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| Preliminary Proxy Statement | ||
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May FARO Technologies, Inc. 250 Technology Park, Lake Mary, Florida 32746 Proposals Election of the following persons as directors: • • Yuval Wasserman Non-binding vote to approve the compensation of our named executive officers
FARO TECHNOLOGIES, INC.250 Technology ParkLake Mary, Florida 32746NOTICE OF 20172019 ANNUAL MEETING OF SHAREHOLDERSTO BE HELD ON MAY 12, 201730, 2019March 31, 2017April 17, 2019To our shareholders:You are cordially invited to attend the 2017 2019Annual Meeting of Shareholders (the “Annual Meeting”) of FARO Technologies, Inc. (the “Company,” “FARO,” “we,” “us” or “our”) on May 12, 201730, 2019 at 9:00 a.m., Eastern time, at our principal executive offices, located at 250 Technology Park, Lake Mary, Florida 32746. At the Annual Meeting, shareholders will vote on the following matters:1. the election of twothree directors, Stephen R. ColeJohn E. Caldwell, John Donofrio and Marvin R. Sambur, Ph.D.,Yuval Wasserman, to the Board of Directors, each to serve for a three-year term expiring at the Annual Meeting of Shareholders in 2020;2022;2. the ratification of Grant Thornton LLP as our independent registered public accounting firm for 2017;2019;3. a non-binding resolution to approve the compensation of our named executive officers; 4.a non-binding vote as to the frequency with which shareholders will vote on the compensation of our named executive officers in future years; and5.4. any other business that may properly come before the Annual Meeting or any postponements or adjournments of the Annual Meeting. Holders of record of FARO common stock at the close of business on March 17, 201729, 2019 are entitled to vote at the Annual Meeting.FARO is pleased to be providing access to our proxy materials primarily by taking advantage of the Securities and Exchange Commission rule that allows issuers to furnish proxy materials to their shareholders over the Internet. On or about March 31, 2017, the CompanyApril 17, 2019, we will mail a Notice of Internet Availability of Proxy Materials (the “Notice”) to the majority of itsour shareholders, and on or about the same date, the Companywe 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 the proxy statement. The Company believesWe believe this method allows the Companyus to provide you with the information you need more expeditiously, while lowering the costs of delivery and reducing the environmental impact of the Annual Meeting.Your vote is important, and it is important that your shares be represented at the Annual Meeting, no matter how many shares you own. Please promptly submit your proxy or voting instructions over the Internet or by telephone by following the instructions on the Notice and in the proxy statement so that your shares can be voted, regardless of whether you expect to attend the Annual Meeting. If you received your proxy materials by mail, you may submit your proxy or voting instructions over the Internet or by telephone, or you may submit your proxy by marking, dating, signing and mailing the proxy card or voting instruction card using the postage paid envelope provided. If you attend the Annual Meeting, you may withdraw your proxy and vote in person if you would like to do so.Thank you for your continued support. By Order of the Board of Directors, 
JODY S. GALE Senior Vice President, General Counsel and Secretary 20172019 Proxy Statement SummaryThe following is a summary of certain key disclosures in this proxy statement.Proxy Statement. This is only a summary, and it may not contain all of the information that is important to you. For more complete information, please review this proxy statementProxy Statement as well our 20162018 Annual Report on Form 10-K.Annual Meeting of Shareholders12, 2017,30, 2019, 9:00 a.m. Eastern Time Record Date: March 17, 201729, 2019 Proposals to be Voted on and Board Voting RecommendationsRecommendations Recommendations• Stephen R. Cole • John E. Caldwell FOR Marvin R. Sambur, Ph.D.John Donofrio FOR FOR Ratification of Grant Thornton LLP as Auditors for 20172019 FOR FOR Non-binding vote as to the frequency with which shareholders will vote on the compensation of our named executives officers in future yearsFOR EVERY ONEYEAR20162018 HighlightsIn 2016,2018, we reorganizedcrossed the $400 million milestone in annual sales for the first time in our businesshistory. We recorded $403.6 million in total sales in 2018, an increase of 11.8% over 2017. We achieved over $425 million in new order bookings in 2018, up 12.8% compared to align2017. We executed on our strategic sales growth initiative by expanding our sales marketing,organization headcount 16.2% compared to the end of 2017. We maintained a strong balance sheet with no debt and cash and cash equivalents and short-term investments of $133.6 million as of December 31, 2018.We achieved numerous milestones in 2018 involving significant product managementlaunches and research and development to specific vertical markets to better define our end market applications. We believe this realignment will enable us to focus our product offerings and selling approach to meet the specific needs of our customers. Sales for fiscal year 2016 were $325.6 million, up 2.5% from fiscal year 2015. Operating income for fiscal year 2016 was $13.3 million, up 1.2% compared with the prior year, while net income of $11.1 million was $1.7 million lower than fiscal year 2015. Although our financial results did not meet our aggressive internal targets, there were a number of highlights in 2016:acquisitions:Product innovation – In 2018, we launched fourteen new products including:•◦ Going Vertical in Harmony Reorganization Initiative—AsFARO ScanPlan – The FARO ScanPlan is a result of the reorganization, we realigned our business into the following three reportable segments, which incorporate our specific vertical markets:¡Factory Metrology—provides solutions for manual and automated measurement and inspection in an industrial or manufacturing environment;¡Construction Building Information Modeling—Construction Information Management—provides solutions for as-built datahandheld mapper that captures two-dimensional (“2D”) floor plans. The FARO ScanPlan performs real-time capturing and three-dimensional (“3D”) visualization in building information modelingdiagramming of as-built floor plans of buildings for threat assessment, pre-incident planning and fire protection engineering.◦ FARO TracerSI – The FARO TracerSI accurately projects a laser line onto a surface or construction information management applications, allowing our customers in the architecture, engineeringobject, providing a virtual template that operators and construction marketsassemblers can use to quickly and accurately extract desired two-dimensionalposition components with confidence. ◦ FARO Design ScanArm®2.5C and 3D measurement points; and¡Other—the Other segment includes our Product Design, Public Safety Forensics and 3D Solutions vertical organizations.
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ScanArm. Using the new FARO |
| ◦ | FARO 8-Axis FaroArm®–This |
| ◦ | 6DoF FARO Vantage Laser Tracker – Together with the hand-held 6Probe, a fully-integrated hand-held probe, the 6DoF FARO Vantage Laser Tracker |
| ◦ | FARO Digi-Cube®– FARO Digi-Cube® is a high-precision, high |
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Leadership Transition
In December 2015, we announced the appointment of Dr. Simon Raab, our co-founder and Chairman, as interim President and Chief Executive Officer coinciding with the resignation of Jay Freeland, who had served as our President and Chief Executive Officer since 2006. In 2016, we announced Dr. Raab’s commitment to extend his role as President and Chief Executive Officer beyond an interim basis until the completion of our Going Vertical in Harmony reorganization initiatives and the realization of our near-term strategic priorities.
In March 2016, we announced the resignation of Laura A. Murphy-Wolf, who had served as our Senior Vice President and Chief Financial Officer since August 2015. In December 2016, we announced the promotion of Robert E. Seidel to Chief Financial Officer.
In April 2016, in connection with our Going Vertical in Harmony reorganization initiatives, we announced the appointments of Kathleen J. Hall as our Chief Operating Officer and Joseph Arezone as our Chief Commercial Officer.
Compensation Highlights
The
time-based restricted stock units. We did not meet anyall of the financial goals we set for ourselves in 2018, and thus did not meet the minimum payout thresholds under our 2016 short-term incentive plan.
However, in recognition of the significant efforts required from our employees to successfully execute our Going Vertical in Harmony reorganization initiatives, as described in “Executive Compensation—Compensation Discussion and Analysis,” the Compensation Committee approved a discretionary cash bonus to our employees entitled to receive bonuses, including our named executive officers of up to 35%earned only between 11.50% and 12.65% of their target short-term incentive compensation.
Our Board of Directors consists of Executive sessions of the independent directors are held at each in-person Board meeting. We have a director resignation policy for those director nominees who receive more President and Chief Executive Officer TransitionOn January 9, 2019, we entered into a letter agreement with Dr. Simon Raab, setting forth the terms of Dr. Raab’s retirement as our President and Chief Executive Officer (“CEO”) and as a member of our Board of Directors. Dr. Raab agreed to continue to serve as our President and CEO and to remain on our Board of Directors until the appointment of his successor. On April 5, 2019, our Board of Directors appointed Michael D. Burger as our President and CEO, effective as of June 17, 2019. Mr. Burger has over 20 years of experience 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 member of our Board of Directors on June 16, 2019. The Compensation Discussion and Analysis section of this Proxy Statement has more information regarding the compensation payable to Dr. Raab during this transition period pursuant to the letter agreement and the compensation payable to Mr. Burger upon the commencement of his service as our President and CEO. In addition, on April 5, 2019, the Board elected John Donofrio to serve as the independent Chairman of the Board, effective immediately.Corporate GovernanceOur corporate governance policies reflect many components of what are widely considered to be best practices:sixseven members, comprised of fivesix independent directors and our Chief Executive Officer.President and CEO. Only the independent directors serve on the Audit, Compensation, and Governance and Nominating, and Operational Audit Committees.Hedging transactionsOur Company policy prohibits hedging and pledging of Company securities by our stock are prohibited for all directors and executive officers.SignificantWe have a stock ownership requirements are in placepolicy for our non-employee directors and executive officers. Under these guidelines,officers, as further described on pages 19 and 39 of this Proxy Statement, respectively. Among other things, this policy provides that our Chief Executive Officer is required to own stock having a value equal toPresident and CEO must hold at least six times his annual base salary thein Company common stock, our other executive officers are required to own stock having a value equal toexecutives must hold at least two times their respective annual base salaries in Company stock, and our non-employee directors are required tomust own Company stock havingwith a value equal toof at least $300,000.OurWe maintain a compensation clawback policy, applies to executive officers’ performance-based incentive compensation in the eventas further described on page 39 of a restatement of our financial statements due to misconduct.“withheld”“withhold” than “for” votes in uncontested elections.
We were pleased that
TABLE OF CONTENTS2018 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 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, as described in more detail in our Compensation Discussion and Analysis in this Proxy Statement:
| Prior Approach | What We Heard | Our Actions |
Short-term cash incentives could be earned based on the 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. |
| Our long-term incentive compensation 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 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 restricted stock units that vest in equal installments over three years. | ||
2017
| 1. | the election of |
| 2. | the ratification of Grant Thornton LLP as our independent registered public accounting firm for |
| 3. | a non-binding resolution to approve the compensation of our named executive |
April 17, 2019.
The Notice of 20172019 Annual Meeting of Shareholders;
This Proxy Statement for the Annual Meeting; and
Our 20162018 Annual Report, which includes our Annual Report on Form 10-K for the year ended December 31, 2016,2018, as filed with the SEC on February 24, 201721, 2019 (the “Annual Report”).
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.
View our proxy materials for the Annual Meeting; and
Instruct us to send future proxy materials to you by e-mail.
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.
over the Internet, through the website shown on your Notice or proxy card;
by telephone, by calling toll-free 1-800-690-6903 in the United States from any touch-tone telephone and following the instructions; or
If you received a printed set of proxy materials, by mailing your signed proxy card in the postage paid envelope provided.
How many shares must be present to consider each matter at the Annual Meeting?
The presence, in person or by proxy, of a majority of the votes entitled to be cast on a specific proposal will constitute a quorum for that proposal. Even if a quorum is established for the Annual Meeting, it is possible that a quorum may not be established for a specific proposal presented at the Annual Meeting. Shares that are voted “ABSTAIN” or properly executed proxy cards or voting instructions cards that are returned without voting instructions will be counted as present for the purpose of determining whether the quorum requirement is satisfied for all proposals at the Annual Meeting. If your shares are held in street name and you do not provide voting instructions to your bank or broker, your shares will not affect the determination of whether a quorum exists for Proposals 1, 3 or 4, but your shares will be counted as present for the purpose of determining whether the quorum requirement is satisfied for Proposal 2.
FOR the election of Stephen R. ColeJohn E. Caldwell, John Donofrio, and Marvin R. Sambur, Ph.D.Yuval Wasserman to the Board of Directors;
FOR the ratification of Grant Thornton LLP as our independent registered public accounting firm for 2017;
FOR the approval of the compensation of our named executive officers; and
FOR an annual non-binding vote to approve the compensation of our named executive officers.
If you are a registered shareholder and you do not vote, your un-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-voted shares will not affect the outcome of any proposal.
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 11, 2017;
giving written notice of your revocation to FARO Technologies, Inc., Attention: Secretary, 250 Technology Park, Lake Mary, Florida 32746, prior to or at the Annual Meeting; or
voting in person at the Annual Meeting.
Proposal 4—FOR an annual non-binding vote to approve the compensation of our named executive officers.
election of directors.
How many votes are required to approve the non-binding vote as to the frequency with which shareholders will vote on the compensation of the Company’s named executive officers in future years?
Shareholders may select a frequency of every one, two or three years, or they may abstain from voting on this proposal. The non-binding selection of one of the three frequency options requires the affirmative vote of a majority of the votes cast by the shareholders. If none of the frequency options receives the approval of a majority of the votes cast, the Board will view as the selection of the shareholders the frequency alternative that receives the greatest number of votes. Abstentions and broker non-votes will have no impact on the outcome of this matter.
However, we reserve the right not to forward to Board members any abusive, threatening or otherwise inappropriate materials.
shareholders.
Dr. Raab will retire from the Board on June 16, 2019 upon his retirement as our President and CEO.
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 Governance and Nominating Committee will then act to determine whether to accept the director’s resignation and submit such recommendation for prompt consideration by the Board.
Name | Age | Director Since | Term Expires | Position | ||||||||||
Stephen R. Cole | 65 | 2000 | 2020 | Director and Nominee | ||||||||||
Marvin R. Sambur, Ph.D. | 71 | 2007 | 2020 | Director and Nominee | ||||||||||
| 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 | |||||
Chartered Institute of Business Valuators, Senior Member of the American Society of Appraisers and Full Member of the ADR Institute of Canada, Inc. He is currently a director and chairman of the compensation committee of Westaim Corporation, a TSX Venture Exchange listed company. Previously, Mr. Cole was a director of H. Paulin & Co. Limited, a Toronto Stock Exchange (“TSX”) listed company, where he also served as chairman of the audit committee. Mr. Cole has also held a position 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.
