| • | | • | Initial OptionGrant. Each person who first becomes anon-employee director has been or will be granted an option to purchase sharesRestricted Stock Units having a grant date fair value equal to $160,000,$190,000, or the Initial Option,Award, on the date of |
| | the first meeting of our boardBoard of directorsDirectors or compensation committeeCompensation Committee occurring on or after the date on which the individual first became anon-employee director. The shares underlying the Initial OptionAward will vest and become exercisable as to one thirty-sixth (1/36th)third of the shares subject to such Initial OptionAward on each monthlyyearly anniversary of the commencement of thenon-employee director’s service as a director, subject to the continued service as a director through the applicable vesting date. |
| • | | Annual OptionAnnual Grant. On each annual anniversary of the date on which anon-employee director first became anon-employee director, thenon-employee director will be granted an option to purchase shares
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| having a grant date fair value equal to $100,000, or the Annual Option. The shares underlying the Annual Option will vest and become exercisable as to one twelfth (1/12th) of the shares subject to such Annual Option on each monthly anniversary of the date of grant, subject to the continued service as a director through the applicable vesting date.
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The exercise price per share of each stock option granted under our outsidethe stockholder’s meeting, the non-employee director compensation policy, including Initial Options and Annual Options, will be the fair market value of our common stock, as determined in accordance with our 2016 Equity Incentive Plan, or the 2016 Plan, on the date of the option grant. Thegranted Restricted Stock Units to purchase shares having a grant date fair value is computed in accordance withequal to $100,000, or the Black-Scholes option valuation methodology or such other methodology our boardAnnual Award. The shares underlying the Annual Award will vest and become exercisable on the one year anniversary of directors or compensation committee may determine to be appropriate.the vesting start date.
Any stock optionaward granted under our outside director compensation policy will fully vest and become exercisable in the event of a change in control, as defined in our 2016 Plan, provided that the optioneegrantee remains a director through such change in control. Further, our 2016 Plan, as described below under the section titled “Employee Benefit and Stock Plans,” provides that in the event of a merger or change in control, as defined in our 2016 Plan, each outstanding equity award granted under our 2016 Plan that is held by anon-employee director will fully vest, all restrictions on the shares subject to such award will lapse, and with respect to awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels, and all of the shares subject to such award will become fully exercisable, if applicable, provided such optionee remains a director through such merger or change in control. Pursuant to our outside director compensation policy, nonon-employee may be issued, in any fiscal year, cash payments (including the fees under our outside director compensation policy) with a value greater than $200,000, provided that such limit will be $300,000 with respect to anynon-employee director who serves in the capacity of chairman of the board, lead outside director or chairman of the audit committeeAudit Committee at any time during the fiscal year. Nonon-employee director may be granted, in any fiscal year, equity awards with a grant date fair value (determined in accordance with U.S. generally accepted accounting principles) of greater than $300,000, increased to $500,000 in the fiscal year of his or her initial service as anon-employee director. In February 2017, we updated our outside director compensation policy to provide that, going forward, each director would receive his or her equity compensation as stated above 50% in stock options and 50% in restricted stock units.
Compensation for Fiscal Year 20162017 The following table sets forth a summary of the compensation received by our directors that are not named executive officersNamed Executive Officers who received compensation during our fiscal year ended December 31, 2016:2017: Name | | Fees Earned or Paid in Cash | | | Stock Awards(1) | | | Option Awards(1)(2) | | | Total | | Abhijit Y. Talwalkar | | $ | 92,000 | | | $ | 50,024 | | | $ | 49,980 | | | $ | 192,004 | | Bruce G. Bodaken | | $ | 25,208 | | | $ | 79,987 | | | $ | 79,973 | | | $ | 185,168 | | Mark J. Rubash | | $ | 60,000 | | | $ | 49,363 | | | $ | 49,982 | | | $ | 159,345 | | Ralph Snyderman, M.D. | | $ | 22,000 | | | $ | 79,987 | | | $ | 79,973 | | | $ | 181,960 | | Raymond W. Scott | | $ | 54,000 | | | $ | — | | | $ | — | | | $ | 54,000 | | Vijay K. Lathi | | $ | 47,567 | | | $ | 48,627 | | | $ | 49,975 | | | $ | 146,169 | |
