| Dr. Tohme | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
|
| | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards |
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | Option Exercise Price ($) | | Option Expiration 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) | |
| Dr. Raab | 37,908 |
| | — |
| | 29.98 |
| | 12/4/2022 |
| | — |
| | — |
| |
| | 69,475 |
| | — |
| | 39.05 |
| | 12/7/2023 |
| | — |
| | — |
| |
| | 36,083 |
| | 72,168 |
| (2) | 34.55 |
| | 3/3/2024 |
| | — |
| | — |
| |
| | — |
| | 78,403 |
| (3) | 61.30 |
| | 3/20/2025 |
| | — |
| | — |
| |
| Mr. Seidel | 2,000 |
| | — |
| | 43.33 |
| | 5/12/2021 |
| | — |
| | — |
| |
| | 3,000 |
| | — |
| | 59.97 |
| | 2/27/2022 |
| | — |
| | — |
| |
| | 3,231 |
| | 1,616 |
| (4) | 33.05 |
| | 3/2/2023 |
| | — |
| | — |
| |
| | 3,721 |
| | 7,444 |
| (2) | 34.55 |
| | 3/3/2024 |
| | — |
| | — |
| |
| | — |
| | 8,563 |
| (3) | 61.30 |
| | 3/20/2025 |
| | — |
| | — |
| |
| | — |
| | — |
| | — |
| | — |
| | 1,554 |
| (5) | 63,155 |
| |
| | — |
| | — |
| | — |
| | — |
| | 1,090 |
| (6) | 44,298 |
| |
| Ms. Hall | 3,552 |
| | — |
| | 57.54 |
| | 2/28/2021 |
| | — |
| | — |
| |
| | 4,610 |
| | — |
| | 59.97 |
| | 2/27/2022 |
| | — |
| | — |
| |
| | — |
| | 8,546 |
| (4) | 33.05 |
| | 3/2/2023 |
| | — |
| | — |
| |
| | 6,928 |
| | 15,804 |
| (2) | 34.55 |
| | 3/3/2024 |
| | — |
| | — |
| |
| | — |
| | 15,917 |
| (3) | 61.30 |
| | 3/20/2025 |
| | — |
| | — |
| |
| | — |
| | — |
| | — |
| | — |
| | 3,190 |
| (7) | 129,642 |
| |
| | — |
| | — |
| | — |
| | — |
| | 3,301 |
| (5) | 134,153 |
| |
| | — |
| | — |
| | — |
| | — |
| | 2,027 |
| (6) | 82,377 |
| |
| Mr. Gale | 2 |
| | — |
| | 59.97 |
| | 2/27/2022 |
| | — |
| | — |
| |
| | — |
| | 5,333 |
| (4) | 33.05 |
| | 3/2/2023 |
| | — |
| | — |
| |
| | — |
| | 10,335 |
| (2) | 34.55 |
| | 3/3/2024 |
| | — |
| | — |
| |
| | — |
| | 9,412 |
| (3) | 61.30 |
| | 3/20/2025 |
| | — |
| | — |
| |
| | — |
| | — |
| | — |
| | — |
| | 1,991 |
| (7) | 80,914 |
| |
| | — |
| | — |
| | — |
| | — |
| | 2,158 |
| (5) | 87,701 |
| |
| | — |
| | — |
| | — |
| | — |
| | 1,198 |
| (6) | 48,687 |
| |
| Ms. Tyrrell | — |
| | 6,495 |
| (2) | 34.55 |
| | 3/3/2024 |
| | — |
| | — |
| |
| | — |
| | 7,260 |
| (3) | 61.30 |
| | 3/20/2025 |
| | — |
| | — |
| |
| | — |
| | — |
| | — |
| | — |
| | 1,356 |
| (5) | 55,108 |
| |
| | — |
| | — |
| | — |
| | — |
| | 924 |
| (6) | 37,551 |
| |
| Mr. Arezone | — |
| | 8,546 |
| (4) | 33.05 |
| | 3/2/2023 |
| | — |
| | — |
| |
| | — |
| | 15,407 |
| (2) | 34.55 |
| | 3/3/2024 |
| | — |
| | — |
| |
| | — |
| | — |
| | — |
| | — |
| | 3,190 |
| (7) | 129,642 |
| |
| | — |
| | — |
| | — |
| | — |
| | 3,218 |
| (5) | 130,780 |
| |
(1)Based on the closing price of our common stock of $70.63 on December 31, 2020, the last trading day of the most recently completed fiscal year, as reported on Nasdaq.
| |
(1) | Based on the closing price of our common stock of $40.64 on December 31, 2018, the last trading day of the most recently completed fiscal year, as reported on Nasdaq. |
| |
(2) | The stock options vest in three equal annual installments beginning March 3, 2018. |
| |
(3) | The stock options vest in three equal annual installments beginning March 20, 2019. |
(2)The TRSUs vest in three equal annual installments beginning June 17, 2020.
(3)The TRSUs vest in three equal annual installments beginning February 21, 2021.
(4)The PRSUs vest on June 17, 2022, contingent on meeting certain performance targets described in the Company's long-term incentive program and the executive is employed by the Company on the vesting date.
(5)The PRSUs vest on February 21, 2023, contingent on meeting certain performance targets described in the Company's long-term incentive program and the executive is employed by the Company on the vesting date.
(6)The TRSUs vest in three equal annual installments beginning July 26, 2020.
(7)The PRSUs vest on July 26, 2022, contingent on meeting certain performance targets described in the Company’s long-term incentive program and the executive is employed by the Company on the vesting date.
(8)The stock options vest in three equal annual installments beginning March 2, 2017.20, 2019.
(5) (9)The RSUs vest on March 3, 2020, provided that the executive is employed by the Company on the vesting date.
(6) The RSUsTRSUs vest on March 20, 2021, provided that the executive is employed by the Company on the vesting date.
(7) (10)The RSUsTRSUs vest in three equal annual installments beginning February 25, 2020.
(11)The PRSUs vest on March 2, 2019, provided thatFebruary 25, 2022, contingent on meeting certain performance targets described in the Company’s long-term incentive program and the executive is employed by the Company on the vesting date.
(12)The TRSUs vest in three equal annual installments beginning December 9, 2020.
(13)The PRSUs vest on December 9, 2022, contingent on meeting certain performance targets described in the Company’s long-term incentive program and the executive is employed by the Company on the vesting date.
Option Exercises and Stock Vested in Fiscal Year 20182020
This table summarizes amounts received upon the exercise of stock options and vesting of RSUs for the named executive officers during the year ended December 31, 2018.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Option Awards | | Stock Awards |
| Name | | Number of Shares Acquired
on Exercise (#) | | Value Realized on
Exercise ($)(1) | | Number of Shares Acquired
on Vesting (#)(2) | | | | Value Realized on
Vesting ($)(2) |
| Mr. Burger | | — | | | — | | | 10,421 | | | (3) | | | 566,902 | |
| Mr. Muhich | | — | | | — | | | 3,147 | | | (4) | | | 175,382 | |
| Ms. Tyrrell | | — | | | — | | | 2,227 | | | (5) | | | 127,171 | |
| Mr. Beadle | | — | | | — | | | 1,008 | | | (6) | | | 68,877 | |
| Dr. Tohme | | 20,713 | | | 354,216 | | | 2,729 | | | (7) | | | 155,888 | |
(1)Value realized represents the number of shares underlying the exercised option multiplied by the difference between the closing price of our common stock on the exercise date and the exercise price of the option.
(2)Value realized represents the closing price of our common stock on the vesting date multiplied by the number of shares vested.
(3)Reflects TRSUs granted in 2019 that vested in 2020 awarded to Mr. Burger. Upon the vesting of these TRSUs, 2538 shares were withheld from Mr. Burger’s vested RSUs for taxes.
(4)Reflects TRSUs granted in 2019 that vested in 2020 awarded to Mr. Muhich. Upon the vesting of these TRSUs, 1,022 shares were withheld from Mr. Muhich’s vested RSUs for taxes.
(5)Reflects TRSUs granted in 2017 and 2019 that vested in 2020 awarded to Ms. Tyrrell. Upon the vesting of these TRSUs, 403 and 259 shares respectively, were withheld from Ms. Tyrrell’s vested RSUs for taxes.
(6)Reflects TRSUs granted in 2019 that vested in 2020 awarded to Mr. Beadle. Upon the vesting of these TRSUs, 246 shares were withheld from Mr. Beadle’s vested RSUs for taxes.