Marvin R. Sambur, Ph.D. has served as a director of the Company since January 2007. Dr. Sambur started his career at Bell Laboratories in 1968 and later held top executive positions at ITT Corporation, including President and CEO of ITT Defense, a $2+ billion group with over 10,000 employees. From 2001 until 2005, Dr. Sambur served as Assistant Secretary of the United States Air Force for Acquisition and Research. In this position, Dr. Sambur formulated and executed a $220 billion Air Force investment strategy to acquire systems and support services. In 2015, Dr. Sambur retired from his position as Professor of the Practice at the University of Maryland’s Clark School of Engineering, a position he had held since 2005, and previously retired as the President and CEO of Burdeshaw Associates, a global defense/aerospace consulting company where he served from September 2012 to May 2013. Dr. Sambur is currently serving as the President of the Raptor Group, providing global consulting services on systems engineering issues. Dr. Sambur previously served on several Government Advisory Boards, including the U.S. Air Force Scientific Advisory Board and the National Academy of Science AF Study Board. Dr. Sambur received a Ph.D. from MIT in Electrical Engineering. Dr. Sambur has had over 100 papers published in referred journals on signal processing and Systems Engineering, and he developed the Master of Science in Systems Engineering program for The Clark School of Engineering at the University of Maryland.
Relevant experience and skills: senior operations and engineering management, high level executive and financial management, research and development management, government acquisitions management, and international negotiations.
Directors Whose Terms Will Continue After the Annual Meeting
Name | Age | Director Since | Term Expires | Position | ||||||||||
Lynn Brubaker | 59 | 2009 | 2018 | Director | ||||||||||
Simon Raab, Ph.D. | 64 | 1982 | 2018 | Director | ||||||||||
John E. Caldwell | 67 | 2002 | 2019 | Director | ||||||||||
John Donofrio | 55 | 2008 | 2019 | Director | ||||||||||
Lynn Brubaker has served as a director of the Company since July 2009. Ms. Brubaker is a seasoned executive with over 35 years’ 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, The Nordam Group, a private aerospace company in high technology manufacturing and repair, and QinetiQ Group plc, a London Stock Exchange–listed leading research and technology company. Ms. Brubaker also 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, retiring as Vice President and General Manager—Commercial Aerospace for Honeywell
International, a position she held from 1999 to 2005. Ms. Brubaker held a variety of management positions with McDonnell Douglas, Northwest Airlines, and ComAir. 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.
Simon Raab, Ph.D. is a co-founder of the Company and has served as Chairman of the Board of Directors of the Company since its inception in 1982. Dr. Raab has served as our President and Chief Executive Officer since December 2015. Dr. Raab previously served as Chief Executive Officer of the Company from its inception in 1982 until January 2006, as Co-Chief Executive Officer from January 2006 until December 2006, and as President of the Company from 1986 until 2004. Dr. Raab also serves as a director of two privately-held companies: Cynvenio Biosystems, Inc. and True Vision Systems, 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.
Relevant experience and skills: executive management, mechanical engineering and physics.
John E. Caldwell has been a director of the Company since 2002. In March 2011, Mr. Caldwell retired as President and Chief Executive Officer and from the board of directors of SMTC Corporation (“SMTC”), a publicly heldpublicly-held electronics manufacturing services company whose shares are traded on the NASDAQNasdaq Global Market and on the TSX.Toronto Stock Exchange (“TSX”). Mr. Caldwell had served as President and CEO and as a director of SMTC since 2003. Before joining SMTC, Mr. Caldwell held positions in the Mosaic Group, a marketing services provider, as Chair 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, 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. Caldwell has also been a director of IAMGOLD Corporation, a mid-tier gold producer, since 2006. Mr. Caldwell has also served 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.
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.
| 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 | |||||
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.
TheDirector, with Stephen R. Cole serving as Lead Director until May 2018 and 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, andeffective June 17, 2019. On that same date, the Board elected John Donofrio as our independent Chairman of the Board, effective immediately. 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 allow 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 the functioning of the Board and our corporate governance. Because we currently have an independent Chairman of the Board, there is currently no Lead Director.
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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* | 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 | |||
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| * | Committee |
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;
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.
reviewing our operational performance against certain predetermined metrics; focusing on improving our short-term and long-term operating performance and continuously reviewing the metrics against which we measure our performance;Operational Audit CommitteeThe Operational Audit Committee met threefour times in 2016.2018. The Operational Audit Committee acts under the terms of a written charter that is available on our website atwww.faro.com, by first clicking “Investor Relations” and then “Leadership and Governance.”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:
meeting with executives and department heads to review progress against operational goals; and
addressing operational risk management issues.
examination of management and leadership development and programs; review of the design of incentive plans; review and approval of senior management 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; establishment of executive compensation for addressing other compensation and employment matters, including specific review of the performance of our President and CEO; ensuring that the philosophy and operation of our compensation program reinforce our culture and values, create a balance between risk and reward, attract, motivate and retain executives over thelong-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 severance and 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-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 reviewing and approving, with the input and recommendation of the President and CEO, the annual base salaries, annual incentive and other compensation arrangements of all other named executive officers and all other Senior Vice Presidents and Vice 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; reviewing and recommending any proposed changes in director compensation to the Board; 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 Committee 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 Committee has engaged be subject to all of the terms and conditions of the 2014 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 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.Compensation CommitteeThe Compensation Committee held threefive meetings during 2016.2018. In addition to its formal meetings, the Compensation Committee Chairman and other members of the committee met frequently throughout 20162018 and in the first quarter of 20172019 among themselves without the presence of management, as well as with the Compensation Committee’s advisorsconsultant and our President and CEO. Areas of consideration at these various meetings included but were not limited to:consultations with Pearl Meyer & PartnersCompensia, Inc. (“Pearl Meyer”Compensia”), the compensation consultant to the Compensation Committee for 2018 and 2019 board and executive compensation, 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;20162018 and 2017, including, among other items, determination of the appropriate compensation for (i) Dr. Raab in connection with his commitment to extend his role as President and CEO beyond an interim basis, (ii) Kathleen J. Hall in connection with her appointment as our Chief Operating Officer in April 2016, (iii) Joseph Arezone in connection with his appointment as our Chief Commercial Officer in April 2016, and (iv) Robert E. Seidel, in connection with his appointment as our Chief Financial Officer in December 2016; anddeveloping 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; anddeveloping, with the advice of Compensia, Mr. Burger’s compensation arrangements and terms as our new President and CEO.Each of the Compensation Committee members qualifies as independent for Compensation Committee membership, as defined in the NASDAQNasdaq 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 Committee acts under the terms of a written charter that is available on our website atwww.faro.com, by first clicking “Investor Relations” and then “Leadership and Governance.”www.faro.com/about-faro/leadership-and-governance. As discussed in its charter, the Compensation Committee 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 Committee annually reviews and determines the President and CEO’s compensation, it works with the Chairman of the Board, 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 (other thanreporting to the CEO).President and CEO. The Compensation Committee maintains final authority in the determination of individual executive compensation packages to ensure compliance with our compensation policy objectives.The Compensation Committee’s duties and responsibilities include, among other things:change in controlchange-in-control benefits;evaluation;President levelPresident-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;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;Pearl Meyer,Compensia, a compensation expert, to informally update the Compensation Committee on an annual basis and from time to time on matters that have been delegated to the Compensation Committee, and from time to time to provide a formal executivedirector compensation study and, directorin 2018, to provide a formal executive compensation study, including recommended best practices and median compensation at comparable companies.The Compensation Committee may delegate its authority to grant awards under the FARO Technologies, Inc. 2014 Incentive Plan (the “2014 Equity Plan”) to our executive officers. The Compensation Committee has delegated its authority to our President and CEO, subject to the parameters discussed below, to grant stock-based awards under the 2014 EquityIncentive Plan to newly-hirednewly 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: (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 willEquityIncentive Plan; and (iii) the President and CEO must make a written report to the Compensation Committee 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 Committee has the authority to retain consultants and to obtain advice and assistance from external legal, accounting and other advisors at our expense. Since 2008,October 2017, the Compensation Committee has engaged Pearl MeyerCompensia to advise it on compensation matters. In performing its services, Pearl MeyerCompensia reports to and is instructed by the Compensation Committee. The Compensation Committee met with Pearl Meyer in December 2015. The Chairman of the Compensation Committee had additional conversations with Pearl Meyer during 2016 without management present. For more information regarding Pearl Meyer’sCompensia’s services, see “2016“2018 Director Compensation,” beginning on page 2118 of this Proxy Statement and “Executive Compensation—Compensation Discussion and Analysis,” beginning on page 3327 of this Proxy Statement.Governance and Nominating CommitteeThe Governance and Nominating Committee met one timefour times in 2016.2018. Each of the Governance and Nominating Committee members meetsis independent under the definition of independence in the NASDAQNasdaq rules.The Governance and Nominating Committee’s written charter is available on our website atwww.faro.com, by first clicking “Investor Relations” and then “Leadership and Governance.”www.faro.com/about-faro/leadership-and-governance. As discussed in detail in the charter, the Governance and Nominating Committee is responsible for developing, evaluating and implementing our corporate governance policies. The Governance and Nominating 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 Governance and Nominating 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 Governance and Nominating Committee also will consider director candidates recommended by eligible shareholders. Shareholders may recommend director nominees for consideration by the Governance and Nominating Committee by writing to the Governance and Nominating 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 Governance and Nominating Committee.The following minimum qualifications must be met by a director nominee to be recommended by the Governance and Nominating Committee:senior levelsenior-level leadership in business, government, education, technology or public interest;
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.
Communications with Board of Directors
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) designated on such communication.
Name | Fees Earned or Paid in Cash ($) (1) | Stock Awards ($) (2)(3) | All Other Compensation ($) | Total ($) | ||||||||||||
Lynn Brubaker | 67,500 | 99,978 | — | 167,478 | ||||||||||||
John E. Caldwell | 77,500 | 99,978 | — | 177,478 | ||||||||||||
Stephen R. Cole | 115,000 | 139,997 | — | 254,997 | ||||||||||||
John Donofrio | 72,500 | 99,978 | — | 172,478 | ||||||||||||
Marvin R. Sambur, Ph.D. | 72,500 | 99,978 | — | 172,478 | ||||||||||||
| Name | Fees Earned or Paid in Cash ($) (1) | Stock Awards ($) (2)(4) | All Other Compensation ($) | Total ($) | |||||||||
| Lynn Brubaker | 70,000 | 99,987 | — | 169,987 | |||||||||
| John E. Caldwell | 76,250 | 99,987 | — | 176,237 | |||||||||
| Stephen R. Cole | 96,250 | 99,987 | — | 196,237 | |||||||||
| John Donofrio | 90,000 | 139,972 | — | 229,972 | |||||||||
| Jeffrey A. Graves, Ph.D. | 67,500 | 99,987 | — | 167,487 | |||||||||
| Marvin R. Sambur, Ph.D. (3) | 54,375 | — | — | 54,375 | |||||||||
| Yuval Wasserman | 70,000 | 99,987 | — | 169,987 | |||||||||
| (1) | Includes cash retainers earned by each non-employee director during the year ended December 31, |
| (2) | Reflects the grant date fair value of restricted stock awards granted to our non-employee directors in |
| (3) | Effective May 11, 2018, Dr. Marvin R. Sambur retired from his position as a member of the Board of Directors in adherence with the Company’s mandatory retirement policy for directors, which requires a director who attains the age of 72 during his or her term to retire from the Board immediately prior to the first annual meeting of shareholders following such director’s 72nd birthday. |
| (4) | As of December 31, |
Name | Restricted Stock Awards (#) | |||
Lynn Brubaker | 1,883 | |||
John E. Caldwell | 1,883 | |||
Stephen R. Cole | 1,883 | |||
John Donofrio | 2,636 | |||
| Jeffrey A. Graves, Ph.D. | 3,903 | |||
Marvin R. Sambur, Ph.D. | — | |||
| Yuval Wasserman | ||||
| 3,903 |
Name | Restricted Stock Awards (#) | Full Grant Date Fair Value of Award ($) | ||||||
Lynn Brubaker | 2,988 | 99,978 | ||||||
John E. Caldwell | 2,988 | 99,978 | ||||||
Stephen R. Cole | 4,184 | 139,997 | ||||||
John Donofrio | 2,988 | 99,978 | ||||||
Marvin R. Sambur, Ph.D. | 2,988 | 99,978 | ||||||
| Name | Restricted Stock Awards (#) | Full Grant Date Fair Value of Award ($) | ||||
| Lynn Brubaker | 1,883 | 99,987 | ||||
| John E. Caldwell | 1,883 | 99,987 | ||||
| Stephen R. Cole | 1,883 | 99,987 | ||||
| John Donofrio | 2,636 | 139,972 | ||||
| Jeffrey A. Graves, Ph.D. | 1,883 | 99,987 | ||||
| Yuval Wasserman | 1,883 | 99,987 | ||||
2018.