| | | | | | | | | | | | | Name | | Fees Earned or
Paid in Cash
($) | | | Option
Awards
($)(1)(2) | | | Total
($) | | Abhijit Y. Talwalkar | | $ | 18,000 | | | $ | 127,744 | | | $ | 145,744 | | Casper L. de Clercq | | $ | 12,326 | | | | — | | | $ | 12,326 | | Mark J. Rubash | | $ | 11,739 | | | $ | 127,744 | | | $ | 139,483 | | Raymond W. Scott | | $ | 10,565 | | | $ | 100,129 | | | $ | 110,694 | | Tiba Aynechi(3) | | | — | | | | — | | | | — | | Vijay K. Lathi | | $ | 9,000 | | | | — | | | $ | 9,000 | |
(1) | Amounts shown represent the grant date fair value of options and stock awards granted during 2016,2017, as calculated in accordance with ASC Topic 718. The assumptions used in calculating the grant-date fair value of the options reported in this column are set forth in the section in our Annual Report on Form 10-K for the year ended December 31, 20162017 titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Stock-Based Compensation.” |
(2) | Options and Restricted Stock Units outstanding as of December 31, 2016,2017, held by ournon-employee directors were as follows: |
| | | | | Name
| | Shares Subject
to Outstanding
Options | | Mark J. Rubash
| | | 21,248 | | Raymond W. Scott
| | | 40,874 | | Abhijit Y. Talwalkar
| | | 21,248 | |
(3) | Dr. Aynechi resigned from our board of directors in April 2017.
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Name | | Shares Subject to Outstanding Awards | | | Shares Subject to Outstanding Options | | Abhijit Y. Talwalkar | | | 1,435 | | | | 24,230 | | Bruce G. Bodaken | | | 1,949 | | | | 4,089 | | Mark J. Rubash | | | 1,361 | | | | 23,901 | | Ralph Snyderman, M.D. | | | 1,949 | | | | 4,089 | | Raymond W. Scott | | | — | | | | 15,376 | | Vijay K. Lathi | | | 1,405 | | | | 3,007 | |
Our directors who are also our employees receive no additional compensation for their service as directors. During our fiscal year ended December 31, 2016,2017, Kevin M. King was our employee. See the section titled “Executive Compensation” for additional information about the compensation paid to Mr. King.
PROPOSAL NO. 1 ELECTION OF DIRECTORS Our boardBoard of directorsDirectors is currently composed of sixeight members. In accordance with our amended and restated certificate of incorporation, our boardBoard of directorsDirectors is divided into three staggered classes of directors. At the Annual Meeting, two Class III directors will be elected for a three-year term to succeed the same class whose term is then expiring. Each director’s term continues until the election and qualification of his or her successor, or such director’s earlier death, resignation, or removal. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist ofone-third of our directors. This classification of our boardBoard of directorsDirectors may have the effect of delaying or preventing changes in control of our company. Nominees Our nominatingNominating and corporate governance committeeCorporate Governance Committee has recommended, and our boardBoard of directorsDirectors has approved, Kevin M. KingC. Noel Bairey Merz and Raymond W. ScottMark J. Rubash as nominees for election as Class III directors at the Annual Meeting. If elected, each of Kevin M. KingC. Noel Bairey Merz and Raymond W. ScottMark J. Rubash will serve as Class III directors until our 20202021 annual meeting of stockholders and until their successors are duly elected and qualified. Each of the nominees is currently a director of our company. For information concerning the nominees, please see the section titled “Board of Directors and Corporate Governance.” If you are a stockholder of record and you sign your proxy card or vote by telephone or over the Internet but do not give instructions with respect to the voting of directors, your shares will be voted “FOR” the election of Messrs. KingDr. Bairey Merz and Scott.Mr. Rubash. We expect that each of Messrs. KingDr. Bairey Merz and ScottMr. Rubash will accept such nomination; however, in the event that a director nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee designated by our boardBoard of directorsDirectors to fill such vacancy. If you are a street name stockholder and you do not give voting instructions to your broker or nominee, your broker will leave your shares unvoted on this matter. Vote Required The election of directors requires a plurality vote of the shares of our common stock present in person or by proxy at the Annual Meeting and entitled to vote thereon to be approved. Brokernon-votes and abstentions will have no effect on this proposal. THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE NOMINEES NAMED ABOVE.