(7)Reflects TRSUs granted in 2017 and 2019 that vested in 2020 awarded to Dr. Tohme. Upon the vesting of these TRSUs, 520 and 377 shares respectively, were withheld from Dr. Tohme’s vested RSUs for taxes.
|
| | | | | | | | | | | | |
| | | Option Awards | | Stock Awards |
| Name | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise ($)(1) | | Number of Shares Acquired on Vesting (#)(2) | | Value Realized on Vesting ($)(2) |
| Dr. Raab | | 22,092 |
| | 680,610 |
| | — |
| | — |
|
| Mr. Seidel | | — |
| | — |
| | — |
| | — |
|
| Ms. Hall | | 44,316 |
| | 1,389,185 |
| | 163 |
| | 9,992 |
|
| Mr. Gale | | 32,984 |
| | 697,317 |
| | 104 |
| | 6,375 |
|
| Ms. Tyrrell | | 3,247 |
| | 99,196 |
| | — |
| | — |
|
| Mr. Arezone | | 35,863 |
| | 772,490 |
| | — |
| | — |
|
| |
(1) | Value realized represents the number of shares underlying the exercised option multiplied by the difference between the closing price of our common stock on the exercise date and the exercise price of the option. |
| |
(2) | Reflects performance-based RSUs granted in 2015 that vested in 2018 based on our performance in 2017. Value realized represents the closing price of our common stock on the vesting date multiplied by the number of shares vested. Upon the vesting of the RSUs, 46 and 26 shares were withheld from Ms. Hall’s and Mr. Gale’s vested RSUs for taxes, respectively. |
Potential Payments Upon Termination or Change in Control
Employment Agreements. We entered into an employment agreement with Mr. Seidel on December 21, 2016, an amended and restated employment agreement with Ms. HallBurger on April 27, 2016 and5, 2019 with an amended and restated employment agreement with Mr. Gale on April 27, 2016.effective date of June 17, 2019. Pursuant to these agreements,this agreement, in the event the executive’sMr. Burger’s employment is terminated by us other than for Cause or disability, by our providing written notice of non-extension of the employment period set forth in the agreement or by the executive’sMr. Burger’s resignation for Good Reason, the executive will be entitled to receive (i) cash severance equal to his or her annual base salary plus a prorated target bonus, payable in approximately equal installments over a 12-month periodlump sum (provided that he or she has executed and not revoked a general release of claims and covenant not to sue in favor of the Company and complies with certain non-competition restrictions), (ii) continuation of group medical and life insurance coverage for Mr. Burger (and his eligible dependents) for 12 months following the executive’sdate of termination, and (iii) accelerated vesting of Mr. Burger’s outstanding and unvested stock options and RSUs will become fully vested as of the date of termination. Upon a change in control, all outstanding unvested equity awards granted to the executiveMr. Burger will become fully vested.vested if during the period of time beginning with a change in control and ending twelve months following such change in control, the Company terminates Mr. Burger's employment other than for cause or Mr. Burger's employment terminates due to his resignation for good reason as of the date of such termination.
As defined in the agreement, “Cause” means: (i) Executive’s failure to perform substantially the executive’shis duties with the Company and/or any affiliate (excluding any such failure resulting from Executive’s Disability) after a written demand for substantial performance is delivered to him or herExecutive by or on behalf of the Board which identifies the manner in which the Board believes that Executive has not substantially performed his duties and such failure is not cured withinproviding Executive 30 days to cure the identified deficiencies, (ii) engagementExecutive engages in illegal conduct or gross misconduct that is materially injurious to the Company or any affiliate, (iii) engagementExecutive engages in conduct or misconduct that materially harms the reputation or financial position of the Company or any affiliate, (iv) convictionExecutive is convicted of, or plea of pleads nolo contendere to, a felony or to a crime involving fraud, dishonesty, violence or moral turpitude, (v) beingExecutive is found liable in any SEC or other civil or criminal securities law action, (vi) commission ofExecutive commits an act of fraud or embezzlement against the Company or any affiliate, or (vii) acceptingExecutive accepts a bribe or kickback.
As defined in the agreement, “Good Reason” means: (i) an uncured(a) a material breach by the Company of the Company’s obligations to the executiveExecutive under this Agreement, which breach is not cured within ten (10) days after written notification to the agreement, (ii)Company describing in reasonable detail such breach and stating that such notice is being delivered pursuant to this Agreement; (b) an ongoing material and substantial diminution in the duties of the executive not consistent with that of an executive with his or her position andauthority, duties or (iii)responsibilities of Executive; (c) without Executive’s consent, the executive’s consent, ourCompany’s relocation of his or her principal office more than 50 miles from his current office locatedlocation in Lake Mary, Florida, (d) a reduction in Executive's target bonus opportunity, (e) a substantial reduction in benefits other than a general reduction in benefits that affects all executives in substantially the same proportions, or (f) failure to grant Executive the equity awards contemplated by Section 4(b)(iii) of this Agreement. A termination by Executive shall not constitute termination for Good Reason unless Executive shall first have delivered to the Company written notice setting forth with specificity the occurrence deemed to give rise to a right to terminate for Good Reason within 90 days after the initial occurrence of such event. Following receipt of such notice from Executive, the Company shall have a period of 30 days within which it may take action to correct, rescind or otherwise substantially reverse the occurrence supporting termination for Good Reason as identified by Executive, other than in the case of Messrs. Seidela material breach by the Company of the Company’s obligations as provided in clause (a) of the definition of “Good Reason,” in which case the cure period shall be ten (10) days after written notification to the Company describing in reasonable detail such breach and Galestating that such notice is being delivered pursuant to this Agreement. Good Reason shall not include Executive’s death or Disability. The parties intend, believe and Exton, Pennsylvania intake the caseposition that a resignation by Executive for Good Reason as defined above effectively constitutes an involuntary separation from service within the meaning of Ms. Hall.
For a descriptionSection 409A of Mr. Burger’s employment agreement that we entered into on April 5, 2019, with an effective date of June 17, 2019, see “Executive Compensation—Compensation Discussionthe Code and Analysis—Retirement of Dr. Raab and Compensation Arrangements with Mr. Burger.”
Treas. Reg. Section 1.409A-1(n)(2).
Amended and Restated Change in Control Severance Policy. As of December 31, 2018,During 2020, Messrs. SeidelBurger, Muhich, Beadle, Ms. Tyrrell, and Gale and Ms. HallDr. Tohme were covered by our CIC Policy, which entitles the Change in Control Severance Policy adopted by the Company on November 7, 2008 and amended and restated on April 9, 2015 (the “Policy”). Pursuantcovered executives to the terms offollowing severance benefits in the Policy, if,event their employment with us is terminated without cause or for good reason within 12twelve months following the occurrence of a change in control (as defined in the Policy), the executive’s employment with the Company is terminated without Cause or the executive resigns for Good Reason, the executive is entitled to receive:control:
a•A lump sum cash payment equal to the sum of (i) his or her highest annual rate of base salary during the 12-month period immediately prior to his or her date of termination, plus (ii) the average of the annual cash bonus earned by him or her during our last three completed fiscal years;
if•If the executive has not received an annual cash bonus for the fiscal year in which his or her employment is terminated, a cash payment equal to a pro-rated portion of the average annual cash bonus earned by him or her during our last three completed fiscal years; and
continuation•Continuation of group medical and life insurance coverage for the executive (and his or her eligible dependents) for 12 months following the date of termination.
As defined in the CIC Policy, “Cause” means: (i) the failure to perform substantially a participant’s duties with the Company and/or any subsidiary (excluding any such failure resulting from the participant’s disability) after written demand for
substantial performance is delivered to such participant by or on behalf of the Board and such failure is not cured within 30 days, (ii) engagement in illegal conduct or gross misconduct that is materially injurious to the Company or any subsidiary, (iii) engagement in conduct or misconduct that materially harms the reputation or financial position of the Company or any subsidiary, (iv) obstruction or impediment of, or failure to materially cooperate with, an “investigation”“investigation�� (as defined in the Amended and Restated Change in Control Severance Policy), (v) conviction of, or plea of nolo contendere to, a felony or of a crime involving fraud, dishonesty, violence or moral turpitude, (vi) being found liable in any SEC or other civil or criminal securities law action, (vii) commission of an act of fraud or embezzlement against the Company or any subsidiary, or (viii) accepting a bribe or kickback.