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) | |
Chairman | $ | 100,000 | (a) | |
Initial Equity Grant | $ | 100,000 | (b) | |
Annual Equity Grant | $ | 100,000 | (c) |
| 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) | 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. |
| (b) | 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) | 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. |
In February 2017, after evaluating Dr. Raab’s role as our President and Chief Executive Officer 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 described above.
requirement, with the exception of Dr. Graves and Mr. Wasserman, who have through December 31, 2019 to attain the minimum share ownership requirement. FIRM FOR 2019. 2019. Audit fees(1) Audit related fees(2) All other fees Total fees this Proxy Statement.Mandatory Board of Director Stock Ownership and Holding PeriodsOur 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 currentthen-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 by non-employee directors to the extent necessary to satisfy tax obligations arising from the vesting of their restricted stock awards. As of December 31, 2016,2018, all of our directors were in compliance withmet or exceeded the minimum share ownership guidelines.Director Deferred Compensation PlanIn October 2018, the Compensation Committee approved the adoption of 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 2RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTHE BOARD OF DIRECTORS RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR” PROPOSAL 2, THE RATIFICATION OF GRANT THORNTON LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.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 for the fiscal years ended December 31, 2016 and 2015.since 2004. The Audit Committee has appointed Grant Thornton LLP as our independent registered public accounting firm for 2017.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 ACCOUNTANTSThe 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, 20162018 and 2015,2017, and fees for other services rendered by Grant Thornton LLP during those periods. 2016 2015 $ 1,805,569 $ 2,093,606 33,155 90,208 — — $ 1,838,724 $ 2,183,814 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 20162018 and 20152017 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. AuditAlso, the amount for 2018 includes fees for 2016 decreased from 2015 primarily due toincurred in connection with our implementation of SAP, a new enterprise resource planning system,registration statement on Form S-8 filed with the SEC in theAsia-Pacific and Europe/Africa regions in 2015.August 2018.(2) Amounts for 20162018 and 20152017 include fees related to the audit of our employee benefit plan. Audit related fees included an evaluation of our SAP readiness in Europe/Africa in 2015.The Audit Committee has concluded that the provision of the audit and permitted non-audit services by Grant Thornton LLP in 20162018 and 20152017 is consistent with maintaining the independence of Grant Thornton LLP.Pursuant to the Audit Committee charter, the Audit Committee pre-approved all such 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 COMMITTEEUnder 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 rules of the Public Company Accounting Oversight Board; 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, 20162018 for filing with the SEC.Audit Committee:Stephen R. Cole, Audit Committee Member (Chair)Lynn Brubaker, Audit Committee MemberJohn E. Caldwell, Audit Committee Member (Chair)Lynn Brubaker, Audit Committee MemberStephen R. Cole, Audit Committee MemberJohn Donofrio, Audit Committee MemberMarvin R. Sambur,Jeffrey A. Graves, Ph.D., Audit Committee MemberYuval Wasserman, Audit Committee MemberPROPOSAL 3ADVISORY VOTE ON EXECUTIVE COMPENSATIONTHE 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.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 2014,2016, May 20152017 and May 2016,2018, approximately 98%, 99% and 78%, respectively, of the votes cast on the Say-on-Pay proposal at each of those meetings were voted in favor of the proposal. The Compensation Committee believes this affirmsDuring 2018, before our shareholders’ support forannual meeting of shareholders, our approach tomanagement team discussed our executive compensation programs, policies and no significant changes were made to this approach for 2016 aspractices with certain of our shareholders. As a result of the voteslower say-on-pay approval level in prior years. However,2018, and based on observations fromthe discussions management had with those shareholders during 2018, the Compensation Committee’sCommittee decided to undertake a comprehensive review of our executive compensation programs, policies and practices, including engaging its independent compensation consultant Pearl Meyer, which were consistent with those shared by managementto assist in the review of our 2018 say-on-pay voting results, shareholder outreach considerations and by certain investors who have communicated concerns torecommendations for the Company with respect to such incentive programs, the Compensation Committee:adopted a simpler short-term cash incentive plan beginning in 2016, in which awards for executives could be earned based on achievement of financial performance goals for revenue (30%) and profitability (70%), which amount would then be multiplied by an individual performance factor normalized at 1.0; andtransitioned to a simpler long-term equity incentive program that granted time-based equity incentive awards consisting of stock options and restricted stock units, with the number of awards granted to each participant based on his or her targeted2019 long-term equity incentive award percentage, multiplied by an individual performance factor normalized at 1.0.The effectdesign. As a result of this initiative, the individual performance factor would beCompensation Committee approved significant changes to adjust,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. 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 a performance basis, the amount otherwise determined upward or downward based upon achievementpage 28 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 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.PROPOSAL 4
ADVISORY VOTE ON THE FREQUENCY OF THE APPROVAL OF EXECUTIVE COMPENSATION
THE BOARD OF DIRECTORS RECOMMENDS THAT OUR SHAREHOLDERS VOTE “1 YEAR” FOR THE NON-BINDING VOTE TO APPROVE THE FREQUENCY OF FUTURE NON-BINDING VOTES TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.
Section 14A of the Exchange Act also provides our shareholders with the opportunity to indicate, on a non-binding advisory basis, how frequently we should hold future advisory “Say-on-Pay” votes. Accordingly, the Board is asking our shareholders to express their preference as to the frequency with which the we should present future “Say-on-Pay” votes to shareholders. Shareholders may select a frequency of every one, two or three years, or they may abstain from voting.
We are required to hold this “Say-on-Pay” frequency vote at least once every six calendar years. When we conducted our last “Say-on-Pay” frequency vote at our 2011 Annual Meeting of Shareholders, our shareholders expressed a strong preference to conduct “Say-on-Pay” votes on an annual basis. Consistent with that preference, since that time, we have continued to hold our “Say-on-Pay” vote annually. The Board has not observed any reason why the previously-expressed shareholder preference should not continue to govern and notes that market practice is for annual “Say-on-Pay” votes. The Board believes that an annual “Say-on-Pay” vote will allow shareholders to provide the Board and the Compensation Committee with more meaningful and direct input into our executive compensation philosophy, policies and programs. The Board believes an annual “Say-on-Pay” vote will also foster more useful communication with shareholders by providing shareholders with a clear and timely means to express any concerns and questions. Nonetheless, shareholders are not being asked to approve or disapprove of the Board’s recommendation, but rather to indicate their own choice as among the frequency alternatives.
The non-binding selection of one of the three frequency options requires the affirmative vote of a majority of the votes cast by the shareholders. If none of the frequency options receives the approval of a majority of the votes cast, the Board will view as the selection of shareholders the frequency alternative that receives the greatest number of votes. Although this vote is advisory and not binding, the Board values the opinions of our shareholders and will consider the outcome of this proposal when determining the frequency of future “Say-on-Pay” votes.
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 Annual Meeting 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, 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 2018 Shareholder Proposals and Director Nominees.” No shareholder has given written notice that he or she intends to bring business before the Annual Meeting in compliance with the terms and time periods specified in our bylaws.
Name Principal Position Simon Raab, Ph.D Robert E. Seidel Kathleen J. Hall Katrona Tyrrell Jody S. Gale has served as Senior Vice President, General Counsel and Secretary of the Company since February 2014. Prior to joining the Company, Mr. Gale served as Vice President and Associate General Counsel – M&A, Securities and Governance at Biomet, Inc., a global medical device company, from December 2008 to January 2014. Previously, Mr. Gale was a Partner at Kirkland & Ellis LLP, where he worked from 1999 through 2008. Mr. Gale holds a Bachelor of Arts degree from Albion College in Albion, Name Title Simon Raab, Ph.D. Robert E. Seidel Jody S. Gale December 31, 2018. Total Shareholder Return Sales growth Net income shareholders. $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. options for Dr. Raab and a combination of stock options and restricted stock units (“RSUs”) for the other NEOs. In 2019, the equity awards granted to our named executive officers consist of performance-based RSUs (instead of stock options) and time-based RSUs. Name Dr. Raab Mr. Seidel Ms. Murphy-Wolf Ms. Hall Mr. Arezone Mr. Gale adjust the annual incentives upward or downward for 2018. Sales growth Net income the full prior year and overall contribution for the year. 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 Name Dr. Raab Mr. Seidel Ms. Hall Mr. Arezone Mr. Gale 2018. Name Dr. Raab Mr. Seidel Ms. Murphy-Wolf Ms. Hall Mr. Arezone Mr. Gale 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. to consultations regarding, among other matters, (i) updated market data and compensation trends generally; (ii) specific updated market data regarding compensation for In the years Company Industry Description Cascade Microtech, Inc. Cognex Corporation Coherent, Inc. Electro Scientific Industries, Inc. FormFactor, Inc. II-VI Incorporated IPG Photonics Corporation MKS Instruments, Inc. Nanometrics Incorporated Novanta Inc. Rofin Sinar Technologies Inc. Rudolph Technologies, Inc. Ultratech, Inc. Xcerra Corporation Xperi Corporation FARO Technologies, Inc. 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. 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 Committee 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. 21, 2019. Name and Principal Position Simon Raab, Ph.D.(6) President and Chief Robert E. Seidel(7) Chief Financial Officer Laura A. Murphy-Wolf(7) Former Senior Vice President and Chief Financial Officer Kathleen J. Hall Chief Operating Officer Joseph Arezone Chief Commercial Officer Jody S. Gale Senior Vice President, General Counsel and Secretary Dr. Raab Mr. Seidel Ms. Murphy-Wolf Ms. Hall Mr. Arezone Mr. Gale Fees Earned or Paid in Cash (reported in the “Salary” column) Stock Awards (annual director restricted stock grants) All Other Compensation Total Director Compensation EXECUTIVE OFFICERSThe following table provides information regarding our executive officers as of March 17, 2017:29, 2019: Age 66 64 President and Chief Executive Officer Director 44 42 Chief Financial Officer 58 56 Chief Operating Officer Joseph Arezone 44 51Chief Commerical OfficerJody S. Gale42 Senior Vice President, General Counsel and Secretary 56 54 Chief People Officer Yazid Tohme, Ph.D 45 Chief R&D Officer Simon Raab, Ph.D. has served as President and Chief Executive OfficerCEO 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. Seidel 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. Prior to joining the Company, Mr. Seidel was employed at Trinseo S.A., a global materials company, serving as Global Finance Manager for its latex chemicals segment from 2011 to 2014. Previously, Mr. Seidel served as Plant Controller at Anheuser-Busch InBev from 2006 to 2010. 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. He holds a Bachelor of Science degree in Mechanical Engineering from Stanford University and a Master of Business Administration from Cornell’s Johnson School.Kathleen J. Hall was appointed our Chief Operating Officer in April 2016. 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 joining the Company,that, Ms. Hall served as Vice President & General Manager of Avery Dennison Corporation’s Graphics and Reflective Solutions and Performance Tapes Americas’ businesses from November 2008 to October 2012. Between October 2012 and July 2013, Ms. Hall provided independent consulting services. From 1982 to 2008, Ms. Hall held roles of increasing responsibility at E.I DuPontE.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.Joseph Arezone was appointed our Chief Commercial Officer in April 2016. Prior to this appointment, Mr. Arezone served as Senior Vice President, Managing Director, Europe, Middle East and Africa andAsia-Pacific Regions from November 2014 to April 2016. He previously served as Senior Vice President, Managing Director, Asia-Pacific Region from August 2009 to November 2014 and as our Vice President of Sales for Asia-Pacific from January 2008 to August 2009. Prior to that, Mr. Arezone was our Area Vice President of Sales for the Eastern U.S. market from July 2005 to January 2009. From February 2001 until July 2005, Mr. Arezone served as our Regional Sales Manager. Mr. Arezone serves on the board of directors of the Cleveland Film Society. He holds a Bachelor of Science degree in Civil Engineering from The Ohio State University and a Master of Business Administration from Cleveland State University.MIMichigan and a Juris Doctor/Master of Business Administration from Case Western Reserve University.Katrona Tyrrell has served as our Chief People Officer of the Company since January 2017. Prior to joining the Company, Ms. Tyrrell served as Global Senior Vice President–President, Human Resources atfor 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 RobertsRobert & 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. was appointed as our Chief Research and Development Officer in March 2019. Prior to his appointment, Dr. Tohme served as our Senior Vice President, R&D, Group 1 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. Prior to joining the Company, Dr. Tohme served as the Chief Technology Officer for Rochester Precision Optics, a company that specializes in developing lightweight electro-optical products, from January 2011 until June 2011. Prior to that, Dr. Tohme held various research and development leadership roles of increasing responsibility at Moore Nanotechnology Systems, a company that manufactures precision machines. Dr. Tohme holds a Bachelor of Science degree in Mechanical Engineering from the University of Kentucky as well as a Master of Science and Ph.D. in Mechanical Engineering from the University of Florida and a Master of Business Administration from the University of Massachusetts.New President and CEOOn 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 COMPENSATIONCompensation Discussion and AnalysisInThe Compensation Committee oversees, among other things, the paragraphs that follow, we provide an overview and analysisdevelopment of our executive compensation programprograms, policies and policies, the material compensation decisions the Committee has made under those programs and policies with respect to our named executive officers, and the material factors the Compensation Committee considered in making those decisions. Following thispractices. This Compensation Discussion and Analysis under(“CD&A”) describes our executive compensation program for 2018. The guiding principles and fundamental objectives of the heading “Executive Compensation”executive compensation program are as follows:establish clear performance goals that are quantifiable and focused on our success while balancing both short-term and long-term initiatives;align our senior leadership team’s interests with the interests of our shareholders;retain and motivate our senior leadership team;provide operational, financial and strategic objectives to each member on our senior leadership team; andrecognize our performance in addition to individual performance.Following this CD&A, you will find a series of tables and narrative disclosures containing specific data about the compensation earned in 20162018 by the following individuals, whom we refer to as our named executive officers:President and Chief Executive Officer (“CEO”) Chief Financial Officer Joseph ArezoneKathleen J. Hall Chief CommercialOperating OfficerSenior Vice President, General Counsel and Corporate Secretary Kathleen J. HallKatrona Tyrrell Chief OperatingPeople OfficerLaura A. Murphy-WolfJoseph Arezone Former Senior Vice President and Chief Financial Officer*Commercial Officer*In March 2016, Ms. Murphy-Wolf resigned as Senior Vice President and Chief Financial Officer.Changes in Executive SummaryOur BusinessWe design, develop, manufacture, marketLeadershipEffective as of March 5, 2018, Joseph Arezone reduced his duties and support software driven, three-dimensional (“3D”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. As a result, Mr. Arezone also ceased serving 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”) measurement, imagingwith us and realization systems. This technology permits high-precision 3D measurement, imagingstepped down as our Senior Vice President, Corporate Strategy & Initiatives. Mr. Arezone served as an at-will employee of the Company through November 30, 2018.On January 9, 2019, we entered into a letter agreement with Dr. Raab, setting forth the