PROPOSAL NO. 2 RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Our audit committeeAudit Committee has appointed PricewaterhouseCoopers LLP (“PwC”), independent registered public accountants, to audit our consolidated financial statements for our fiscal year ending December 31, 2017.2018. During our fiscal year ended December 31, 2016,2017, PwC served as our independent registered public accounting firm. Notwithstanding the appointment of PwC and the ratification of such appointment by our stockholders, our audit committee,Audit Committee, in its discretion, may appoint another independent registered public accounting firm at any time during our fiscal year if our audit committeeAudit Committee believes that such a change would be in the best interests of our company and our stockholders. At the Annual Meeting, our stockholders are being asked to ratify the appointment of PwC as our independent registered public accounting firm for our fiscal year ending December 31, 2017.2018. Our audit committeeAudit Committee is submitting the appointment of PwC to our stockholders because we value our stockholders’ views on our independent registered public accounting firm and as a matter of good corporate governance. Representatives of PwC will be present at the Annual Meeting, and they will have an opportunity to make a statement and will be available to respond to appropriate questions from our stockholders. If our stockholders do not ratify the appointment of PwC, our boardBoard of directorsDirectors may reconsider the appointment. Fees Paid to the Independent Registered Public Accounting Firm The following table presents fees for professional audit services and other services rendered to us by PwC for our fiscal years ended December 31, 20152017 and 2016: | | | | 2015 | | | 2016 | | | 2017 | | | 2016 | | Audit Fees(1) | | $ | 631,000 | | | $ | 1,748,500 | | | $ | 2,267,500 | | | $ | 1,748,500 | | Audit-Related Fees | | | — | | | | — | | | | — | | | | — | | Tax Fees | | | — | | | | — | | | | — | | | | — | | All Other Fees | | | — | | | | — | | | | — | | | | — | | | | | | | | | | Total Fees | | $ | 631,000 | | | $ | 1,748,500 | | | $ | 2,267,500 | | | $ | 1,748,500 | | | | | | | | | |
(1) | Audit Fees consist of professional services rendered for the audits of our financial statements and reviews of quarterly financial statements. The Audit Fees incurred in 2015 and 2016 also include fees of $50,000 and $844,000 respectively, related to services performed in connection with our initial public offering, which was completed in October 2016. |
Auditor Independence In our fiscal year ended December 31, 2016,2017, there were no other professional services provided by PwC that would have required our audit committeeAudit Committee to consider their compatibility with maintaining the independence of PwC. Audit Committee Policy onPre-Approval of Audit and PermissibleNon-Audit Services of Independent Registered Public Accounting Firm Our audit committeeAudit Committee has established a policy governing our use of the services of our independent registered public accounting firm. Under this policy, our audit committeeAudit Committee is required topre-approve all audit andnon-audit services performed by our independent registered public accounting firm in order to ensure that the provision of such services does not impair the public accountants’ independence. All fees paid to PwC for our fiscal years ended December 31, 20152017 and 2016 werepre-approved by our audit committee.Audit Committee. Vote Required The ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm requires the affirmative vote of a majority of the shares of our common stock present in person or by
proxy at the Annual Meeting and entitled to vote thereon. Abstentions will have the effect of a vote AGAINST the proposal and brokernon-votes will have no effect. THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP.
PROPOSAL NO. 3 ADVISORY VOTE ON THE FREQUENCY OF ADVISORY VOTES ON NAMED EXECUTIVE OFFICER COMPENSATION In accordance with the rules and regulations of the SEC, pursuant to Section 14A of the Exchange Act, we are providing our stockholders with a non-binding, advisory vote on the frequency of future advisory votes on the compensation of our Named Executive Officers (“NEO”). Commonly known as a “Say-When-on-Pay” proposal, this vote gives our stockholders the opportunity to express their views on whether future advisory votes on the compensation of our NEOs should occur once every year, every two years or every three years. Vote Required You have four choices for voting on the following resolution. You can choose whether future advisory votes on NEO compensation should be conducted every 1 YEAR, 2 YEARS or 3 YEARS. You may also ABSTAIN from voting. The frequency that receives the greatest number of votes cast by stockholders on this matter at the Annual Meeting will be considered the advisory vote of our stockholders. Your vote on this proposal is advisory, and therefore not binding on the company or the Board, and will not be interpreted as overruling a decision by, or creating or implying any additional fiduciary duty for, the Board. Nevertheless, our Board values the opinions of our stockholders and will take into account the outcome of this vote when making future decisions regarding the frequency of holding future advisory votes on the compensation of our NEOs. THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO HOLD FUTURE ADVISORY VOTES EVERY 3 YEARS ON THE COMPENSATION OF OUR NEOS.