“Good Reason” means, without the executive’s express written consent, (i) an ongoing material diminution in the participant’s duties or responsibilities that is inconsistent in any material and adverse respect with the participant’s position, duties, or responsibilities with the Company immediately prior to the change in control, excluding a change in duties or responsibilities as a result of the Company no longer being a publicly-traded entity; (ii) a reduction in the participant’s annual base salary as in effect immediately prior to such change in control; (iii) a material reduction in the participant’s cash bonus opportunities in the aggregate under our applicable incentive plan, as in effect immediately prior to such change in control; (iv) relocation of more than fifty (50) miles from the office where the participant is located at the time of the change in control; (v) a material reduction in the benefits (including retirement, Company-paid insurance, sick leave, expense reimbursement and vacation time) in which the participant participated immediately prior to such change in control; or (vi) the failure of an acquiring company to assume the obligations under the CIC Policy.
In addition, as described above, Mr. Burger will be covered byBurger’s employment agreement provides that, in addition to the Policy uponpayment benefits provided under the commencement of his service as our President and CEO, with the additional provisionCIC Policy, that if the target amount of Mr. Burger’s annual cash bonus for the year in which a qualifying termination (as defined in the CIC Policy) takes place is greater than the aggregate of (i) the bonus amount (as defined in the CIC Policy) and (ii) the pro-rated bonus amount provided for in the CIC Policy, then he will receive such target amount in lieu of the bonus amounts described in clauses (i) and (ii) above. In addition, if during the period of time beginning with a change in control (as defined in the CIC Policy) and ending 12 months following such change in control, we terminatethe Company terminates Mr. Burger’s employment other than for cause or his employment terminates due to his resignation for good reason, as of the date of such termination, (a) any outstanding and unvested stock options held by him will become fully exercisable, (b) any outstanding time-based equitytime-vesting, stock-based awards held by him will become fully vested and payable and (c) any outstanding performance-based equityperformance-vesting stock-based awards will become fully vested and payable at the greater of actual performance or target.
Executive Severance Plan. On February 14, 2019, the Board adopted the Executive Severance Plan, which provides eligible employees at the senior vice president level or above who are not otherwise covered by an individual employment agreement that provides severance benefits (each, a “participant”), with benefits in the event they are involuntarily terminated by us other than for cause or as a result of the participant’s death or disability. The Executive Severance Plan does not apply in the event there is a change in control of the Company and the participant collects severance benefits pursuant to a change in control agreement or any other agreement in place between the Company and the participant. Severance benefits include (i) 12 months of the participant’s annual salary, payable in a single lump sum, (ii) up to 12 months of the employer portion of any COBRA premiums incurred for any medical, dental and/or vision insurance a participant elects to continue and (iii) up to 12 months’ use of our employee assistance plan. Payment of severance benefits is conditioned upon a participant’s execution of a compete release of claims against the Company that has not been revoked during the applicable rescission period. Dr. RaabMr. Muhich, Ms. Tyrrell, and Ms. TyrrellMr. Beadle are participants in the Executive Severance Plan.
Transition Agreement with Mr. Arezone. On June 5, 2018, we entered into the Transition Agreement with Mr. Arezone, pursuant to which Mr. Arezone agreed to resign from his officer position and to serve as an at-will employee through November 30, 2018. In accordance with the Transition Agreement, we continued to pay Mr. Arezone his base salary of $263,280 per annum through November 30, 2018, and the stock options and RSUs granted to Mr. Arezone in 2016 and 2017 are continuing to vest following the conclusion of the transition period, in accordance with their respective vesting schedules, as if his employment had continued in effect through and including each applicable vesting date. In addition, with respect to Mr. Arezone’s stock options granted in 2016 and 2017, once vested, such stock options will continue to be exercisable for a period of two years following the conclusion of the transition period, but in no event later than the expiration date of expiration of such stock options. We also agreed to reimburse Mr. Arezone for the monthly COBRA payments that he makes, for a period of up to six months. The Transition Agreement includes non-compete and non-solicit covenants pursuant to which Mr. Arezone has agreed not to compete against or solicit any customer or employee of the Company for a period of two years after the conclusion of the transition period.
Payments in Connection with a Termination of Employment or Upon a Change in Control. The following table presents estimates of the amounts of compensation that would have been payable to the named executive officers, other than Mr. Arezone, upon their termination of employment without Cause, by us providing written notice of the non-extension of the employment period set forth in the named executive officer’s respective employment agreement or resignation for Good Reason, upon their death or disability or upon the occurrence of a change in control regardless of whether they incurred a subsequent termination of employment, as of December 31, 2018.2020. The amounts in the table exclude distributions under our 401(k) retirement plan that are generally available to all salaried employees.
Dr. Tohme was terminated as an employee of the Company on October 30, 2020 without Cause which entitled him to compensation as he was covered by the Executive Severance Plan. Pursuant to Dr. Tohme’s executed Transition and Separation Agreement and General Release dated September 9, 2020, Dr. Tohme was entitled to receive 12 months of base salary continuation equal to $381,100, which was paid during the three month period ending March 31, 2021.
|
| | | | | | | | | | | | | | |
| | Termination of Employment without Cause or By Executive for Good Reason (in connection with a Change in Control)($) | | Termination of Employment without Cause, By Not Extending the Employment Period or By Executive for Good Reason (not in connection with a Change in Control)($) | | Termination upon Death($) | | Termination upon Disability ($) | | Upon Change in Control without Termination of Employment ($) |
| Dr. Raab | | | | | | | | | |
| Cash Payment(s) (5) | — |
| | — |
| | 750,000 |
| (3) | 142,000 |
| (4) | — |
|
| Equity Acceleration (6) | 439,503 |
| | — |
| | — |
| | — |
| | 439,503 |
|
| Health Benefits (5)(7) | — |
| | — |
| | — |
| | — |
| | — |
|
| Total | 439,503 |
| | — |
| | 750,000 |
| | 142,000 |
| | 439,503 |
|
| Mr. Seidel | | | | | | | | | |
| Cash Payment(s) | 375,546 |
| (1) | 334,000 |
| (2) | 750,000 |
| (3) | 142,000 |
| (4) | — |
|
| Equity Acceleration (6) | 165,052 |
| | 165,052 |
| | — |
| | — |
| | 165,052 |
|
| Health Benefits (7) | 6,477 |
| | — |
| | — |
| | — |
| | — |
|
| Total | 547,075 |
| | 499,052 |
| | 750,000 |
| | 142,000 |
| | 165,052 |
|
| Ms. Hall | | | | | | | | | |
| Cash Payment(s) | 523,943 |
| (1) | 420,000 |
| (2) | 750,000 |
| (3) | 142,000 |
| (4) | — |
|
| Equity Acceleration (6) | 507,282 |
| | 507,282 |
| | — |
| | — |
| | 507,282 |
|
| Health Benefits (7) | 6,477 |
| | — |
| | — |
| | — |
| | — |
|
| Total | 1,037,702 |
| | 927,282 |
| | 750,000 |
| | 142,000 |
| | 507,282 |
|
| Mr. Gale | | | | | | | | | |
| Cash Payment(s) | 427,389 |
| (1) | 362,000 |
| (2) | 750,000 |
| (3) | 142,000 |
| (4) | — |
|
| Equity Acceleration (6) | 320,720 |
| | 320,720 |
| | — |
| | — |
| | 320,720 |
|
| Health Benefits (7) | 16,248 |
| | — |
| | — |
| | — |
| | — |
|
| Total | 764,357 |
| | 682,720 |
| | 750,000 |
| | 142,000 |
| | 320,720 |
|
| Ms. Tyrrell | | | | | | | | | |
| Cash Payment(s) (5) | — |
| | — |
| | 750,000 |
| (3) | 142,000 |
| (4) | — |
|
| Equity Acceleration (6) | 132,214 |
| | — |
| | — |
| | — |
| | 132,214 |
|
| Health Benefits (5)(7) | — |
| | — |
| | — |
| | — |
| | — |
|
| Total | 132,214 |
| | — |
| | 750,000 |
| | 142,000 |
| | 132,214 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Termination of Employment without Cause or By Executive for Good Reason (in connection with a Change in Control)($) | | Termination of
Employment without
Cause, By Not Extending the Employment Period or By Executive for Good
Reason (not in connection
with a Change in
Control)($) | | Termination upon Death($) | | Termination upon Disability ($) | | Upon Change in Control without Termination of Employment ($) |
| Mr. Burger | | | | | | | | | |
| Cash Payment(s) | 1,050,000 | | | 1,050,000 | | | 750,000 | | (3) | 180,000 | | (4) | 1,050,000 | |
| Equity Acceleration (5) | 5,964,421 | | | 5,964,421 | | | — | | | — | | | 5,964,421 | |