terms of Dr. Raab’s retirement as our President and comparison of partsCEO and complex structures within production and quality assurance processes. Our devices are used for inspection of components and assemblies, rapid prototyping, reverse engineering, documenting large volume or structures in 3D, surveying and construction as well as for investigation and reconstruction of accident sites or crime scenes. We sell the majoritya member of our products throughBoard of Directors (the “Board”). Dr. Raab agreed to continue to serve as our President and CEO and to remain on the Board until the appointment of his successor. On April 5, 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 experience as a direct sales force across a broad number of customers in a range of manufacturing, industrial, architecture, surveying, building information modeling, construction, public safety, cultural heritage and other applications.The FaroArm®, FARO Laser ScanArm®, FARO Gage®, FARO Laser TrackerTM, FARO Laser Projector, FARO Cobalt Array Imager, and their companion CAM2®and BuildIT software solutions, provide for Computer-Aided Design, or CAD, based inspection, factory-level statistical process control, high-density surveying and laser-guided assembly and production. Together, these products integrate the measurement, quality inspection, and reverse engineering functions with CAD and 3D software to improve productivity, enhance product quality, and decrease rework and scrapglobal executive in the manufacturing process, mainly supporting applicationsindustrial 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 member of the Board on June 16, 2019. In addition, on April 5, 2019, the Board elected John Donofrio to serve as the independent Chairman of the Board, effective immediately. See “Retirement of Dr. Raab and Compensation Arrangements with Mr. Burger” below for information regarding Dr. Raab’s compensation during this transition and Mr. Burger’s compensation as our President and CEO.Executive SummaryCompany Performance in 2018In 2018, we crossed the $400 million milestone in annual sales for the first time in our Factory Metrology vertical.The FARO Focus and FARO Scanner Freestyle3DX laser scanners, and their companion SCENE, FARO PointSense, and FARO public safety forensics software offerings, are utilized for a wide varietyhistory. We recorded $403.6 million in total sales in 2018, an increase of 3D modeling, documentation and high-density surveying applications11.8% over 2017. We achieved over $425 million in new order bookings in 2018, up 12.8% compared to 2017. We executed on our Construction Building Information Modeling—Construction Information Management (“Construction BIM-CIM”) and Public Safety Forensics verticals.The FARO Laser ScanArm®, FARO Cobalt Array Imager, FARO Scanner Freestyle3DX laser scanners and their companion SCENE software also enable a fully digital workflow used to capture real world geometry for the purpose of empowering design, enabling innovation, and speeding up the design cycle, supporting our Product Design vertical. FARO Visual InspectTM enables large, complex 3D CAD data to be transferred to a tablet device and then used for mobile visualization and comparison to real world conditions, facilitating in-process inspection, assembly, guidance and positioning for applications in our Factory Metrology and Construction BIM-CIM verticals.2016 HighlightsIn 2016, we reorganized our business to alignstrategic sales growth initiative by expanding our sales marketing,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 management and research and development to specific vertical markets to better define our end market applications. We believe this realignment will enable us to focuslaunches. In addition, we expanded our product offeringsportfolio through four acquisitions in 2018. We maintained a strong balance sheet with no debt and selling approach to meet the specific needscash and cash equivalents and short-term investments of our customers. Although our financial results did not meet our aggressive internal targets, there were a number$133.6 million as of highlights in 2016:•Going Vertical in Harmony Reorganization Initiative—As a result of the reorganization, we realigned our business into the following three reportable segments, which incorporate our specific vertical markets:¡Factory Metrology—provides solutions for manual and automated measurement and inspection in an industrial or manufacturing environment;¡Construction BIM-CIM—provides solutions for as-built data capturing and 3D visualization in building information modeling or construction information management applications, allowing our customers in the architecture, engineering and construction markets to quickly and accurately extract desired two-dimensional and 3D measurement points; and¡Other—the Other segment includes our Product Design, Public Safety Forensics and 3D Solutions vertical organizations.•Product innovation—In 2016, we launched several new products, including:¡FARO FocusS Laser Scanner—This new laser scanner features increased measurement range, an accessory bay for customer add-on devices and safeguards against intrusions such as dirt, dust and other outdoor elements.¡FARO Cobalt Array Imager—The FARO Cobalt Array Imager is a metrology-grade non-contact scanner that utilizes blue light technology to capture millions of high resolution 3D coordinate measurements in seconds. This technology is used in quality control to improve product quality and reduce scrap, as well as for reverse engineering and rapid manufacturing.¡FARO VantageE Laser Tracker—This addition to our Vantage Laser Tracker product line includes well-proven features and capabilities such as high-speed dynamic measurement with an affordable price for customers who demand high performance while working on short-to-medium range applications.•Strategic acquisitions—In the third quarter of 2016, we acquired BuildIT Software & Solutions Ltd. (“BuildIT”) and Laser Projection Technologies, Inc. (“LPT”). Located in Montreal, Canada, BuildIT specializes in process-configurable 3D metrology software solutions with hardware agnostic interfaces. LPT, located in Londonderry, New Hampshire, specializes in laser projection and measurement systems used throughout manufacturing environments around the globe to maximize productivity and efficiency. We acquired MWF-Technology GmbH (“MWF”) in the fourth quarter of 2016. Located near Frankfurt, Germany, MWF is an innovator in mobile augmented reality solutions, with breakthrough technology that enables large, complex 3D CAD data to be transferred to a tablet device and then used for mobile visualization and comparison to real world conditions.•Sales modernization—To support our future growth, we modernized our sales process by leveraging our current direct sales approach of on-site demonstrations with multimedia, web-based demonstrations and cloud-based customer relations development.•Global harmonization—We reorganized all functions, processes and people to a harmonized global mindset from our historically regional business structure. The reorganization is expected to increase operating efficiency by harmonizing our global manufacturing and business support functions, including among other items, the implementation of uniform sales terms and conditions, global demonstration and service loaner inventory management, and a global human resources information system.2016 was a year of transition for FARO, with the change in leadership of our CEO and the execution of our Going Vertical in Harmony reorganization initiative. Sales and operating income for fiscal year 2016 were up 2.5% and 1.2%, respectively, from fiscal year 2015 while net income of $11.1 million was $1.7 million lower than fiscal year 2015, results that fell short of our aggressive internal targets and of our long-term historical performance. Our one-year Total Shareholder Return (“TSR”) as of December 31, 20162018 was modestly belowabove our industry group and substantially below our peer group, while our five-year and three-year TSRsTSR as of December 31, 2016 were substantially below2018 was above our industry group and below 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.
2016 Performance
Consideration of Prior Year Say-on-Pay VoteAt our 2018 annual meeting of shareholders, approximately 78% 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 meeting of shareholders, at which approximately 99% of the votes cast were voted in favor of the say-on-pay 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 CompensationOur 2016 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, did not meetshareholder outreach considerations and recommendations for the internal performance goals that we set for2019 long-term equity incentive award design. As a result of this initiative, the Compensation Committee approved the following significant changes to our 2016executive 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:Prior Approach What We Heard Our Actions Short-term cash incentives could be earned based on the 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. Our long-term incentive compensation 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 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 restricted stock units that vest in equal installments over three years Going forward, future advisory votes on executive compensation will serve as an additional tool to guide the Board and the Compensation Committee in evaluating the alignment of our executive compensation program which were intentionally aggressive. The Compensation Committee selectedwith the following internalinterests of the Company performance objectivesand 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 2016 short-term incentive awards for our namedBoard determined to implement an advisory vote on executive officers ($ in millions): Target Actual 16.3 % 2.5 % $ 17.9 $ 11.1 The Compensation Committee selected these performance metrics atcompensation on an annual basis until the beginningnext required vote on the frequency of 2016 because they are key drivers of our success. The short-term incentive opportunities for eachshareholder votes on the compensation of our named executive officers, were weighted 100% to these two Company-wide financial metrics. We did not achieve satisfactory financial or operating results in 2016 and did not meet eitherwhich will be conducted at our 2023 annual meeting of our Company-wide financial metric goals. However, in light of the substantial efforts contributed by our executive officers to successfully execute our Going Vertical in Harmony reorganization initiatives, the Compensation Committee awarded the named executive officers (other than Ms. Murphy-Wolf) a discretionary cash bonus amount equal to 35% of each executive’s short-term incentive award target.2016 Compensation Program ChangesIn December 2015, the Compensation Committee received reports from its executive compensation consultant Pearl Meyer on the Company’s executive compensation program, including our short-term cash incentive and long-term equity incentive award programs. The observations of Pearl Meyer were consistent with those shared by management and by certain investors who have communicated concerns to the Company with respect to such incentive programs, specifically that our short-term cash incentive program and performance-based long-term equity incentive programs were overly complex with too many performance categories and measures to be effective. Accordingly, the Compensation Committee adopted a simpler short-term cash incentive plan beginning in 2016, in which awards for executives could be earned based on achievement of financial performance goals for revenue (30%) and profitability (70%), which amount would then be multiplied by an individual performance factor normalized at 1.0. In addition, the Compensation Committee transitioned to a simpler long-term equity incentive program that granted time-based equity incentive awards consisting of stock options and restricted stock units, with the number of awards granted to each participant based on his or her targeted long-term equity incentive award percentage, multiplied by an individual performance factor normalized at 1.0. The effect of the individual performance factor would be to adjust, on a performance basis, the amount otherwise determined upward or downward based upon 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.CEO Pay and Company Performance AlignmentDr. Raab’s 2016 base pay was $500,000compensation in 2018 for his role as President and CEO.CEO, as well as Chairman of the Board, consisted primarily of base salary of $775,000 and target short-term cash incentives 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 2016,2018, Dr. Raab did not receive any payment under our short-term incentive plan for 2016. However, for initiating and leading the Going Vertical in Harmony reorganization initiative, and in recognition of the progress achieved with respect to that initiative in 2016, he received a discretionary cash bonus for 2016 performance of $87,500,$89,100, representing a payout equal to 35%11.50% of his target award opportunity under our short-term incentive plan. As earlier discussed, all employees eligible to receive a bonus received a discretionary cash bonus up to 35% of their target short-term incentive compensation on this same basis. Furthermore, 100% ofplan, as adjusted for his long-term equity incentive award granted in 2016 was granted in the form of stock options on December 7, 2016. The “in the money” value of those stock options at December 31, 2016 was $0.individual performance factor. Accordingly, Dr. Raab’s total realizable pay at December 31, 2016cash compensation received during 2018 for his service as President and CEO was equal to $587,500.Executive Compensation Objectives and PhilosophyThe 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, which in 20162018 took the form of stock options.The Compensation Committee has responsibility for establishing, implementing and monitoring adherence with our compensation philosophy. For more information regarding the Compensation Committee’s duties and responsibilities, see pages 1613 through 1815 of this Proxy Statement.Compensation Governance HighlightsThe Compensation Committee 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 long-term incentive equity awards granted to our named executive officers were modified to introduce a performance-based equity component and eliminate stock options.We do not offer newly hired executives any “single-trigger” change-in-control cash severance features similar to a lump sum cash payment payable upon the occurrence of a change in control.The Amended and Restated Change in Control Severance Policy does not provide an 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 39 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 19 and 39 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 policy prohibits hedging and pledging of Company securities by our directors and executive officers.The Compensation Committee has determined that the work of its current compensation consultant, Compensia, has not raised any conflicts of interest.The Compensation Committee 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. Such consultants are frequently consulted during the year on various matters and annually to informally update the Compensation Committee on matters that are relevant to the matters delegated to the committee under its charter.Executive Compensation ComponentsThe primary components of compensation for the named executive officers in 20162018 were base salary, short-term incentives in the form of annual bonus,cash incentives, and long-term equity incentives.Base SalaryWhen setting base salaries, the Compensation Committee considers our 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, compensation levels of comparable positions within our peer group, and other significant contributions to our success. When setting the salaries for the executive officers other than the President and CEO, the Compensation Committee also considers the President and CEO’s recommendations and the prior performance review conducted by the President and CEO. The Compensation Committee considers these factors in determiningIn 2018, the appropriate salary levels for executive officers. The Compensation Committee approved an increase inchanges to the base salaries of certain of theour named executive officers to the following levels: 2016 Base Salary % Increase