REPORT OF THE AUDIT COMMITTEE The audit committeeAudit Committee is a committee of the boardBoard of directorsDirectors comprised solely of independent directors as required by the listing standards of The NASDAQ Stock Market and rules and regulations of the SEC. The audit committeeAudit Committee operates under a written charter approved by the boardBoard of directors,Directors, which is available on the Company’s website at www.irhythmtech.com under “Investors—Policies, Procedures and Charters.” The composition of the audit committee,Audit Committee, the attributes of its members and the responsibilities of the audit committee,Audit Committee, as reflected in its charter, are intended to be in accordance with applicable requirements for corporate audit committees.Audit Committees. The audit committeeAudit Committee reviews and assesses the adequacy of its charter and the audit committee’sAudit Committee’s performance on an annual basis. With respect to the Company’s financial reporting process, the management of the Company is responsible for (1) establishing and maintaining internal controls and (2) preparing the Company’s consolidated financial statements. The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP (“PwC”), is responsible for auditing these financial statements. It is the responsibility of the audit committeeAudit Committee to oversee these activities. It is not the responsibility of the audit committeeAudit Committee to prepare the Company’s consolidated financial statements. These are the fundamental responsibilities of management. In the performance of its oversight function, the audit committeeAudit Committee has: reviewed and discussed the audited consolidated financial statements with management and PwC; discussed with PwC the matters required to be discussed by Auditing Standard No. 1301, “Communications with Audit Committees” issued by the Public Company Accounting Oversight Board; and received the written disclosures and the letter from PwC required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committeeAudit Committee concerning independence, and has discussed with PwC its independence. Based on the audit committee’sAudit Committee’s review and discussions with management and PwC, the audit committeeAudit Committee recommended to the boardBoard of directorsDirectors that the audited financial statements be included in the Annual Report onForm 10-K for the fiscal year ended December 31, 20162017 for filing with the Securities and Exchange Commission. Respectfully submitted by the members of the audit committeeAudit Committee of the boardBoard of directors:Directors: Mark J. Rubash (Chair) Casper L. de ClercqRalph Snyderman, M.D.
Abhijit Y. Talwalkar This report of the audit committeeAudit Committee is required by the Securities and Exchange Commission (“SEC”) and, in accordance with the SEC’s rules, will not be deemed to be part of or incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended (“Securities Act”), or under the Securities Exchange Act of 1934, as amended (“Exchange Act”), except to the extent that we specifically incorporate this information by reference, and will not otherwise be deemed “soliciting material” or “filed” under either the Securities Act or the Exchange Act.
EXECUTIVE OFFICERS The following table identifies certain information about our executive officers as of April 27, 2017.13, 2018. Our executive officers are appointed by, and serve at the discretion of, our boardBoard of directors.Directors. There are no family relationships among any of our directors or executive officers. | | | | | | | Name | | Age | | | Position | Kevin M. King | | 61 | 60 | | | President, Chief Executive Officer and Director | Matthew C. Garrett | | 50 | 49 | | | Chief Financial Officer | David A. Vort | | 52 | 51 | | | Executive Vice President, Sales | Derrick Sung | | 45 | 44 | | | Executive Vice President, Strategy and Corporate Development |
For the biography of Mr. King, please see “Board of Directors and Corporate Governance—Nominees for Director.Continuing Directors.” Matthew C. Garrett has served as our Chief Financial Officer since January 2013. Mr. Garrett brings more than 20 years of leadership experience in finance, investor relations, business development, and operations to our company. From March 2010 until December 2012, he served as Chief Financial Officer of Navigenics, Inc., a provider of genetic testing for common health conditions, where he led all finance functions, strategic partnerships, and successfully facilitated the sale of the company to Life Technologies Corp. From October 2008 until March 2010, Mr. Garrett served as Director of Business Development at Corventis Inc., a health monitor applications company, where he was responsible for directing corporate operations and business collaborations related to the advancement and promotion of the company’s health monitor applications. From October 2006 until September 2008, Mr. Garrett served as Vice President of Finance, Chief Accounting Officer and Treasurer for Cogentus Pharmaceuticals Inc., a developer of prescription pharmaceutical products. Earlier in his career, Mr. Garrett served as Finance Director in Research & Development and, subsequently, Director of Strategic Marketing and Pricing at Affymetrix, Inc. Prior to Affymetrix, he held various finance roles at Guidant Corporation, a medical technology company focused on cardiac and vascular solutions. Mr. Garrett