| Health Benefits (6) | 26,210 | | | — | | | — | | | — | | | — | |
| Total | 7,040,631 | | | 7,014,421 | | | 750,000 | | | 180,000 | | | 7,014,421 | |
| Mr. Muhich | | | | | | | | | |
| Cash Payment(s) | 519,644 | | (1) | 382,130 | | (2) | 750,000 | | (3) | 180,000 | | (4) | — | |
| Equity Acceleration (5) | 1,796,545 | | | | | — | | | — | | | 1,796,545 | |
| Health Benefits (6) | 26,210 | | | — | | | — | | | — | | | — | |
| Total | 2,342,399 | | | 382,130 | | | 750,000 | | | 180,000 | | | 1,796,545 | |
| Mr. Beadle | | | | | | | | | |
| Cash Payment(s) | 437,782 | | (1) | 310,000 | | (2) | 750,000 | | (3) | 180,000 | | (4) | — | |
| Equity Acceleration (5) | 710,114 | | | — | | | — | | | — | | | 710,114 | |
| Health Benefits (6) | 15,492 | | | — | | | — | | | — | | | — | |
| Total | 1,163,388 | | | 310,000 | | | 750,000 | | | 180,000 | | | 710,114 | |
| Ms. Tyrrell | | | | | | | | | |
| Cash Payment(s) | 347,172 | | (1) | 298,982 | | (2) | 750,000 | | (3) | 179,389 | | (4) | — | |
| Equity Acceleration (5) | 788,067 | | | — | | | — | | | — | | | 788,067 | |
| Health Benefits (6) | 7,832 | | | — | | | — | | | — | | | — | |
| Total | 1,143,071 | | | 298,982 | | | 750,000 | | | 179,389 | | | 788,067 | |
| |
(1) | Reflects an amount equal to (i) the executive’s base salary plus the average of the annual cash bonus earned by the executive during our last three completed fiscal years, payable in a lump sum, plus (ii) if the executive has not received an annual cash bonus for the fiscal year in which the termination occurs, a pro rata share of the average of the annual cash bonus earned by the executive during our last three completed fiscal years payable pursuant to the Policy. |
| |
(2) | Reflects for Messrs. Seidel and Gale and Ms. Hall an amount equal to the executive’s base salary, payable in installments over 12 months pursuant to their respective employment agreements. |
| |
(3) | Reflects a payment equal to three times the executive’s annual base salary with a maximum of $750,000, pursuant to the terms of the Vice President and Above Life Insurance Plan. |
| |
(4) | Reflects a payment equal to one year of benefits, pursuant to the terms of the Executive Long-Term and Short-Term Disability Plan. |
| |
(5) | Effective February 14, 2019, Dr. Raab and Ms. Tyrrell are covered under our Executive Severance Plan. The amounts in this table are as of December 31, 2018, and therefore do not include any benefits that would be received under the Executive Severance Plan because it was not in effect on such date. For a description of the benefits payable under the Executive Severance Plan, see “Executive Severance Plan” above. |
| |
(6) | For Messrs. Seidel and Gale and Ms. Hall, their outstanding and unvested stock options and RSUs will become fully vested and exercisable as of the date of their termination without Cause or for Good Reason pursuant to their employment agreements or if we have provided written notice of non-extension of the employment period set forth in their employment agreements. In the event of a change in control: |
| |
▪ | for Messrs. Seidel and Gale and Ms. Hall, all outstanding and unvested stock options and RSUs will become fully vested and exercisable pursuant to their employment agreements; and |
| |
▪ | for Dr. Raab and Ms. Tyrrell, all outstanding and unvested stock options and RSUs granted in 2017 and 2018 will become fully vested and exercisable pursuant to the 2014 Incentive Plan if such awards are not converted, assumed or substituted in connection with the change in control. |
(1)Reflects an amount equal to (i) the executive’s base salary plus the average of the annual cash bonus earned by the executive during our last three completed fiscal years, payable in a lump sum, plus (ii) if the executive has not received an annual cash bonus for the fiscal year in which the termination occurs, a pro rata share of the average of the annual cash bonus earned by the executive during our last three completed fiscal years payable pursuant to the CIC Policy.
(2)Reflects for Messrs. Beadle and Muhich, and Ms. Tyrrell an amount equal to the executive’s base salary, payable in installments over 12 months pursuant to their respective employment agreements.
(3)Reflects a payment equal to three times the executive’s annual base salary with a maximum of $750,000, pursuant to the terms of the Vice President and Above Life Insurance Plan.
(4)Reflects a payment equal to one year of benefits, pursuant to the terms of the Executive Long-Term and Short-Term Disability Plan.
(5)For Mr. Burger, his outstanding and unvested stock options and RSUs will become fully vested and exercisable as of the date of their termination without Cause or for Good Reason pursuant to their employment agreements or if we have provided written notice of non-extension of the employment period set forth in their employment agreements. In the event of a change in control:
•for Mr. Burger, all outstanding and unvested stock options and RSUs will become fully vested and exercisable pursuant to his employment agreements; and
•for Mr. Muhich, Mr. Beadle and Ms. Tyrrell, all outstanding and unvested stock options and RSUs granted in 2018, 2019, and 2020 will become fully vested and exercisable pursuant to the 2014 Incentive Plan if such awards are not converted, assumed or substituted in connection with the change in control.
Amounts reflect the intrinsic value of unvested stock options and RSUs whose vesting will be accelerated, based on the closing price of our common stock on December 31, 20182020 ($40.64)70.63).
| |
(7) | Reflects the value of continued coverage to the executive under our employee welfare benefit plans for 12 months based on 2018 rates for the applicable time period pursuant to the Policy. |
(6)Reflects the value of continued coverage to the executive under our employee welfare benefit plans for 12 months based on 2020 rates for the applicable time period pursuant to the CIC Policy.
Risk Assessment of Overall Compensation Program
The Compensation CommitteeTDCC has reviewed with management the design and operation of our incentive compensation arrangements for all employees, including executive officers, for the purpose of determining whether such programs might encourage inappropriate risk-taking that could have a material adverse effect on the Company. Management compiled an inventory of all incentive compensation arrangements applicable to our employees at all levels, which plans and arrangements were reviewed for the purpose of identifying any aspects of such programs that might encourage behaviors that could exacerbate business risks. In conducting this assessment, the Compensation CommitteeTDCC considered, among other things, the performance objectives used in connection with these incentive awards and the features of our compensation program that are designed to mitigate compensation-related risk. The Compensation CommitteeTDCC concluded that any risks arising from our compensation plans, policies and practices are not reasonably likely to have a material adverse effect on the Company.
Equity Compensation Plan Information
The following table provides information as of December 31, 20182020 regarding equity compensation plans under which our common stock is authorized for issuance.
| | | | | | | | | | | | | | | | | | | | |
| Plan Category | Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a) | | Weighted-average
exercise price of
outstanding options,
warrants and rights
(b) | | Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
(c) | |
| Equity compensation plans approved by security holders(1) | 532,495 | | (2) | $ | 56.53 | | (3) | 317,171 | | (4) |
| Equity compensation plans not approved by security holders(5) | — | | | — | | | — | | |
| Total | 532,495 | | | $ | 56.53 | | | 317,171 | | |
|
| | | | | | | | | | |
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |
| Equity compensation plans approved by security holders(1) | 1,091,892 |
| (2) | $ | 47.59 |
| (3) | 2,012,837 |
| (4) |
| Equity compensation plans not approved by security holders(5) | — |
| | — |
| | — |
| |
| Total | 1,091,892 |
| | $ | 47.59 |
| | 2,012,837 |
| |
| |
(1) | Consists of the 2009 Equity Plan and the 2014 Incentive Plan. |
| |
(2) | We had 792,943 options outstanding as of December 31, 2018, all of which are included in column (a). We also had 298,949 RSUs outstanding as of December 31, 2018, which are included in column (a), and 12,051 shares of restricted stock, which are not included in column (a). |
| |
(3) | Calculation of weighted average exercise price of outstanding awards includes stock options but does not include RSUs that convert to shares of common stock for no consideration. Weighted average remaining life of stock options is 4.4 years. |
| |
(4) | Of such shares, all are available for issuance pursuant to grants of full-value awards. In addition to this amount, the number of shares available for issuance under the 2014 Incentive Plan includes any shares underlying awards outstanding under the 2009 Equity Plan as of the effective date of the 2014 Incentive Plan that thereafter terminate or expire unexercised, or are canceled, forfeited or lapse for any reason. |
| |
(5) | We do not maintain any equity compensation plans that have not been approved by our shareholders. |
(1)Consists of the 2009 Equity Plan and the 2014 Incentive Plan.