from 2015 $ 500,000 — %(1) $ 215,000 34.8 %(2) $ 335,000 — %(3) $ 375,000 6.7 %(4) $ 365,000 3.8 %(4) $ 351,000 17.3 %(5) 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 appointmentpromotion as our President and Chief ExecutiveFinancial Officer in December 2015, Dr. Raab’s base salary was set at $500,000 by the Compensation Committee.(2)In March 2016, Mr. Seidel was appointed our Principal Financial Officer upon the departure of Ms. Murphy-Wolf and his base salary was increased to reflected this additional responsibility. In December 2016, Mr. Seidel’s base salary was further increased toset at $265,000 when he was appointedby the Compensation Committee. In February 2018, after evaluating Mr. Seidel’s performance as our Chief Financial Officer.(3)Ms. Murphy-Wolf’s initialOfficer 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 of $335,000 was established at the outset of her employment with us in August 2015.to $334,000.(4)Effective in April 2016, Ms. Hall and (2) Mr. Arezone’s base salaries were increasedsalary was decreased effective March 2018 due to reflect their global responsibilities as a result of their promotions to Chief Operating Officer andhis change in position from Chief Commercial Officer respectively.to Senior Vice President, Corporate Strategy & Initiatives.(5)Mr. Gale’s base salary was increased effective in February 2016 to align with the increased breadth of his management responsibilities.Short-Term IncentivesOur 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 Committee 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 20162018 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 and Ms. Tyrrell in 2018 remained at 40% of their respective base salary, each of which was consistent with 2017. Mr. Arezone’s target award opportunity decreased to 30% of his base salary for 2018 from 50% of his base salary (or greater, in the Compensation Committee’s discretion). The target award opportunity for both Mr. Arezone and Ms. Hall2017 in 2016 was equalconnection with his role change from Chief Commercial Officer to 60% of each person’s respective base salary, which percentage was increased from 40% in December 2015 following the Compensation Committee’s receipt of a competitive review of its executive compensation program and advice from its executive compensation consultant Pearl Meyer. Senior Vice President, Corporate Strategy & Initiatives.The target award opportunity for Mr. Gale and Mr. Seidel in 2016 was 40% and 30% of his base salary, respectively.The Board and the Compensation Committee retainretains the discretion to adjust the annual incentives upward or downward on a subjective basis to ensure an equitable result, and bonuses may be reduced upresult. The Compensation Committee did not exercise its discretion to 100% based on corporate profitability.Company Financial Performance. In 2016,2018, 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 2016, with different weighting for each metric:2018: sales growth (weighted 30%50%) and netoperating income (weighted 70%50%). EachIn 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 these performance metrics isour 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 indicatorindicators of our financial performance.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 Committee reviewed and approved the financial performance targets, each of which is set forth below, in conjunction with the Board of Directors’Board’s approval of the annual budget ($ in millions): Target Actual 16.3 % 2.5 % $ 17.9 $ 11.1 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 each of the performance metrics set forth above in 2018, payouts would equal 50% of the target award opportunity for each named executive officer. If we had achieved or exceeded the maximum level of performance for each of the performance metrics set forth above in 2018, payouts would equal 200% of the target award opportunity for each named executive officer.Individual Performance Factor. An individual performance factor adjusts the award amount calculated based on 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 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 President and Chief Executive Officer’sCEO’s individual strategic objectives and related weights and, together with the President and Chief Executive Officer,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 of our named executive officers eligiblequarter in the prior year as well as for a short-term incentive award was 1.0.Aggregate Performance Results. We exceeded the minimum payout threshold for our sales growth performance but did not achieve either ofmeet the minimum payout threshold for our financial performance targets for 2016 and, accordingly, the Compensation Committee determined that no amounts were earned under the short-term incentive plan. However, in lightoperating income performance. The sales growth percentage was approximately 64% of the substantial efforts contributed by our named executive officers to successfully execute our Going Verticaltarget sales growth goal, which exceeded the 50% payout threshold, and would have resulted in Harmony reorganization initiatives, the Compensation Committee awarded each of the named executive officers eligible for the award a discretionary cash bonus amount equal to 35%approximately 33% of such executive’s short-term incentive award target.Compensation Committeeshort-term incentive award earned by each named executive officer was adjusted downward to 11.5% of such executive’s short-term incentive award target, as further adjusted by their individual performance factor.Cash bonuses awarded discretionary cash bonuses to Dr. Raab, Messrs. Seidel Arezone and Gale and Ms.Mses. Hall and Tyrrell for 2018 performance were as follows: 2016 Target
Award 2016 Discretionary
Bonus Actual Bonus
as % of Target
Award $ 250,000 $ 87,500 35 % $ 64,500 $ 22,575 35 % $ 225,000 $ 78,750 35 % $ 219,000 $ 76,650 35 % $ 140,400 $ 49,140 35 % UnderName 2018 TargetAward 2018 Short-Term Incentive Payout Actual Short-Term Incentive Payoutas % of Target AwardDr. 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 terms of Ms. Murphy-Wolf’s separation agreement, sheCompany effective November 30, 2018, he was not eligibleawarded a cash bonus for 2018.Long-Term IncentivesIn 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 receive a short-term incentive award for 2016 performance.Long-Term IncentivesOur compensation program incorporatesour named executive officers to eliminate the use of stock options and restrictedintroduce 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 units (“RSUs”)options and RSUs to attract, retain, engage and focus key employees for the long term, including the realization of financial objectives. We maintain threetwo equity incentive plans—the Amended and Restated 2004 Equity Incentive Plan (the “2004 Equity Plan”), the 2009 Equity Incentive Plan (the “2009 Equity Plan”), and the 2014 EquityIncentive Plan. Grants to executives of equity incentive compensation are determined by the Compensation Committee and are designed to align a portion of the executive compensation package with the long-term interests of our shareholders. The Compensation Committee generally grantshistorically 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. Pearl Meyer has advised that a mix of options and RSUs is a market competitive practice within our peer group. The long-term equity incentive awards forgranted in 2018 to Messrs. Arezone, Gale and Seidel and Ms.Mses. Hall and 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 it 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 options.Dr. Raab received a grant of stock options when he assumed the role of President and Chief Executive Officer in December 2015. In December 2016, the Compensation Committee reviewed the compensation of Dr. Raab, following his commitment to extend his role as President and Chief Executive Officer beyond an interim basis until the completion of our Going Vertical in Harmony reorganization initiatives and the realization of our near-term strategic priorities. In view of Dr. Raab’s expected extended tenure as President and Chief Executive Officer and the Compensation Committee’s review of a report from its executive compensation consultant Pearl Meyer, the Compensation Committee approved an equity grant of 69,475 time-based non-qualified stock options to Dr. Raab, with an effective grant date of December 7, 2016. The stock options vest in two equal annual installments beginning one year after the grant date, subject to Dr. Raab’s continued membership on the Board.20162018 Annual Grant Guidelines. The Compensation Committee reviews and approves the grant of stock options and RSUs 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, 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. 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 date fair value of the equity incentive awards to approximate the median of our peer group, with adjustments as necessary to suit the individual executive.For the 20162018 annual long-term equity incentive award grants, in order to determine the number of shares subject to each award, the Compensation Committee established the long-term equity incentive award value for each executive then in office, other than Dr. Raab, by setting a target percentage of each executive’s base salary. The resulting dollar value was then multiplied by an individual performance factor normalized at 1.0, as described below, and the result was converted into a number of stock options and RSUs.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 was based on the 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 togethersets the individual strategic objectives and related weights for the President and CEO. The Compensation Committee, in consultation with the President and Chief Executive Officer,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 Policy. Beginning in 2008, the Compensation Committee established a 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.20162018 Annual Grants. The Compensation Committee established the following target long-term equity award values for the 20162018 grants for Dr. Raab, Messrs. Arezone, Gale and Seidel and Mses. Hall and Murphy-Wolf,Tyrrell, expressed as a target percentage of base salary: 120%200% for Mr.Dr. Raab, 100% for Ms. Hall, and 75% for Messrs. Arezone, Gale and Seidel and Ms. Hall, 110% for Ms. Murphy-Wolf, 75% for Mr. Gale, and 50% for Mr. Seidel.Tyrrell. The Compensation Committee determined thethen applied individual performance factorfactors for each of these named executive officers was 1.0.based upon their 2017 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. Options granted in 20162018 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 20162018 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 20162018 annual equity grant: Grant Date RSUs Stock
Options N/A N/A N/A (1) 3/2/2016 603 4,847 3/2/2016 2,787 22,396 3/2/2016 3,190 25,636 3/2/2016 3,190 25,636 3/2/2016 1,991 15,999 (1)While Dr. Raab did not receive an annual equity grant in March 2016, he was granted 69,475 time-based stock options on December 7, 2016, as described above under “Long-Term Incentives.”Name Grant Date RSUs StockOptions 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 Governance HighlightsArrangements with Mr. BurgerPursuant 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 salaryThe - 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 Company managementaccepted 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 mindfulexpected to be awarded in a combination of evolving practicesperformance-based RSUs and time-based RSUs, in executive compensationratio of 50% and corporate governance. In response, we have adopted50%, 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 following policiestime-based RSUs will vest on each of the first, second and practices:Pursuantthird anniversaries of the grant date. The performance-based RSUs 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, 2019 to June 17, 2022 (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.Signing bonus - Mr. Burger will receive a policy adoptedone-time signing bonus equal to $500,000 payable in 2010, we will not offer newly-hired executives any “single-trigger” change-in-control cash severance features similar to a lump sum in cash payment payable uponwithin 30 days following June 17, 2019. Mr. Burger will be required to repay the occurrencesigning 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 returning to the U.S. West Coast if he is terminated by us without cause or we elect not to renew the annual term of the Employment Agreement.Pursuant to the Employment Agreement, Mr. Burger will be a changeparticipant in control.Theour Amended and Restated Change in Control Severance Policy does not provide an excise tax gross-up.The 2014 Equity Plan prohibits(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 buyouts of stock options.We maintain a compensation clawback policy, as further described on page 46 of this Compensation Discussion and Analysis.Since 2008, we have had a stock ownership policy for our non-employee directors and executive officers, as further described on pages 23 and 45 of this Proxy Statement, respectively. Among other things, this policy provides that our CEO must hold at least six times his base salary in Company 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 policy prohibits hedging and limits any pledging by our directors and executive officers.The Compensation Committee has determined that the work of its compensation consultant has not raised any conflicts of interest.The Compensation Committee has retained compensation consultants from time to time, including for formal executive and director compensation studies in 2010, 2012 and 2015. Such consultants are frequently consulted during the year on various matters and annually to informally update the Compensation Committee on matters that are relevant to the matters delegated to the committee under its charter.Based on observations from the Compensation Committee’s independent compensation consultant Pearl Meyer, which were consistent with those shared by management and by certain investors who have communicated concerns to the Company with respect to such incentive programs, the Compensation Committee:¡adopted a simpler short-term cash incentive plan beginning in 2016, in which awards for executives could be earned based on achievement of financial performance goals for revenue (30%) and profitability (70%), which amount would then be multiplied by an individual performance factor normalized at 1.0; and¡transitioned to a simpler long-term equity incentive program that granted time-based equity incentive awards consisting of stock options and restricted stock units, with the number of awards granted to each participant based on his or her targeted long-term equity incentive award percentage, multiplied by an individual performance factor normalized at 1.0.The effect of the individual performance factor would be to adjust, on a performance basis, the amount otherwise determined upward or downward based upon 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 contributionbonus for the year without ascribing specific percentagesin 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 each category.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; andif 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 ConsultantThe Compensation Committee has the authority to retain consultants and to obtain advice and assistance from other external legal, accounting or other advisors, at our expense. Since 2008, theThe Compensation Committee has engaged Pearl MeyerCompensia as its compensation consultant with respect to advise it on2018 board and executive and outside director compensation matters.compensation. In this role, PearlMeyerthe designated compensation consultant reports to and is instructed by the Compensation Committee. Pearl Meyer does not provide anyCompensia provides no other services to the Company. The Compensation Committee has the sole authority to approve the fees and other terms and conditions of any engagement with its independent advisor. The Compensation Committee annually considers the independence of Pearl Meyerits designated compensation consultant relative to the six factors prescribed by the SECSecurities and NASDAQ,Exchange Commission (the “SEC”) and the Nasdaq Stock Market (“Nasdaq”), and has concluded that the work of Pearl MeyerCompensia as the Compensation Committee’s compensation consultant does not raise any conflict of interest.During 2016, Pearl Meyer’s2018, Compensia’s services to the Compensation Committee were primarily with respect to:the CEO, Chief Financial Officer, Chief Operating Officer, Chief Commercial Officereach of our executive officer roles; and Chief People Officer roles; (iii) high levela high-level evaluation of our executive compensation program relative to best practices; and (iv) the views of various proxy advisory firms;preparation of two summary reports: one updating Pearl Meyer’s 2015 comprehensive executive compensation study and one regarding CEO compensation planning specifically; andassisting with the development of the Compensation Discussion and Analysis for the proxy statement filed in connection with our 2016 Annual Meeting of Shareholders. including 2016, when a full competitive review of our compensation programs is not done, the Compensation Committee retains the compensation consultant to informally update the Compensation Committee on matters that have been delegated to the Compensation Committee under its charter.Role of the Executive Officers in Compensation DecisionsExecutive 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 based 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.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, including his review of the employees who report directly to him, and then recommends to the Compensation Committee equity and non-equity awards and annual compensation adjustments for all executive officers, other than himself.Review of Peer Group PracticesThe Compensation Committee reviews and analyzes the executive compensation program to determine whether it provides reasonable compensation at appropriate levels and remains competitive and effective. The Compensation Committee periodically engages Pearl Meyeran independent compensation consultant to provide competitive market data to assist in this process and to update and advise the Compensation Committee on various executive compensation matters. The most recent comprehensive competitive market study conducted by Pearl MeyerCompensia was completed in the fourth quarter of 20152017 and updated information was provided during 2016,2018, including twoa summary studiesstudy for purposes of assisting the Compensation Committee in making its 2016 and 20172018 compensation decisions.With respect to making its 20162018 compensation decisions, the following companies were selected by the Compensation Committee as our peer group: Ticker Latest
FYE
Revenue
($m) Market Cap
as of
7/31/2016
($m) Foreign
Sales% # of