holds a B.A. in Finance from the University of Iowa, Iowa City and an M.B.A. from the Kelley School of Business, Indiana University Bloomington. David A. Vort has served as our Executive Vice President of Sales since January 2014. From April 2012 to December 2013, he served as Vice President of US Sales at InTouch Technologies, Inc., a provider of telemedicine and remote presence solutions. From July 2007 to April 2012, Mr. Vort was at Intuitive Surgical, Inc., the manufacturer of the da Vinci Surgical Robotics system, where he served most recently as Area Vice President of Western Sales. From 2004 until 2007, Mr. Vort was the Revision Business Sales Director for Stryker Corporation. From 1999 until 2004, Mr. Vort held several positions domestically and in Europe for the Global Healthcare Exchange, LLC, where he was a founder. From 1992 until 1997, he held several positions with U.S. Surgical Corporation, prior to its sale to Covidien plc. Mr. Vort holds a B.S. in Political Science from the University of the Pacific. Derrick Sung has served as our Executive Vice President of Strategy and Corporate Development since May 2015. From 2008 to 2015, Dr. Sung was the senior equity research analyst covering the medical devices sector for Sanford C. Bernstein & Co., LLC. From 2004 to 2008, he was Director of Marketing and Business Development in Boston Scientific Corp.’s Neuromodulation Division. From 2000 to 2004, Dr. Sung served as a management consultant at The Boston Consulting Group where he advised biopharmaceutical and medical device companies on business strategy, operational effectiveness, and mergers and acquisitions. Dr. Sung began his career in 1994 as a research and development engineer designing heart catheters for Guidant Corporation. Dr. Sung holds a Ph.D. in Bioengineering from U.C. San Diego, an M.B.A. from San Diego State University and a B.S. in Mechanical Engineering from Stanford University.
EXECUTIVE COMPENSATIONCOMPENSATION Compensation Discussion and Analysis This Compensation Discussion and Analysis describes the compensation program for our Named Executive Officers. During 2017, these individuals were: | ▪ | Kevin M. King, our President and Chief Executive Officer (our “CEO”);
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| ▪ | Matthew C. Garrett, our Chief Financial Officer (our “CFO”);
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| ▪ | David A. Vort, our Executive Vice President of Sales; and
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| ▪ | Derrick Sung, our Executive Vice President of Strategy and Corporate Development. |
This Compensation Discussion and Analysis describes the material elements of our executive compensation program during 2017. It also provides an overview of our executive compensation philosophy and objectives. Finally, it analyzes how and why the Compensation Committee of our Board of Directors (the “Compensation Committee”) arrived at the specific compensation decisions for our executive officers, including our Named Executive Officers, for 2017, detailing the key factors that the Compensation Committee considered in determining their compensation. Executive Summary We are a commercial-stage digital healthcare company redefining the way cardiac arrhythmias are clinically diagnosed by combining our wearable bio-sensing technology with cloud-based data analytics and machine-learning capabilities. Our goal is to be the leading provider of first-line ambulatory electrocardiogram (“ECG”) monitoring for patients at risk for arrhythmias. We have created a unique platform, called the Zio service, which combines an easy-to-wear and unobtrusive biosensor that can be worn for up to 14 days with powerful proprietary algorithms that distill data from millions of heartbeats into clinically actionable information. We believe that the Zio service allows physicians to diagnose many arrhythmias more quickly and efficiently than traditional technologies and avoid multiple indeterminate test cycles. Early detection of heart rhythm disorders, such as atrial fibrillation and other clinically relevant arrhythmias, allows for appropriate and timely medical intervention helping to avoid more serious downstream medical events, including stroke. Since receiving clearance from the Food and Drug Administration in 2009, we have provided the Zio service to over one million patients and have collected over 250 million hours of curated heartbeat data, creating what we believe to be the world’s largest repository of ambulatory ECG patient data. This data provides us with a competitive advantage by informing our proprietary machine-learned algorithms, which may enable operating efficiencies, gross margin improvement and business scalability. We believe the Zio service is well aligned with the goals of the U.S. healthcare system: improving population health, enhancing the patient care experience and reducing per-capita cost. During 2017, we continued to make significant progress on our key business objectives, not only achieving, but in many cases, surpassing the goals we set for the year. Our financial and operational highlights for 2017 included: | ▪ | Revenue was $98.5 million, an increase of 54% from $64.1 million in 2016; |
| ▪ | Gross profit was $70.8 million, or 71.9% gross margin, up from $43.2 million, or 67.4% gross margin, in the same period in 2016;
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| ▪ | Loss from operations for 2017 was $27.3 million, compared to $15.6 million from 2016; and |