(2)We had 155,048 options outstanding as of December 31, 2020, all of which are included in column (a). We also had 377,447 RSUs outstanding as of December 31, 2020, which are included in column (a).
(3)Calculation of weighted average exercise price of outstanding awards includes stock options but does not include RSUs that convert to shares of common stock for no consideration. Weighted average remaining life of stock options is 2.3 years.
(4)Of such shares, all are available for issuance pursuant to grants of full-value awards. In addition to this amount, the number of shares available for issuance under the 2014 Incentive Plan includes any shares underlying awards outstanding under the 2009 Equity Plan as of the effective date of the 2014 Incentive Plan that thereafter terminate or expire unexercised, or are canceled, forfeited or lapse for any reason.
(5)We do not maintain any equity compensation plans that have not been approved by our shareholders.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of our common stock beneficially owned as of March 29, 201926, 2021 (except as noted in the footnotes below) by each of our directors and named executive officers, all of our current directors and executive officers as a group, and each person known to us to own beneficially more than 5% of our common stock. The percentage of beneficial ownership is based on 17,318,87518,154,164 shares of common stock outstanding as of March 29, 2019.26, 2021.
To our knowledge, except as noted in the footnotes below, the persons named below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. Unless otherwise noted in the footnotes below, the address of each beneficial owner is in the care of FARO Technologies, Inc., 250 Technology Park, Lake Mary, Florida 32746.
| | | | | | | | | | | | | | |
| Name of Beneficial Owner | | Number of
Shares Beneficially Owned | | Percent |
| Named Executive Officers and Directors | | | | |
| John Donofrio | | 26,561 | | | * |
| Stephen R. Cole (1) | | 26,557 | | | * |
| John E. Caldwell | | 25,864 | | | * |
| Lynn Brubaker (2) | | 16,965 | | | * |
| Yuval Wasserman | | 8,140 | | | * |
| Jeffrey A. Graves, Ph.D. | | 7,912 | | | * |
| Jeroen Van Rotterdam | | — | | | * |
| Katrona Tyrrell (3) | | 16,686 | | | * |
| Michael D. Burger | | 11,930 | | | * |
| Allen Muhich | | 3,164 | | | * |
| Kevin Beadle | | 587 | | | * |
| Yazid Tohme | | 1,368 | | | |
| All directors and executive officers as a group (12 persons)(4) | | 145,734 | | | 0.8 | % |
| 5% or Greater Shareholders | | | | |
| BlackRock, Inc. (5) | | 2,875,446 | | | 15.8 | % |
| The Vanguard Group, Inc. (6) | | 1,889,143 | | | 10.4 | % |
| Royce and Associates, LP (7) | | 1,157,607 | | | 6.4 | % |
| Segall Bryant & Hamill, LLC (8) | | 933,394 | | | 5.1 | % |
| Paradice Investment Management LLC (9) | | 805,605 | | | 4.4 | % |
| Dimensional Fund Advisors LP (10) | | 609,106 | | | 3.4 | % |
|
| | | | | | |
| Name of Beneficial Owner | | Number of Shares | | Percent |
| Simon Raab, Ph.D. (1) | | 360,046 |
| | 2.1 | % |
| John Donofrio (2) | | 20,547 |
| | * |
|
| Stephen R. Cole (3) | | 24,494 |
| | * |
|
| John E. Caldwell (4) | | 21,855 |
| | * |
|
| Lynn Brubaker (5) | | 12,956 |
| | * |
|
| Yuval Wasserman (6) | | 3,903 |
| | * |
|
| Jeffrey A. Graves, Ph.D. (7) | | 3,903 |
| | * |
|
| Kathleen J. Hall (8) | | 39,660 |
| | * |
|
| Jody S. Gale (9) | | 16,317 |
| | * |
|
| Robert E. Seidel (10) | | 20,143 |
| | * |
|
| Katrona Tyrrell (11) | | 5,667 |
| | * |
|
| Joseph Arezone (12) | | 15,491 |
| | * |
|
| All current directors and executive officers as a group (12 persons)(13) | | 544,771 |
| | 3.1 | % |
| PRIMECAP Management Company (14) | | 1,587,078 |
| | 9.2 | % |
| BlackRock, Inc. (15) | | 2,510,748 |
| | 14.5 | % |
| The Vanguard Group, Inc. (16) | | 1,770,347 |
| | 10.2 | % |
| Barrow, Hanley, Mewhinney & Strauss LLC (17) | | 1,089,545 |
| | 6.3 | % |
| Dimensional Fund Advisors LP (18) | | 978,662 |
| | 5.7 | % |
| Paradice Investment Management LLC (19) | | 934,056 |
| | 5.4 | % |
| Credit Suisse AG (20) | | 1,011,772 |
| | 5.8 | % |
|
| | | | |
| * | Represents less than one percent of our outstanding common stock. |
| |
(1) | Includes 44,315 shares held by Xenon Research, Inc., over which Dr. Raab and his spouse have investment control, and 80,000 shares held by a revocable trust of which Dr. Raab is settlor and trustee. Also includes options to purchase (i) 37,908 shares at $29.98 per share, (ii) 69,475 shares at $39.05 per share, (iii) 72,167 shares at $34.55 per share and (iv) 26,134 shares at $61.30 per share that are currently exercisable. |
| |
(2) | Includes 2,636 shares of restricted stock. |
| |
(3) | Includes 1,883 shares of restricted stock and 469 deferred stock units, which represent the right to receive one share of our common stock following Mr. Cole’s separation of service from the Company. Includes 490 shares held by Shanklin Investments in trust for Mr. Cole, who holds such shares in trust from Snow Powder Ridge Limited, a company owned by Mr. Cole, his wife and his children, 7,000 shares held by Snow Powder Ridge Limited, and 10,630 shares held by Seeonee Inc., over which Mr. Cole has investment control. |
| |
(4) | Includes 1,883 shares of restricted stock. |
| |
(5) | Includes 1,883 shares of restricted stock and 8,200 shares held by the Cornelius-Brubaker Trust. |
| |
(6) | Includes 3,903 shares of restricted stock. |
| |
(7) | Includes 3,903 shares of restricted stock. |
| |
(8) | Includes options to purchase (i) 3,552 shares at $57.54 per share, (ii) 4,610 shares at $59.97 per share, (iii) 8,546 shares at $33.05 per share, (iv) 14,830 shares at $34.55 per share and (v) 5,305 shares at $61.30 per share that are currently exercisable. |
| |
(9) | Includes options to purchase (i) 2 shares at $59.97 per share, (ii) 5,333 shares at $33.05 per share, (iii) 5,167 shares at $34.55 per share and (iv) 3,137 shares at $61.30 per share that are currently exercisable. |
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(10) | Includes options to purchase (i) 2,000 shares at $43.33 per share, (ii) 3,000 shares at $59.97 per share, (iii) 4,847 shares at $33.05 per share, (iv) 7,442 shares at $34.55 per share and (v) 2,854 shares at $61.30 per share that are currently exercisable. |
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(11) | Includes options to purchase (i) 3,247 shares at $34.55 per share and (ii) 2,420 shares at $61.30 per share that are currently exercisable. |
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(12) | Includes options to purchase (i) 8,546 shares at $33.05 per share and (ii) 3,755 shares at $34.55 per share that are currently exercisable. |
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(13) | Includes options to purchase 296,302 shares that are currently exercisable. Also includes 16,091 shares of restricted stock. |
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(14) | The number of shares reported is based on the Schedule 13G/A filed with the SEC on February 8, 2019 by PRIMECAP Management Company, an investment advisor. The address of PRIMECAP Management Company is 177 E. Colorado Blvd., 11(1)Includes 1,960 deferred stock units, which represent the right to receive one share of our common stock following Mr. Cole’s separation of service from the Company. Includes 490 shares held by Shanklin Investments in trust for Mr. Cole, who holds such shares in trust from Snow Powder Ridge Limited, a company owned by Mr. Cole, his wife and his children, 7,000 shares held by Snow Powder Ridge Limited, and 15,365 shares held by Seeonee Inc., over which Mr. Cole has investment control.th Floor, Pasadena, CA 91105. According to the Schedule 13G/A, PRIMECAP Management Company has sole voting power with respect to 1,338,834 shares and sole dispositive power with respect to 1,587,078 shares.