Employees CSCD Semiconductor Equipment * * * * CGNX Electronic Equipment and Instruments $ 521 $ 3,666 69 % 1,421 COHR Electronic Equipment and Instruments $ 857 $ 2,230 76 % 2,787 ESIO Electronic Equipment and Instruments $ 184 $ 184 88 % 698 FORM Semiconductor Equipment $ 282 $ 628 77 % 1,571 IIVI Electronic Components $ 827 $ 1,157 68 % 8,927 IPGP Electronic Manufacturing Services $ 1,006 $ 4,252 86 % 4,230 MKSI Semiconductor Equipment $ 1,295 $ 2,298 48 % 4,667 NANO Semiconductor Equipment $ 221 $ 515 91 % 532 NOVT Electronic Equipment and Instruments $ 385 $ 523 60 % 1,269 RSTI Electronic Equipment and Instruments * * * * RTEC Semiconductor Equipment $ 233 $ 480 87 % 579 UTEK Semiconductor Equipment $ 194 $ 615 87 % 312 XCRA Semiconductor Equipment $ 324 $ 308 82 % 1,676 XPER Semiconductor Equipment $ 260 $ 1,824 75 % 700 Average $ 507 $ 1,437 76 % 2,259 Median $ 324 $ 628 77 % 1,421 FARO Electronic Equipment and Instruments $ 326 $ 563 59 % 1,485 Company Ticker Industry Description Bel Fuse Inc. BELFB Electronic Components Cohu, Inc. COHU Semiconductor Equipment Control4 Corporation CTRL Electronic Equipment and Instruments CTS Corporation CTS Electronic Components Daktronics, Inc. DAKT Electronic Equipment and Instruments Electro Scientific Industries, Inc.* These companies have been acquired subsequent to their selection to our peer group. While they were included in the review for purposes of setting 2016 compensation, they are not included in the TSR chart on page 35 of this Proxy Statement.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. RTEC Semiconductor Equipment Veeco Instruments Inc. VECO Semiconductor 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 FAROthe Company in terms of industry focus, global operational scope, revenue size, and market value.When setting compensation levels, the Compensation Committee reviews and considers the competitive market information obtained from these studies and intends for total direct compensation (base salary, annual incentive plusawards 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 Committee uses the peer group data as one of many inputs in its deliberations, which also includesinclude 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 Committee does not seek to specifically weight each factor but rather considers them in the aggregate and exercises judgment.Consideration of Last Year’s Advisory Shareholder Vote on Executive CompensationAt the 2016 Annual Meeting of Shareholders, approximately 98% of the votes cast by the shareholders were voted to approve the compensation of our named executive officers as discussed and disclosed in the 2016 Proxy Statement. The Board and the Compensation Committee appreciate and value the views of our shareholders. In considering the results of this advisory vote on executive compensation, the Compensation Committee concluded that the compensation paid to our named executive officers and our overall pay practices enjoy shareholder support and did not make any material changes to the executive compensation program in response to the shareholder vote.Going forward, future advisory votes on executive compensation will serve as an additional tool to guide the Board and the Compensation Committee in evaluating the alignment of our executive compensation program with the interests of the Company and our shareholders. Our management team also regularly offers to, andfrequently does, meet with shareholders to discuss topics of interest to our shareholders, including executive compensation matters. In addition, shareholders may communicate with the Board, the Compensation Committee or individual directors regarding our executive compensation program by submitting such communications in writing to FARO Technologies, Inc., Attention: Board of Directors (or the Compensation Committee 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, the Compensation Committee or the individual director(s), as designated on such communication.When determining how often to hold our advisory votes on executive compensation, our Board historically took into account the strong preference for an annual vote expressed by our shareholders at our 2011 Annual Meeting of Shareholders. At this year’s Annual Meeting, shareholders will be asked to vote on their preferred voting frequency for future advisory votes on executive compensation by choosing every year, every two years or every three years. See Proposal 4–Advisory Vote on the Frequency of the Approval of Executive Compensation. The Board will determine the frequency of our future advisory votes on executive compensation after taking into consideration the results of the vote on Proposal 4.Employment Agreements and Change in Control Severance PolicyEmployment Agreements. We have entered into employment agreements with Messrs. Seidel Arezone and Gale and Mses.Ms. Hall and Murphy-Wolf that provide orfor severance benefits. We also entered into an employment agreement with Mr. Arezone 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 in the Potentialunder “Potential Payments Upon Termination or Change in Control sectionControl” on page 46 of this Proxy Statement, and for Mr. Burger above under “Retirement of Dr. Raab and Compensation Arrangements with Mr. Burger,” pursuant to the employment agreements, (i) prior to her separation, Ms. Murphy-Wolf was entitled to severance benefits in the event of her termination without cause or resignation for good reason, and (ii) Messrs. Seidel Arezone and Gale and Ms. Hall are, Mr. Arezone was, and Mr. Burger will be, entitled to severance benefits in the event of the executive’s termination 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 officer for good reason. Severance protection plays an important role in attracting, motivating and retaining highly talented executives.On March 10, 2016, we entered into a Transition and Separation Agreement with Ms. Murphy-Wolf. Pursuant to the agreement, Ms. Murphy-Wolf stepped down as our Senior Vice President and Chief Financial Officer, effective March 10, 2016. Ms. Murphy-Wolf continued to serve as an at-will employee of the Company through April 8, 2016 to provide assistance and input concerning ongoing business matters to effectively transition matters to other executives. In consideration for her services during the transition period, the Company paid Ms. Murphy-Wolf an amount equal to $25,000. Ms. Murphy-Wolf also received a payment of $226,250 during the transition period in exchange for agreeing to a two-year covenant not to compete or solicit and a general release, and for continuing to comply with customary confidentiality and non-disparagement provisions. In addition, Ms. Murphy-Wolf received an aggregate gross amount equal to $32,000 to cover the remaining lease payments under her apartment lease, relocation costs and attorneys’ fees. In addition, we reimbursed the monthly COBRA payments made by Ms. Murphy-Wolf for an eight-month period.Amended and Restated Change in Control Severance Policy. During 2016,2018, Messrs. Seidel Arezone and Gale and Mses. Murphy-Wolf (prior to her separation) andMs. Hall were 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 in 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 Severance Policy, with the additional provision set forth in his employment agreement, as described above under “Retirement 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 retention in situations that may result in the loss of their jobs. The change in control benefits are intended to retain the executives during the time of an actual or threatened change in control and ensure that executives are able to devote their entire attention to maximizing shareholder value and safeguarding employee interests.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. Raab 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 was no longer a participant under our Change in Control Severance Policy. 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, 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.For more information on Messrs. Seidel’s Arezone’s and Gale’s and Mses.Ms. Hall’s and Murphy-Wolf’s employment agreements, andour agreements with Mr. Arezone, the Amended and Restated Change in Control Severance Policy and the Executive Severance Plan, see “Potential Payments Upon Termination or Change in Control” beginning on page 5246 of this Proxy Statement.Policies Regarding Termination and/or Change-in-Control Benefits Payable to New Hires. It is the Compensation Committee’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 Severance Policy. The Compensation Committee recognizes, however, that in the context of a change-in-control transaction, certain payments, such as retention bonuses, may be advisable. Accordingly, the Compensation Committee retains the discretion to enter into such arrangements in the event of an actual change-in-control transaction.Executive Benefits and PerquisitesWe 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: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. Historically, allAll employees, including named executive officers, who participatedparticipate in our 401(k) plan wereare 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 ConsiderationsHistorically, Section 162(m) of the Code generally disallowsdisallowed a tax deduction to public companies for compensation over $1,000,000 paid to their chief executive officer and the three other most highly compensatedhighest paid executive officers, other than the chief financial officer. Qualifying performance-based compensation iswas not subject to the deduction limit if certain requirements arewere 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 will 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 Committee 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.Stock Ownership GuidelinesIn February 2008, the Compensation Committee 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 by17, 2017.Compensation Clawback PolicyIn April 2011, the Compensation Committee 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. WeIf necessary, we will revise our clawback policy in accordance with the new requirements after final regulations are released.Insider Trading PolicyIn February 2013,2017, the Governance and Nominating Committee amended our Insider Trading Policy to prohibit hedging and limit any 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.Compensation Committee ReportThe Compensation Committee 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 Committee 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 Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement for the 20172019 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, 2016,2018, as filed with the SEC on February 24, 2017.Compensation Committee:John E. Caldwell (Chair)Lynn BrubakerStephen R. Cole (Chair)Lynn BrubakerJohn E. CaldwellJohn DonofrioMarvin R. Sambur,Jeffrey A. Graves, Ph.D.Yuval WassermanSummary Compensation TableThe following table sets forth information concerning compensation paid to or earned by our named executive officers for the years ended December 31, 20162018, and, if applicable, December 31, 20152017 and December 31, 2014. Year Salary
($)(1) Bonus
($)(2) Stock
Awards
($)(3) Option
Awards
($)(3) Non-Equity
Incentive Plan
Compensation
($)(4) All Other
Compensation
($)(5) Total
($) 2016 590,000 87,500 149,968 999,992 — 8,866 1,836,326
Executive Officer 2015 129,231 — 129,928 564,000 — 20,768 843,927 2016 195,789 22,575 19,929 59,988 — 6,554 304,835 2016 77,308 — 92,110 277,168 — 283,711 730,297 2015 122,404 — — 324,341 10,894 83,966 541,605 2016 366,865 78,750 105,430 317,279 — 12,300 880,624 2015 348,279 — 80,301 275,829 54,903 14,630 773,942 2014 333,529 — 23,419 70,294 132,565 10,956 570,763 2016 360,326 76,650 105,430 317,279 — 95,920 955,605 2015 345,297 — — 363,837 33,463 321,133 1,063,730 2014 150,000 — 7,998 24,045 — 543,869 725,912 2016 339,055 49,140 65,803 198,008 — 7,910 659,916 2015 296,500 — 68,344 234,836 24,837 8,355 632,872 2014 252,115 50,000 — 213,745 104,880 41,076 661,816 Name and Principal Position Year Salary($)(1) Bonus($)(2) StockAwards($)(3) OptionAwards($)(3) Non-EquityIncentive PlanCompensation($)(4) All OtherCompensation($)(5) Total($)Simon Raab, Ph.D. (6) 2018 770,673 — — 1,837,110 89,100 7,038 2,703,921 President and ChiefExecutive Officer2017 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 Secretary2017 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) 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, as described in the Compensation Discussion and Analysis under “Executive Compensation Components—Short-Term Incentives.” The amount reported for Mr. Gale in 2014 represents the one-time, cash-based signing bonus provided to him when he was hired, which was earned in full in 2014.2017.(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, 2016,2018, included in our Annual Report on Form 10-K filed with the SEC on February 24, 2017.21, 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. (5) Includes for 2016:2018: Short-Term
Disability
Premiums ($) Long-Term
Disability
Premiums ($) Life Insurance
Premiums ($) 401(k)
Match ($) Housing
and Other
Allowances ($) Separation
Consideration
($) Total ($) 650 336 624 7,256 — — 8,866 650 222 432 5,250 — — 6,554 137 93 231 — — 283,250 (a) 283,711 650 336 624 10,690 — — 12,300 650 312 624 3,762 90,572 (b) — 95,920 650 336 624 6,300 — — 7,910 Short-TermDisabilityPremiums ($) Long-TermDisabilityPremiums ($) Life InsurancePremiums ($) 401(k)Match ($) 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 pursuant to his Transition Agreement.(a)Ms. Murphy-Wolf separated from the company effective March 10, 2016 and received $251,250 in connection with her transition and separation agreement. In addition, Ms. Murphy-Wolf received an aggregate gross amount equal to $32,000 to cover the remaining lease payments under her apartment lease, relocation costs and attorneys’ fees.(b)Includes the following costs incurred by the Company: $21,396 of tax equalization payments, $40,849 for housing, utilities and advisory services, and $8,770 in related tax gross up payments, in each case as part of Mr. Arezone’s expatriate package as Managing Director of the Europe, Middle East and Africa region, which required him to reside in Germany. In connection with Mr. Arezone’s appointment to Chief Commercial Officer in April 2016, his assignment no longer required him to reside in Germany. As a result, Mr. Arezone was relocated to Lake Mary, Florida and received $15,000, grossed up $4,557 for taxes, as relocation reimbursement.(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: 2016 2015 $ 90,000 $ 110,000 149,968 129,928 — 20,602 $ 239,968 $ 260,530 The amount includedDirectors in the “All Other Compensation” column in 2015 represents the actual cost to us of providing the employer2016. In February 2017, after evaluating Dr. Raab’s role as our President and employee portionsCEO and as a Director and Chairman of the premiums forBoard, the Compensation Committee approved an increase of Dr. RaabRaab’s base salary to $750,000, while removing his eligibility to receive the director and his eligible dependents to participate in certain Company group healthChairman cash retainers and welfare plans prior to his appointment as President and Chief Executive Officer in December 2015.equity grants: 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 (7) Ms. Murphy-Wolf separated fromThe amounts shown for Mr. Arezone for 2018 in the Company effective March 10, 2016.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. Seidel has served as our principal financial officer since March 10,Arezone in 2016 and was appointed our Chief Financial Officer on December 16, 2016.2017 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.
Name Estimated Future Payouts Under Dr. Raab Mr. Seidel Ms. Murphy-Wolf(7) Ms. Hall Mr. Arezone Mr. Gale2016Chief Executive Officer Pay RatioWe are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Dr. Raab, our President and CEO:For 2018, our last completed fiscal year:▪ 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. Based on this information for 2018, 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 50:1. 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 2018 to all of our employees, excluding our President and CEO, who were employed by the Company on December 31, 2018. All of our employees were included, whether employed on a full-time, part-time or seasonal basis. Adjustments were made to annualize the compensation of 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 2018 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. This total compensation amount for our median employee was then compared to the total compensation of our President and CEO, disclosed above in the Summary Compensation Table, of $2,703,921. The elements included in the President and CEO’s total compensation are fully discussed above in the footnotes to the Summary Compensation Table.2018 Grants of Plan-Based AwardsThe following table summarizes grants of plan-based awards made to each of the named executive officers during 2016: Grant
Date Date of
Compensation
Committee
Action All Other
Stock
Awards:
Number of
Shares or
Units of
Stock(#)(2) All
Other
Option
Awards:
Number of
Securities
Underlying
Options(#)(3) Exercise
or Base
Price
of Option
Awards($) Grant
Date
Fair
Value of
Stock
and
Option
Awards
($)(4) Non-Equity Incentive Plan
Awards(1) Threshold
($) Target
($) Maximum
($) — — — 250,000 — — — — — 12/7/2016 (5) 12/5/2016 — — — — 69,475 39.05 999,992 5/16/2016 (6) 5/16/2016 — — — 4,482 — — 149,968 — — — 64,500 — — — — — 3/2/2016 2/11/2016 — — — 603 — 19,929 3/2/2016 2/11/2016 — — — — 4,847 33.05 59,988 3/2/2016 2/11/2016 — — — 2,787 — — 92,110 3/2/2016 2/11/2016 — — — — 22,396 33.05 277,168 — — — 225,000 — — — — — 3/2/2016 2/11/2016 — — — 3,190 — — 105,430 3/2/2016 2/11/2016 — — — — 25,636 33.05 317,279 — — — 219,000 — — — — — 3/2/2016 2/11/2016 — — — 3,190 — — 105,430 3/2/2016 2/11/2016 — — — — 25,636 33.05 317,279 — — — 140,400 — — — — — 3/2/2016 2/11/2016 — — — 1,991 — — 65,803 3/2/2016 2/11/2016 — — — — 15,999 33.05 198,008 Name GrantDate Estimated Possible PayoutsUnder Non-Equity Incentive Plan Awards (1) All Other Stock Awards: Number of Shares or Units of Stock (#)(2) AllOtherOptionAwards:Number ofSecuritiesUnderlyingOptions (#)(3) Exerciseor BasePriceof OptionAwards ($/Sh) Grant DateFair Valueof Stockand OptionAwards ($)(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 potential targetpossible payout opportunities under our short-term cash incentive award program. The short-term cash incentive award program does not provide threshold or maximum opportunities. Additional information about our short-term cash incentive award program is included in the Compensation Discussion and Analysis under “Executive Compensation Components.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 EquityIncentive Plan, as described in the Compensation Discussion and Analysis. In the case of Dr. Raab, reflects restricted stock awards granted in connection with Dr. Raab’s service as a Director and Chairman of the Board, as described under “2016 Director Compensation.”(3) Reflects time-based stock options granted under the 2014 EquityIncentive 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, 2016,2018, included in our Annual Report on Form 10-K filed with the SEC on February 24, 2017.21, 2019.(5)Represents a one-time award granted to Dr. Raab reflecting his commitment to extend his role as President and Chief Executive Officer beyond an interim basis.(6)Represents the equity award granted to Dr. Raab in connection with his service as a Director and Chairman of the Board.(7)Under the terms of her separation agreement, Ms. Murphy-Wolf’s unvested RSUs and unexercised stock options outstanding on March 10, 2016 terminated and were forfeited.