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(15) | The number of shares reported is based on the Schedule 13G/A filed with the SEC on January 28, 2019 by BlackRock, Inc., a parent holding company or control person. The address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055. The Schedule 13G/A reports that BlackRock, Inc. has sole voting power with respect to 2,474,448 shares and sole dispositive power with respect to 2,510,748 shares. BlackRock, Inc. reported that the following of its subsidiaries acquired shares: BlackRock (Netherlands) B.V., BlackRock Advisors, LLC, BlackRock Asset Management Canada Limited, BlackRock Asset Management Ireland Limited, BlackRock Asset Management Schweiz AG, BlackRock Financial Management, Inc., BlackRock Fund Advisors, BlackRock Institutional Trust Company, National Association, BlackRock Investment Management (Australia) Limited, BlackRock Investment Management (UK) Limited and BlackRock Investment Management, LLC, and reported that BlackRock Fund Advisors beneficially owns 5% or greater of the outstanding shares of our common stock. |
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(16) | The number of shares reported is based on the Schedule 13G/A filed with the SEC on February 11, 2019 by The Vanguard Group, Inc., an investment advisor. The Vanguard Group, Inc.’s address is 100 Vanguard Blvd., Malvern, PA 19355. According to the Schedule 13G/A, The Vanguard Group, Inc. has sole voting power with respect to 34,501 shares, sole dispositive power with respect to 1,730,966 shares, shared voting power with respect to 6,690 shares and shared dispositive power with respect to 39,381 shares. The Schedule 13G/A reports that Vanguard Fiduciary Trust Company, a wholly owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 32,691 shares as a result of its serving as investment manager of collective trust accounts. The Schedule 13G/A also reports that Vanguard Investments Australia, Ltd., a wholly owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 8,500 shares as a result of its serving as investment manager of Australian investment offerings. |
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(17) | The number of shares reported is based on the Schedule 13G filed with the SEC on February 11, 2019 by Barrow, Hanley, Mewhinney & Strauss, LLC, an investment advisor. The address of Barrow, Hanley, Mewhinney & Strauss, LLC is 2200 Ross Avenue, 31st Floor, Dallas, TX 75201-2761. The Schedule 13G reports that Barrow, Hanley, Mewhinney & Strauss, LLC has sole voting power with respect to 757,839 shares, shared voting power with respect to 331,706 shares and sole dispositive power with respect to 1,089,545 shares. |
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(18) | The number of shares reported is based on the Schedule 13G/A filed with the SEC on February 8, 2019 by Dimensional Fund Advisors LP, an investment advisor. The address of Dimensional Fund Advisors LP is Building One, 6300 Bee Cave Road, Austin, TX 78746. According to the Schedule 13G/A, Dimensional Fund Advisors LP has sole voting power with respect to 927,671 shares and sole dispositive power with respect to 978,662 shares. |
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(19) | The number of shares reported is based on the Schedule 13G filed with the SEC on February 14, 2019 by Paradice Investment Management LLC, an investment advisor, and Paradice Investment Management Pty Ltd, a parent holding company. The address of Paradice Investment Management LLC is 257 Fillmore Street, Suite 200, Denver, Colorado 80206. The address of Paradice Investment Management Pty Ltd is Level 27, The Chifley Tower, 2 Chifley Square, Sydney NSW 2000, Australia. According to the Schedule 13G, Paradice Investment Management LLC and Paradice Investment Management Pty Ltd have shared voting power with respect to 767,588 shares and shared dispositive power with respect to 934,056 shares. |
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(20) | The number of shares reported is based on the Schedule 13G filed with the SEC on February 13, 2019 by Credit Suisse AG, a parent holding company or control person. The address of Credit Suisse AG is Uetlibergstrasse 231, P.O. Box 900, CH 8070, Zurich, Switzerland. According to the Schedule 13G, Credit Suisse AG has shared voting and dispositive power with respect to 1,011,772 shares. |
(2)Includes 15,223 shares held by the Cornelius-Brubaker Trust.
(3)Includes options to purchase (i) 6,495 shares at $34.55 per share and (ii) 7,260 shares at $61.30 per share that are issuable upon exercise within 60 days of March 26, 2021.
(4)Includes options to purchase 13,755 shares that are issuable upon exercise within 60 days of March 26, 2021.
(5)The number of shares reported is based solely on the Schedule 13G filed with the SEC on January 25, 2021 by BlackRock, Inc., a parent holding company or control person. The address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055. The Schedule 13G reports that BlackRock, Inc. has sole voting power with respect to 2,842,096 shares and sole dispositive power with respect to 2,875,446 shares. iShares Core S&P Small-Cap ETF is known to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of more than five percent of the Company’s outstanding common stock. BlackRock, Inc. reported that the following of its
subsidiaries acquired shares: BlackRock Life Limited, BlackRock Advisors, LLC, BlackRock (Netherlands) B.V., BlackRock Fund Advisors, BlackRock Institutional Trust Company, National Association, BlackRock Asset Management Ireland Limited, BlackRock Financial Management, Inc., BlackRock Japan Co., Ltd., BlackRock Asset Management Schweiz AG, BlackRock Investment Management, LLC, BlackRock Investment Management (UK) Limited, BlackRock Asset Management Canada Limited, BlackRock Investment Management (Australia) Limited and BlackRock Fund Managers Ltd and reported that BlackRock Fund Advisors beneficially owns 5% or greater of the outstanding shares of our common stock.
(6)The number of shares reported is based solely on the Schedule 13G filed with the SEC on February 8, 2021 by The Vanguard Group, Inc., an investment adviser. The Vanguard Group, Inc.’s address is 100 Vanguard Blvd., Malvern, PA 19355. According to the Schedule 13G, The Vanguard Group, Inc. has sole voting power with respect to 0 shares, sole dispositive power with respect to 1,835,425 shares, shared voting power with respect to 40,322 shares and shared dispositive power with respect to 53,718 shares. The Vanguard Group, Inc. reported that the following of its subsidiaries acquired shares: Vanguard Asset Management, Limited, Vanguard Fiduciary Trust Company, Vanguard Global Advisors, LLC., Vanguard Group (Ireland) Limited, Vanguard Investments Australia Ltd, Vanguard Investments Canada Inc., Vanguard Investments Hong Kong Limited and Vanguard Investments UK, Limited.
(7)The number of shares reported is based solely on the Schedule 13G filed with the SEC on January 21, 2021 by Royce and Associates, LP, an investment adviser. The address of Royce and Associates, LP is 745 Fifth Avenue, New York, NY 10151. According to the Schedule 13G, Royce and Associates, LP has sole voting with respect to 1,157,607 shares and sole dispositive power with respect to 1,157,607 shares.
(8)The number of shares reported is based solely on the Schedule 13G filed with the SEC on February 12, 2021 by Segall Bryant & Hamill, LLC, an investment adviser. The Segall Bryant & Hamill, LLC’s address is 540 W. Madison Street, Suite 1900, Chicago, IL 60661. According to the Schedule 13G, Segall Bryant & Hamill, LLC has sole voting power with respect to 675,495 shares and sole dispositive power with respect to 933,394 shares.
(9)The number of shares reported is based solely on the Schedule 13G/A filed with the SEC on February 16, 2021 by Paradice Investment Management LLC, an investment adviser, and Paradice Investment Management Pty Ltd, a parent holding company. The address of Paradice Investment Management LLC is 257 Fillmore Street, Suite 200, Denver, Colorado 80206. The address of Paradice Investment Management Pty Ltd is Level 27, The Chifley Tower, 2 Chifley Square, Sydney NSW 2000, Australia. According to the Schedule 13G/A, Paradice Investment Management LLC and Paradice Investment Management Pty Ltd have shared voting power with respect to 527,915 shares and shared dispositive power with respect to 805,605 shares.
(10)The number of shares reported is based solely on the Schedule 13G filed with the SEC on February 16, 2021 by Dimensional Fund Advisors LP, an investment adviser. The address of Dimensional Fund Advisors LP is Building One, 6300 Bee Cave Road, Austin, TX 78746. According to the Schedule 13G, Dimensional Fund Advisors LP has sole voting power with respect to 565,673 shares and sole dispositive power with respect to 609,106 shares. Dimensional Fund Advisors LP, an investment adviser registered under Section 203 of the Investment Advisors Act of 1940, furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, and serves as investment manager or sub-adviser to certain other commingled funds, group trusts and separate accounts (such investment companies, trusts and accounts, collectively referred to as the “Funds”). In certain cases, subsidiaries of Dimensional Fund Advisors LP may act as an adviser or sub-adviser to certain Funds. In its role as investment advisor, sub-adviser and/or manager, Dimensional Fund Advisors LP or its subsidiaries (collectively, “Dimensional”) may possess voting and/or investment power over the securities of the Issuer that are owned by the Funds, and may be deemed to be the beneficial owner of the shares of the Issuer held by the Funds. However, all securities reported in the Schedule 13G are owned by the Funds. Dimensional disclaims beneficial ownership of such securities.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Review, Approval or Ratification of Transactions with Related Persons
Our Board has adopted a Statement of Policy and Procedures with respect to Related Person Transactions, which sets forth in writing the policies and procedures for the review, approval or ratification of any transaction (or any series of similar transactions) in which the Company, including any of its subsidiaries, were, are or will be a participant, in which the amount involved exceeds $10,000,$120,000, and in which any related person had, has or will have a direct or indirect material interest. For purposes of the policy, a “related person” is:
•Any person who is, or at any time since the beginning of our last fiscal year was, our executive officer or director or a nominee to become one of our directors;
•Any shareholder beneficially owning in excess of 5% of our outstanding common stock;
•Any immediate family member of any of the foregoing persons; or
•Any firm, corporation or other entity in which any of the foregoing persons is employed or is a general partner or principal or in which such person has a 10% or greater beneficial ownership interest.
Our Board has charged the Audit Committee with reviewing and approving related person transactions. Prior to the approval of, entry into, or amendment to a related person transaction, our Audit Committee reviews the proposed transaction and considers all relevant facts and circumstances, including:
•The benefits to the Company from the proposed transaction;
•The impact of the proposed transaction on the independence of the members of the Board, if applicable;
•The availability of unrelated parties to perform similar work for a similar price in a similar timeframe;
•The terms of the proposed transaction; and
•The terms available to unrelated third parties or employees generally.
The Audit Committee approves only those related person transactions that are in, or are not inconsistent with, the best interests of the Company and our shareholders. The Audit Committee may approve a proposed related person transaction if it finds that it has been fully apprised of all significant conflicts that may exist or otherwise may arise on account of the transaction, and it nonetheless believes that we are warranted in entering into the related person transaction, and the Audit Committee has developed an appropriate plan to manage the potential conflicts of interest.
Other than a transaction involving compensation, including the grant of equity awards, that is approved by our Board or Compensation Committee, we will only consummate or continue a related person transaction if it has been approved or ratified by our Audit Committee in accordance with the guidelines set forth in the policy.
There were no transactions in 2018,2020, and none are currently proposed, in which the Company was or is a participant, the amount exceeded $120,000 and a related person had or will have a direct or indirect material interest.
DELINQUENT SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCEREPORTS
Section 16(a) of the Exchange Act requires our directors, executive officers, directors and persons who beneficially ownholding more than ten percent10% of our common stock to file reportsreport their initial ownership of their security ownershipthe common stock and other equity securities and any changes in suchthat ownership in reports that must be filed with the SEC. Officers, directorsThe SEC has designated specific deadlines for these reports, and ten percent beneficial owners also are required by rules promulgated by the SEC to furnish us with copies of all Section 16(a) forms they file. we must identify in this proxy statement those persons who did not file these reports when due.
Based solely on a review of the Section 16(a) formsreports furnished to us, in 2018 and certificationsor written representations from our executive officers and directors that no other reports were required for suchreporting persons, we believe that all of our directors, executive officers, and persons who beneficially own more than ten percent of10% owners timely filed all reports regarding transactions in our common stock complied with thesecurities required to be filed for 2020 by Section 16(a) under the Exchange Act, except for the following: Mr. Burger filed a Form 4 nineteen days late on July 16, 2020 relating to the vesting of his previously reported initial RSU grant. This late filing requirements duringwas due to an administrative oversight by the year ended December 31, 2018.Company’s stock administration.
OTHER MATTERS TO COME BEFORE THE ANNUAL MEETING
The Board of Directors and management do not know of any matters before the Annual Meeting other than those to which we refer in the Notice of 20192021 Annual Meeting of Shareholders and this Proxy Statement. If any other matters properly come before the Annual Meeting, the proxy holders will vote the shares in accordance with their best judgment. To bring business before an annual meeting of shareholders, a shareholder must give written notice to our Secretary before the meeting and comply with the terms and time periods specified in our Bylaws and described under “Deadline for Receipt of 20202022 Shareholder Proposals and Director Nominees.” No shareholder has given written notice that he or shesuch shareholder intends to bring business before the Annual Meeting in compliance with the terms and time periods specified in our Bylaws.
DEADLINE FOR RECEIPT OF 20202022 SHAREHOLDER PROPOSALS AND DIRECTOR NOMINEES
If a shareholder wants to have a proposal formally considered at the 20202022 annual meeting of shareholders and included in our proxy statement for that meeting pursuant to SEC Rule 14a-8, we must receive the proposal in writing on or before December 19, 201916, 2021 and the proposal must comply with SEC rules; provided, however, that if the date of our 20202022 annual meeting of shareholders is more than 30 days before or after May 30, 202028, 2021 (the one-year anniversary of the Annual Meeting), the deadline will be a reasonable time before we begin to print and send our proxy materials to shareholders.
In addition, if a shareholder wants to make a proposal for consideration at the 20202022 annual meeting of shareholders other than pursuant to SEC Rule 14a-8, the shareholder must comply with the advance notice provisions and other requirements set forth in our Bylaws. Under our Bylaws, we must receive the proposal not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting of shareholders. In the event that the date of the annual meeting is advanced more than 30 days before or delayed more than 60 days after such anniversary date, notice by the shareholder must be received not more than 120 days prior to such annual meeting and not less than the later of 90 days prior to such annual meeting or ten days following the day on which public announcement of the date of the annual meeting is first made. For the 20202022 annual meeting of shareholders, we must receive the proposal, which must conform to the notice requirements set forth in our Bylaws, between January 31, 202028, 2022 and March 1, 2020.February 27, 2022.
If a shareholder wants to nominate a person for election to the Board of Directors, the shareholder must comply with the advance notice provisions and other requirements set forth in our bylaws, as described under the heading “Corporate Governance and Board Matters—Board Meetings and Committees—Nominating, Governance and NominatingSustainability Committee,” beginning on page 1511 of this Proxy Statement. For the 20202022 annual meeting of shareholders, we must receive the nomination, which must conform to the notice requirements set forth in our Bylaws, between January 31, 202028, 2022 and March 1, 2020.February 27, 2022.
If we do not receive a shareholder proposal or director nomination by the appropriate deadline and in compliance with applicable requirements, then such proposal may not be brought before the 20202022 annual meeting of shareholders.
2020 ANNUAL REPORT
On February 21, 2019,17, 2021, we filed with the SEC our Annual Report on Form 10-K for the year ended December 31, 2018.2020. Copies of our 20182020 Annual Report on Form 10-K, including the financial statements thereto, without the accompanying exhibits, may be obtained without charge by writing to: FARO Technologies, Inc., Attention: Investor Relations, 250 Technology Park, Lake Mary, Florida 32746; by accessing our website at www.faro.com/about-faro/investor-relations/sec-filings or by accessing the SEC’s EDGAR database at www.sec.gov. A list of exhibits is included in the 20182020 Annual Report on Form 10-K, and exhibits are available from us upon payment to us of the cost of furnishing them.
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| | By Order of the Board of Directors, |
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| | JODY S. GALE |
| | Senior Vice President, General Counsel and Secretary |
By Order of the Board of Directors,Allen Muhich
Chief Financial Officer
April 17, 2019
15, 2021
This proxy statement contains information about our financial results that are not presented in accordance with U.S. generally accepted accounting principles (“GAAP”). These non-GAAP financial measures, including non-GAAP operating expenses exclude the GSA sales adjustment (as defined in the tables below), the impact of purchase accounting intangible amortization expense, stock-based compensation, advisory fees incurred related to the GSA Matter (as defined in the tables below), imputed interest expense recorded related to the GSA Matter, costs incurred in connection with our executive officer transitions, including severance costs, sign-on bonuses and relocation costs, charges increasing our reserve for excess and obsolete inventory, product recall charges, restructuring charges, strategic impairment charges and write-offs, the impairment charge related to our equity investment in present4D GmbH, contingent consideration fair value adjustment, and other tax adjustments, and are provided to enhance investors’ overall understanding of our historical operations and financial performance.