Name Dr. Raab Mr. Seidel Ms. Murphy-Wolf Ms. Hall Mr. Arezone Mr. GaleOutstanding Equity Awards at 20162018 Fiscal Year-EndThe following table sets forth information on outstanding option and stock awards held by the named executive officers as of December 31, 2016. Option Awards Stock Awards Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#) 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
($)(1) Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#) Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)(1) 30,000 30,000 (2) — 29.98 12/4/2022 — — — — — 69,475 (3) — 39.05 12/7/2023 — — — — 4,482 (12) 161,352 — — 1,333 667 (4) — 43.33 5/12/2021 — — — — 1,000 2,000 (5) — 59.97 2/27/2022 — — — — — 4,847 (6) — 33.05 3/2/2023 — — — — 603 (15) 21,708 — — — — (7) — — — — — — — 26,252 — — 38.57 7/15/2020 — — — — 2,368 1,184 (8) — 57.54 2/28/2021 — — — — 1,269 — 11,696 (9) 59.97 2/27/2022 — — — — — 25,636 (6) — 33.05 3/2/2023 — — — — 136 (13) 4,896 — — — — 1,140 (14) 41,040 3,190 (15) 114,840 — — 3,122 — — 57.01 3/1/2019 — — — — 1,010 — — 44.28 3/1/2020 — — — — 810 405 (8) — 57.54 2/28/2021 — — — — 1,322 — 15,428 (10) 60.76 3/19/2022 — — — — — 25,636 (6) — 33.05 3/2/2023 — — — 47 (13) 1,692 — — 3,190 (15) 114,840 — — 9,064 4,533 (11) 49.60 2/3/2021 — — — — 1,066 — 9,958 (9) 59.97 2/27/2022 — — — — — 15,999 (6) — 33.05 3/2/2023 — — — — — — 971 (14) 34,956 1,991 (15) 71,676 — — Option Awards Stock Awards Name Number of SecuritiesUnderlying UnexercisedOptions (#) Exercisable Number of SecuritiesUnderlying UnexercisedOptions (#) Unexercisable Option ExercisePrice($) OptionExpirationDate Number of Sharesor Units of StockThat Have NotVested (#) Market Valueof Shares orUnits of StockThat HaveNot Vested ($)(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 $36.00$40.64 on December 30, 2016,31, 2018, the last trading day of the most recently completed fiscal year, as reported on NASDAQ.Nasdaq.(2)The remaining 50% of the options will vest on December 4, 2017.
| The stock options vest in three equal annual installments beginning March |
| The stock options vest in three equal annual installments beginning |
2018 Name Dr. Raab Mr. Seidel Ms. Murphy-Wolf Ms. Hall Mr. Arezone Mr. Gale(4) The stock options vest in three equal annual installments beginning March 2, 2017.(5) The RSUs vest on March 3, 2020, provided that the executive is employed by the Company on the vesting date.(6) The RSUs vest on March 20, 2021, provided that the executive is employed by the Company on the vesting date.(7) The RSUs vest on March 2, 2019, provided that the executive is employed by the Company on the vesting date.Option Exercises and Stock Vested in Fiscal Year 2016This table summarizes amounts received upon the exercise of stock options and vesting of shares of restricted stock and RSUs for the named executive officers during the year ended December 31, 2016 and the value realized upon the exercise of stock options by each named executive officer during 2016. Option Awards Stock Awards Number of Shares Acquired
on Exercise (#) Value Realized on
Exercise ($)(1) Number of Shares Acquired
on Vesting (#)(2) Value Realized on
Vesting ($)(2) — — 3,035 100,519 — — — — — — — — — — 259 7,022 — — 102 3,152 — — 103 2,464 Option Awards Stock Awards Name Number of Shares Acquiredon Exercise (#) Value Realized onExercise ($)(1) Number of Shares Acquiredon Vesting (#)(2) Value Realized onVesting ($)(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 fair market valueclosing price of the sharesour common stock on the exercise date and the exercise price of the option.(2) For Dr. Raab, reflects shares of restricted stockReflects performance-based RSUs granted in 2015 that vested in 2016. For the other named executive officers, reflects RSUs granted2018 based on our performance in 2013, 2014 and 2015 that vested in 2016.2017. Value realized represents the closing price of our common stock on the 2016 vesting datesdate multiplied by the number of shares vested. Upon the vesting of the RSUs, 84, 4046 and 3326 shares were withheld from Ms. Hall, Mr. Arezone,Hall’s and Mr. Gale’s vested RSUs for taxes, respectively.
Employment Mr. Burger.” 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;Potential Payments Upon Termination or Change in ControlStock Option Award Agreements with Dr. Raab. On December 4, 2015, we entered into a Nonqualified Stock Option Award Agreement with Dr. Raab. Pursuant to the agreement, Dr. Raab received a one-time equity grant of 60,000 time-based nonqualified stock options. Fifty percent of the options vested on December 4, 2016, and the remaining 50% of the options will vest on December 4, 2017. Upon a change in control, the options will become fully vested and exercisable.On December 7, 2016, we entered into a Nonqualified Stock Option Award Agreement with Dr. Raab. Pursuant to the agreement, Dr. Raab received a one-time equity grant of 69,475 time-based nonqualified stock options. Fifty percent of the options will vest on December 7, 2017, and the remaining 50% of the options will vest on December 7, 2018. Upon a change in control, the options will become fully vested and exercisable.Agreement with Mr. Seidel. On December 21, 2016, weAgreements. We entered into an employment agreement with Mr. Seidel.Seidel on December 21, 2016, an amended and restated employment agreement with Ms. Hall on April 27, 2016 and an amended and restated employment agreement with Mr. Gale on April 27, 2016. Pursuant to the agreement,these agreements, in the event Mr. Seidel’sthe executive’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 Mr. Seidel’sthe executive’s resignation for Good Reason, hethe executive will be entitled to receive severance equal to his or her annual base salary, payable in approximately equal installments over a 12-month period (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), and histhe executive’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 Mr. Seidelthe executive will become fully vested.As defined in the agreement, “Cause” means: (i) failure to perform substantially histhe executive’s duties with the Company and/or any affiliate after written demand for substantial performance is delivered to him 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 affiliate, (iii) engagement in conduct or misconduct that materially harms the reputation or financial position of the Company or any affiliate, (iv) conviction of, or plea ofnolo contondere to, a felony or to a crime involving fraud, dishonesty, violence or moral turpitude, (v) being found liable in any SEC or other civil or criminal securities law action, (vi) commission of an act of fraud or embezzlement against the Company or any affiliate, or (vii) accepting a bribe or kickback.As defined in the agreement, “Good Reason” means: (i) an uncured material breach by the Company of the Company’s obligations to Mr. Seidel under the agreement, (ii) an ongoing material and substantial diminution in the duties of Mr. Seidel not consistent with that of an executive with his position and duties or (iii) without the executive’s consent, our relocation of his principal office more than 50 miles from his current office located in Lake Mary, Florida.Employment Agreement with Ms. Hall. On April 27, 2016, we entered into an amended and restated employment agreement with Ms. Hall. Pursuant to the agreement, in the event Ms. Hall’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 Ms. Hall’s resignation for Good Reason, she will be entitled to receive severance equal to her annual base salary, payable in approximately equal installments over a12-month period (provided that 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), and her 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 Ms. Hall will become fully vested.As defined in the agreement, “Cause” means: (i) failure to perform substantially her duties with the Company and/or any affiliate after written demand for substantial performance is delivered to her by or on behalf of the Board and such failure is not cured within 30 days, (ii) engagement in illegal conduct or gross misconductthat is materially injurious to the Company or any affiliate, (iii) engagement in conduct or misconduct that materially harms the reputation or financial position of the Company or any affiliate, (iv) conviction of, or plea ofnolo contondere to, a felony or to a crime involving fraud, dishonesty, violence or moral turpitude, (v) being found liable in any SEC or other civil or criminal securities law action, (vi) commission of an act of fraud or embezzlement against the Company or any affiliate, or (vii) accepting a bribe or kickback.As defined in the agreement, “Good Reason” means: (i) an uncured material breach by the Company of the Company’s obligations to Ms. Hall under the agreement, (ii) an ongoing material and substantial diminution in the duties of Ms. Hall not consistent with that of an executive with her position and duties or (iii) without the executive’s consent, our relocation of her principal office more than 25 miles from her current office location in Exton, PA.Employment Agreement with Mr. Arezone. On April 27, 2016, we entered into an employment agreement with Mr. Arezone. Pursuant to the agreement, in the event Mr. Arezone’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 Mr. Arezone’s resignation for Good Reason, he will be entitled to receive severance equal to his annual base salary, payable in approximately equal installments over a 12-month period (provided that he 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), and his 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 Mr. Arezone will become fully vested.As defined in the agreement, “Cause” means: (i) failure to perform substantially his duties with the Company or any affiliate after written demand for substantial performance is delivered to him 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 affiliate, (iii) engagement in conduct or misconduct that materially harms the reputation or financial position of the Company or any affiliate, (iv) conviction of, or plea ofnolo contondere to, a felony or to a crime involving fraud, dishonesty, violence or moral turpitude, (v) being found liable in any SEC or other civil or criminal securities law action, (vi) commission of an act of fraud or embezzlement against the Company or any affiliate, or (vii) accepting a bribe or kickback.As defined in the agreement, “Good Reason” means: (i) an uncured material breach by the Company of the Company’s obligations to Mr. Arezone under the agreement, (ii) an ongoing material and substantial diminution in the duties of Mr. Arezone not consistent with that of an executive with his position and duties or (iii) without the executive’s consent, our relocation of his principal office more than 50 miles from our current office locations in Lake Mary, Florida; Exton, Pennsylvania; Stuttgart, Germany; or Singapore.Employment Agreement with Mr. Gale. On April 27, 2016, we entered into an amended and restated employment agreement with Mr. Gale. Pursuant to the agreement, in the event Mr. Gale’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 Mr. Gale’s resignation for Good Reason, he will be entitled to receive severance equal to his annual base salary, payable in approximately equal installments over a12-month period (provided that he 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), and his 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 Mr. Gale will become fully vested.As defined in the agreement, “Cause” means: (i) failure to perform substantially his duties with the Company or any affiliate after written demand for substantial performance is delivered to him 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 affiliate, (iii) engagement in conduct or misconduct that materially harms the reputation or financial position of the Company or any affiliate, (iv) conviction of, or plea ofnolo contondere to, a felony or to a crime involving fraud, dishonesty, violence or moral turpitude, (v) being found liable in any SEC or other civil or criminal securities law action, (vi) commission of an act of fraud or embezzlement against the Company or any affiliate, or (vii) accepting a bribe or kickback.As defined in the agreement, “Good Reason” means: (i) an uncured material breach by the Company of the Company’s obligations to Mr. Gale under the agreement, (ii) an ongoing material and substantial diminution in the duties of Mr. Gale not consistent with that of an executive with his position and duties or (iii) without the executive’s consent, our relocation of his principal office more than 50 miles from his current office located in Lake Mary, Florida.Employment Agreement with Ms. Murphy-Wolf. On July 29, 2015, we entered into an employment agreement with Ms. Murphy-Wolf. Pursuant to the agreement, in the event Ms. Murphy-Wolf’s employment was terminated by the Company other than for Cause or disability or by Ms. Murphy-Wolf for Good Reason, she would be entitled to receive severance equal to her annual base salary, payable in approximately equal installments over a 12-month period (provided that she had 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), and her outstanding and unvested stock options and RSUs would become fully vested as of the date of termination.As defined in the agreement, “Cause” means: (i) failure to perform substantially her duties with the Company or any affiliate after written demand for substantial performance is delivered to her 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 affiliate, (iii) engagement in conduct or misconduct that materially harms the reputation or financial position of the Company or any affiliate, (iv) conviction of, or plea ofnolo contonderecontendere to, a felony or to a crime involving fraud, dishonesty, violence or moral turpitude, (v) being found liable in any SEC or other civil or criminal securities law action, (vi) commission of an act of fraud or embezzlement against the Company or any affiliate, or (vii) accepting a bribe or kickback.As defined in the agreement, “Good Reason” meansmeans: (i) an uncured material breach by the Company of the Company’s obligations to the executive under the agreement, (ii) an ongoing material and substantial diminution in the duties of the executive not consistent with that of an executive with his or her position and duties or (iii) without the executive’s consent, our relocation of his or her principal office more than 50 miles from the Company’shis current headquarters locationoffice located in Lake Mary, Florida.Separation Agreement withFlorida in the case of Messrs. Seidel and Gale and Exton, Pennsylvania in the case of Ms. Murphy-Wolf. On March 10, 2016,Hall.For a description of Mr. Burger’s employment agreement that we entered into a Transitionon April 5, 2019, with an effective date of June 17, 2019, see “Executive Compensation—Compensation Discussion and Separation AgreementAnalysis—Retirement of Dr. Raab and Compensation Arrangements with Ms. Murphy-Wolf. Pursuant to the agreement, Ms. Murphy-Wolf stepped down as our Senior Vice President and Chief Financial Officer effective March 10, 2016. Ms. Murphy-Wolf continued to serve as an at-will employee of the Company through April 8, 2016 to provide assistance and input concerning ongoing business matters to effectively transition matters to other executives. In consideration for her services during the transition period, the Company paid Ms. Murphy-Wolf an amount equal to $25,000. Ms. Murphy-Wolf also received a payment of $226,250 in exchange for agreeing to a two-year covenant not to compete or solicit and a general release, and continuing to comply with customary confidentiality and non-disparagement provisions. In addition, Ms. Murphy-Wolf received an aggregate gross amount equal to $32,000 to cover the remaining lease payments under her apartment lease, relocation costs and attorneys’ fees. In addition, we reimbursed the monthly COBRA payments made by Ms. Murphy-Wolf for eight months. Ms. Murphy-Wolf’s unvested RSUs and unexercised stock options outstanding on March 10, 2016 were terminated and forfeited as of such date.Change in Control Severance Policy. As of December 31, 2016,2018, Messrs. Seidel Arezone and Gale and Ms. Hall were covered by the Change-in-ControlChange in Control Severance Policy adopted by the Company on November 7, 2008 and amended and restated on April 9, 2015 (the “Policy”). Pursuant to the terms of the Policy, if, within 12 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:
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 proratedpro-rated portion of the average annual cash bonus earned by him or her during our last three completed fiscal years; and
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.