In addition, we present EBITDA, which is calculated as net (loss) income before interest (income) expense, net, income tax expense (benefit) and depreciation and amortization, and Adjusted EBITDA, which is calculated as EBITDA, excluding loss on foreign currency transactions, the GSA sales adjustment, stock-based compensation, advisory fees incurred related to the GSA Matter, costs incurred in connection with our executive officer transitions, including severance costs, sign-on bonuses and relocation costs, charges increasing our reserve for excess and obsolete inventory, product recall charges, restructuring charges, strategic impairment charges and write-offs, the impairment charge related to our equity investment in present4D GmbH, and contingent consideration fair value adjustment, as measures of our operating profitability. The most directly comparable GAAP measure to EBITDA and Adjusted EBITDA is net (loss) income. We also present Adjusted EBITDA margin, which is calculated as Adjusted EBITDA as a percent of Non-GAAP total sales.
Management believes that these non-GAAP financial measures provide investors with relevant period-to-period comparisons of our core operations using the same methodology that management employs in its review of the Company’s operating results. These financial measures are not recognized terms under GAAP and should not be considered in isolation or as a substitute for a measure of financial performance prepared in accordance with GAAP. These non-GAAP financial measures have limitations that should be considered before using these measures to evaluate a company’s financial performance. These non-GAAP financial measures, as presented, may not be comparable to similarly titled measures of other companies due to varying methods of calculation. The financial statement tables that accompany this press release include a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures.”
RECONCILIATION OF NET INCOME (LOSS) TO EBITDA AND ADJUSTED EBITDA
(UNAUDITED)
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| (in thousands) | 2020 | | 2019 |
| Net income (loss) | $ | 629 | | | $ | (62,147) | |
| Interest (income) expense, net | (340) | | | 67 | |
| Income tax benefit | (31,402) | | | 1,133 | |
| Depreciation and amortization | 14,239 | | | 18,548 | |
| EBITDA | (16,874) | | | (42,399) | |
| Loss (Gain) on foreign currency transactions | 431 | | | 1,087 | |
| Stock-based compensation | 8,314 | | | 11,071 | |
GSA sales adjustment (1) | 608 | | | 5,840 | |
Advisory fees for GSA Matter (2) | — | | | 1,244 | |
Inventory reserve charge (3) | — | | | 12,800 | |
Product recall and other product charges (4) | 1,644 | | | 1,328 | |
| Executive severance costs | — | | | 1,432 | |
| Executive sign-on bonuses & relocation costs | — | | | 845 | |
Present4D impairment (5) | — | | | 2,152 | |
Restructuring costs (6) | 15,806 | | | — | |
Strategic impairments and write-offs (7) | — | | | 35,213 | |
| Contingent consideration fair value adjustment | — | | | (926) | |
| Adjusted EBITDA | $ | 9,929 | | | $ | 29,687 | |
Adjusted EBITDA margin (8) | 3.3 | % | | 7.7 | % |
(1 ) Late in the fourth quarter of 2018, during an internal review we preliminarily determined that certain of our pricing practices may have resulted in the U.S. Government being overcharged under our General Services Administration (“GSA”) Federal Supply Schedule contracts (the “Contracts”) (the “GSA Matter”). We retained outside legal counsel and forensic accountants to conduct a comprehensive review of our pricing and other practices under the Contracts (the “Review”). During the twelve months ended December 31, 2020 and December 31, 2019, we reduced our total sales by $0.6 million and $5.8 million, respectively (the “GSA sales adjustment”).
(2) In connection with the GSA Matter, we retained outside legal counsel and forensic accountants to conduct the Review, which resulted in $1.2 million in advisory fees incurred during 2019.
(3) During the fourth quarter of 2019, we recorded a charge of $12.8, million increasing our reserve for excess and obsolete inventory, based on our analysis of our inventory reserves in connection with our strategy to simplify our hardware product portfolio and cease selling certain products.
(4)During the fourth quarter of 2019, we accrued a recall charge for labor and parts related to a small portion of previously sold measurement devices that were outside the manufacturer's standard warranty due to safety concerns. During the fourth quarter of 2020, we recognized a charge related to the replacement of a prior generation product that was exhibiting lower than desired reliability as part of our ongoing focus on customer satisfaction.
(5) On April 27, 2018, we invested $1.8 million in present4D GmbH (“present4D”), a software solutions provider for professional virtual reality presentations and training environments, in the form of an equity capital contribution. In July 2019, we originated a $0.5 million note with present4D, which we may convert into additional equity in present4D at our discretion in the event of a default. As we no longer intend to provide future support to present4D or obtain the aforementioned additional share capital in the future and no longer intend to use the perpetual and royalty-free, non-exclusive, transferable and sublicensable license granted to us to use present4D’s software, we wrote off the investment in, and our note receivable with, present4D and recognized a total loss of $2.2 million during the twelve months ended December 31, 2019, which is included in Other expense, net.
(6) On February 14, 2020, our Board of Directors approved a global restructuring plan (the “Restructuring Plan”), which is intended to support our strategic plan in an effort to improve operating performance and ensure that we are appropriately structured and resourced to deliver increased and sustainable value to our shareholders and customers. In connection with the Restructuring Plan, we recorded a pre-tax charge of approximately $15.8 million during the twelve months ended December 31, 2020 primarily consisting of severance and related benefits.
(7) Because the historical and projected future performance of certain of our recently acquired operations were lower than our expectations, and due to changes in our go forward strategy in connection with our new strategic plan, we incurred an impairment loss of $35.2 million during the fourth quarter of 2019, which included $21.2 million in goodwill, $10.5 million in intangible assets associated with recent acquisitions, $1.4 million in intangible assets related to capitalized patents and $2.1 million in other asset write-downs.
(8) Calculated as Adjusted EBITDA as a percentage of Non-GAAP total sales, which adjusts for the GSA sales adjustment.
RECONCILIATION OF US GAAP OPERATING EXPENSES TO NON-GAAP OPERATING EXPENSES
(UNAUDITED)
| | | | | | | | | | | |
| (dollars in thousands, except per share data) | 2020 | | 2019 |
| Operating expenses, as reported | $ | 190,529 | | | $ | 256,766 | |
Advisory fees for GSA Matter (1) | — | | | (1,244) | |
Stock-based compensation (2) | (7,612) | | | (10,068) | |
Restructuring costs (3) | (15,806) | | | — | |
Other product charge (4) | (1,644) | | | — | |
| Executive severance costs | — | | | (1,217) | |
| Executive sign-on bonuses & relocation costs | — | | | (1,060) | |
Strategic impairments and write-offs (5) | — | | | (35,213) | |
| Purchase accounting intangible amortization | (2,069) | | | (3,639) | |
| Non-GAAP adjustments to operating expenses | (27,131) | | | (52,441) | |
| Non-GAAP operating expenses | $ | 163,398 | | | $ | 204,325 | |
(1) In connection with the GSA Matter, we retained outside legal counsel and forensic accountants to conduct the Review, which resulted in $1.2 million in advisory fees incurred during 2019.
(2) We exclude stock-based compensation, which is non-cash, from the non-GAAP financial measures because the Company believes that such exclusion provides a better comparison of results of ongoing operations for current and future periods with such results from past periods. This adjustment includes accelerated vesting of equity awards in connection with the transition of our prior executives totaling $3.5 million for the twelve months ended December 31, 2019.
(3) On February 14, 2020, our Board of Directors approved a global restructuring plan (the “Restructuring Plan”), which is intended to support our strategic plan in an effort to improve operating performance and ensure that we are appropriately structured and resourced to deliver increased and sustainable value to our shareholders and customers. In connection with the Restructuring Plan, we recorded a pre-tax charge of approximately $15.8 million during the twelve months ended December 31, 2020 primarily consisting of severance and related benefits.
(4) During the fourth quarter of 2020, we recognized a charge related to the replacement of a prior generation product that was exhibiting lower than desired reliability as part of our ongoing focus on customer satisfaction.
(5) Because the historical and projected future performance of certain of our recently acquired operations were lower than our expectations, and due to changes in our go-forward strategy in connection with our new strategic plan, we incurred an impairment loss of $35.2 million during the fourth quarter of 2019, which included $21.2 million in goodwill, $10.5 million in intangible assets associated with recent acquisitions, $1.4 million in intangible assets related to capitalized patents and $2.1 million in other asset write-downs.