Ms. Murphy-Wolf) Mr. Arezone, upon their termination of employment without Cause, by us providing writingwritten 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 30, 2016 (the last business day of 2016).31, 2018. The amounts in the table exclude distributions under our 401(k) retirement plan that are generally available to all salaried employees. For a description of the amounts paid to Ms. Murphy-Wolf
in connection with her separation from the Company, see footnote 5 to the Summary Compensation Table beginning on page 47 of this Proxy Statement.
| Termination of Employment without Cause or 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) | — | — | 750,000 | (3) | 142,000 | (4) | — | |||||||||||||
Equity Acceleration(5) | 180,600 | — | — | — | 180,600 | |||||||||||||||
Health Benefits(6) | — | — | — | — | — | |||||||||||||||
Total | 180,600 | — | 750,000 | 142,000 | 180,600 | |||||||||||||||
Mr. Seidel | ||||||||||||||||||||
Cash Payment(s) | 300,220 | (1) | 265,000 | (2) | 750,000 | (3) | 142,000 | (4) | — | |||||||||||
Equity Acceleration(5) | 36,007 | 36,007 | — | — | 36,007 | |||||||||||||||
Health Benefits(6) | 6,772 | — | — | — | — | |||||||||||||||
Total | 342,999 | 301,007 | 750,000 | 142,000 | 36,007 | |||||||||||||||
Ms. Hall | ||||||||||||||||||||
Cash Payment(s) | 552,480 | (1) | 375,000 | (2) | 750,000 | (3) | 142,000 | (4) | — | |||||||||||
Equity Acceleration(5) | 236,402 | 236,402 | 45,936 | 45,936 | 236,402 | |||||||||||||||
Health Benefits(6) | 7,061 | — | — | — | — | |||||||||||||||
Total | 795,943 | 611,402 | 795,936 | 187,936 | 236,402 | |||||||||||||||
Mr. Arezone | ||||||||||||||||||||
Cash Payment(s) | 475,114 | (1) | 365,000 | (2) | 750,000 | (3) | 142,000 | (4) | — | |||||||||||
Equity Acceleration(5) | 192,158 | 192,158 | 1,692 | 1,692 | 192,158 | |||||||||||||||
Health Benefits(6) | 7,278 | — | — | — | — | |||||||||||||||
Total | 674,550 | 557,158 | 751,692 | 143,692 | 192,158 | |||||||||||||||
Mr. Gale | ||||||||||||||||||||
Cash Payment(s) | 470,238 | (1) | 351,000 | (2) | 750,000 | (3) | 142,000 | (4) | — | |||||||||||
Equity Acceleration(5) | 153,829 | 153,829 | 34,956 | 34,956 | 153,829 | |||||||||||||||
Health Benefits(6) | 16,964 | — | — | — | — | |||||||||||||||
Total | 641,031 | 504,829 | 784,956 | 176,956 | 153,829 | |||||||||||||||
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 | |||||||||
| (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 |
| (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) |
|
| (6) | For Messrs. Seidel |
| 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. |
for Messrs. Seidel, Arezone 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, his outstanding and unvested stock options will become fully vested and exercisable pursuant to his equity award agreement.
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 30, 2016, the last trading day of fiscal year 201631, 2018 ($36.00)40.64).
| (7) | Reflects the value of continued coverage to the executive under our employee welfare benefit plans for 12 months based on |
Plan Category Equity compensation plans approved by security holders(1) Equity compensation plans not approved by security holders(5) Total Risk Assessment of Overall Compensation ProgramThe Compensation Committee 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 Committee 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 Committee 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 InformationThe following table provides information as of December 31, 20162018 regarding equity compensation plans under which our common stock is authorized for issuance. 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) 1,220,224 (2) $ 48.02 (3) 1,289,451 (4) — — — 1,220,224 $ 48.02 1,289,451 Plan Category Number of securities tobe issued upon exerciseof outstanding options,warrants and rights(a) Weighted-averageexercise price ofoutstanding options,warrants and rights(b) Number of securitiesremaining availablefor future issuanceunder equitycompensation plans(excluding securitiesreflected 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 2004 Equity Plan, the 2009 Equity Plan and the 2014 EquityIncentive Plan.(2) We had 1,090,160792,943 options outstanding as of December 31, 2016,2018, all of which are included in column (a). We also had 130,064298,949 RSUs outstanding as of December 31, 2016,2018, which are included in column (a), and 20,61812,051 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) | 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 |
| (5) | We do not maintain any equity compensation plans that have not been approved by our shareholders. |
29, 2019. Name of Beneficial Owner Simon Raab, Ph.D.(1) John Donofrio(2) Stephen R. Cole(3) Marvin R. Sambur, Ph.D.(4) John E. Caldwell(5) Lynn Brubaker(6) Kathleen J. Hall(7) Jody S. Gale(8) Joseph Arezone(9) Laura A. Murphy-Wolf(10) Robert E. Seidel(11) All current directors and executive officers as a group (11 persons)(12) PRIMECAP Management Company(13) BlackRock, Inc.(14) The Vanguard Group, Inc.(15) Barrow, Hanley, Mewhinney & Strauss LLC(16) Dimensional Fund Advisors LP(17)SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTThe following table sets forth the number of shares of our common stock beneficially owned as of March 17, 201729, 2019 (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 16,691,81517,318,875 shares of common stock outstanding as of March 17, 2017.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. Number of
Shares Percent 208,661 1.2 % 22,747 * 30,870 * 24,261 * 17,099 * 10,380 * 41,763 * 22,583 * 17,673 * — * 5,615 * 401,652 2.4 % 1,823,000 10.9 % 2,022,688 12.1 % 1,436,373 8.6 % 1,503,256 9.0 % 891,023 5.3 % Name of Beneficial Owner Number ofShares 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 110,00080,000 shares held by a revocable trust of which Dr. Raab is settlor and trustee. Also includes 4,482 shares of restricted stock and options to purchase 30,000 shares at $29.98 per share that are currently exercisable. Does not include options to purchase (i) 30,00037,908 shares at $29.98 per share, (ii) 69,475 shares at $39.05 per share, or (iii) 108,25172,167 shares at $34.55 per share and (iv) 26,134 shares at $61.30 per share that are not exercisable within 60 days of March 17, 2017.currently exercisable.(2) Includes 2,9882,636 shares of restricted stock.(3) Includes 4,1841,883 shares of restricted stock.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, and 7,000 shares held by Snow Powder Ridge Limited.Limited, and 10,630 shares held by Seeonee Inc., over which Mr. Cole has investment control.(4) Includes 2,9881,883 shares of restricted stock.(5) Includes 2,9881,883 shares of restricted stock and 8,200 shares held by the Cornelius-Brubaker Trust.(6) Includes 3,903 shares of restricted stock. (6)(7) Includes 2,9883,903 shares of restricted stock.(7)Includes options to purchase (i) 26,252 shares at $38.57 per share, (ii) 3,552 shares at $57.54 per share, (iii) 2,940 shares at $59.97 per share and (iv) 8,545 shares at 33.05 per share that are currently exercisable. Does not include options to purchase (i) 8,354 shares at $59.97 per share, (ii) 17,091 shares at $33.05 per
| (8) | Includes options to purchase (i) |
| (9) | Includes options to purchase (i) |
| Includes options to purchase (i) 2,000 shares at $43.33 per share, (ii) |
| (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. |
| (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 |
| (13) | Includes options to purchase |
| (14) | The number of shares reported is based on the Schedule 13G/A filed with the SEC on February |
| (15) | The number of shares reported is based on the Schedule 13G/A filed with the SEC on January |
| (16) | The number of shares reported is based on the Schedule 13G/A filed with the SEC on February |
| 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 |
| (17) | The number of shares reported is based on the Schedule 13G filed with the SEC on February |
| (18) | The number of shares reported is based on the Schedule |
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. 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. 2018. March 1, 2020. March 1, 2020. shareholders.(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. (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. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSReview, Approval or Ratification of Transactions with Related PersonsOur 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, 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: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 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 2016,2018, 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.SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCESection 16(a) of the Exchange Act requires our officers, directors and persons who beneficially own more than ten percent of our common stock to file reports of their security ownership and changes in such ownership with the SEC. Officers, directors 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. Based solely on a review of the Section 16(a) forms furnished to us in 20162018 and certifications from our executive officers and directors that no other reports were required for such persons, we believe that all of our directors, executive officers and persons who beneficially own more than ten percent of our common stock complied with the Section 16(a) filing requirements during the year ended December 31, 2016.OTHER MATTERS TO COME BEFORE THE ANNUAL MEETINGThe 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 2019 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 2020 Shareholder Proposals and Director Nominees.” No shareholder has given written notice that he or she intends to bring business before the Annual Meeting in compliance with the terms and time periods specified in our Bylaws.DEADLINE FOR RECEIPT OF 20182020 SHAREHOLDER PROPOSALS AND DIRECTOR NOMINEESIf a shareholder wants to have a proposal formally considered at the 2018 Annual Meeting2020 annual meeting of Shareholdersshareholders 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 1, 201719, 2019 and the proposal must comply with SEC rules; provided, however, that if the date of our 2018 Annual Meeting2020 annual meeting of Shareholdersshareholders is more than 30 days before or after May 12, 201830, 2020 (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 2018 Annual Meeting2020 annual meeting of Shareholdersshareholders 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.Bylaws. Under our bylaws,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 2018 Annual Meeting2020 annual meeting of Shareholders,shareholders, we must receive the proposal, which must conform to the notice requirements set forth in our bylaws,Bylaws, between January 12, 201831, 2020 and February 11, 2018.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—Governance and Nominating Committee,” beginning on page 1815 of this Proxy Statement. For the 2018 Annual Meeting2020 annual meeting of Shareholders,shareholders, we must receive the nomination, which must conform to the notice requirements set forth in our bylaws,Bylaws, between January 12, 201831, 2020 and February 11, 2018.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 2018 Annual Meeting2020 annual meeting of Shareholders.20162018 ANNUAL REPORTOn February 24, 2017,21, 2019, we filed with the SEC our Annual Report on Form 10-K for the year ended December 31, 2016.2018. Copies of our 20162018 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 and first clicking “Investor Relations” and then “SEC Filings;”www.faro.com/about-faro/investor-relations/sec-filings or by accessing the SEC’s EDGAR database atwww.sec.gov. A list of exhibits is included in the 20162018 Annual Report on Form 10-K, and exhibits are available from us upon payment to us of the cost of furnishing them.By Order of the Board of Directors,
JODY S. GALESenior Vice President, General Counsel and SecretaryMarch 31, 2017
FARO TECHNOLOGIES, INC. ATTN: JODY GALE 250 TECHNOLOGY PARK LAKE MARY, FL 32746By Order of the Board of Directors, JODY S. GALE Senior Vice President, General Counsel and Secretary April 17, 2019VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLYFor Withhold For All All All Except The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees 01 Stephen R. Cole 02 Marvin R. Sambur, Ph. D The Board of Directors recommends you vote FOR proposals 2 and 3. 2. The ratification of Grant Thornton LLP as the Company’s independent registered public accounting firm for 2017 3. Non-binding resolution to approve the compensation of the Company’s named executive officers The Board of Directors recommends you vote 1 YEAR on the following proposal: 4. Non-binding vote to approve the frequency of future non-binding votes to approve the compensation of the Company’s named executive officers NOTE: In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting or any adjournment thereof. For address change/comments, mark here. (see reverse for instructions) Yes No Please indicate if you plan to attend this meeting Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date
To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. For Against Abstain 1 year 2 years 3 years Abstain Signature (Joint Owners) Date0000323600_1 R1.0.1.15
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice & Proxy Statement, 10-K Wrap are available at www.proxyvote.comFARO TECHNOLOGIES, INC. Annual Meeting of Shareholders May 12, 2017 9:00 AM, EDTThis proxy is solicited by the Board of DirectorsThe undersigned hereby appoint(s) Dr. Simon Raab, Chairman, President and CEO, and Jody S. Gale, Senior Vice President, General Counsel & Secretary, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this proxy card, all of the shares of Common Stock of FARO TECHNOLOGIES, INC. that the shareholder(s) is/are entitled to vote at the Annual Meeting of Shareholders to be held at 9:00 AM, EDT on May 12, 2017, at FAROTechnologies, Inc., 250 Technology Park, Lake Mary, FL 32746, and any adjournment or postponement thereof.This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted “FOR��� each of the director nominees listed in Proposal 1, “FOR” Proposals 2 and 3 and “1 YEAR” for Proposal 4.Address change/comments:(If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.)Continued and to be signed on reverse side0000323600_2 R1.0.1.15