| ▪ | Cash, cash equivalents, short-term investments and long-term investments were $105.4 million as of December 31, 2017. |
2017 Executive Compensation Highlights |
Based on our overall operating environment and business results, the Compensation Committee took the following key actions with respect to the compensation of our Named Executive Officers for 2017:
| ▪ | Base Salary – Approved annual base salary increases ranging from 3.5%to 5.0%, as well as a base salary increase of 10.0%for our CEO. |
| ▪ | Annual Cash Bonuses – Approved annual cash bonuses under our Executive Incentive Compensation Plan ranging from 130% to 165% of their target annual cash bonus opportunities, including an annual cash bonus for our CEO in the amount of $771,375, equal to 165% of his target annual cash bonus opportunity. |
| ▪ | Long-Term Incentive Compensation – Granted long-term incentive compensation opportunities in the form of options to purchase shares of our common stock and restricted stock unit (“RSU”) awards that may be settled for shares of our common stock, with grant date fair values ranging from approximately $535,000to approximately $970,000, as well as a stock option and RSU award for our CEO with an aggregate grant date fair value of approximately $3,316,000. |
Pay-for-Performance Philosophy |
We view our compensation practices as a tool to align our executive officers, including our Named Executive Officers, with our strategic goals and reward high performance, collaboration and accountability. We believe our executive compensation program is reasonable, competitive and appropriately balances the goals of attracting, motivating, rewarding and retaining our Named Executive Officers with the goal of aligning their interests with those of our stockholders. To ensure this alignment and to motivate and reward individual initiative and effort, a substantial portion of our Named Executive Officers’ target total direct compensation is both performance-based and “at-risk.” In 2017, we emphasized performance-based compensation that appropriately rewards our Named Executive Officers through two separate compensation elements: | ▪ | First, we provided the opportunity to participate in our Executive Incentive Compensation Plan, which provides cash payments if they produce short-term financial, operational and strategic results that meet or exceed the key objectives set forth in our annual operating plan.
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| ▪ | In addition, in 2017 we granted options to purchase shares of our common stock and RSU awards that will be settled for shares of our common stock, which will reward them for increasing the market price of our common stock over a multi-year period. |
These variable pay elements ensure that a substantial portion of our Named Executive Officers’ target total direct compensation for 2017 is contingent (rather than fixed) in nature, with the amounts ultimately payable subject to variability above or below grant levels commensurate with our actual performance. The pay mix for our CEO and our other Named Executive Officers during 2017 reflected this “pay-for-performance” design as follows: 
We believe that our compensation design provides balanced incentives for our Named Executive Officers to meet our business objectives and drive our long-term growth. To ensure we remain faithful to our compensation philosophy, the Compensation Committee regularly evaluates the relationship between the reported values of the equity awards granted to our executive officers, the amount of compensation realizable (and, ultimately, realized) from such awards in subsequent years and performance over this period. Executive Compensation Policies and Practices |
We endeavor to maintain sound governance standards consistent with our executive compensation policies and practices. The Compensation Committee evaluates our executive compensation program on a regular basis to ensure that it is consistent with our short-term and long-term goals given the dynamic nature of our business and the market in which we compete for executive talent. The following summarizes our executive compensation and related policies and practices: | | | | | | | | | | | What We Do | | | | | | What We Don’t Do |
▪Maintain an Independent Compensation Committee. The Compensation Committee consists solely of independent directors. ▪Retain an Independent Compensation Adviser. The Compensation Committee engaged its own compensation adviser to provide information and analysis with its 2017 compensation review, and other advice on executive compensation independent of management. ▪Annual Executive Compensation Review. The Compensation Committee conducts an annual review and approval of our compensation strategy, including a review and determination of our compensation peer group used for comparative purposes.
▪Compensation At-Risk. Our executive compensation program is designed so that a significant portion of our Named Executive Officers’ compensation is “at risk” based on our corporate performance, as well as equity-based, to align the interests of our Named Executive Officers and stockholders.
▪Use a Pay-for-Performance Philosophy. The majority of our Named Executive Officers’ compensation is directly linked to corporate performance; we also structure their target total direct compensation opportunities with a significant long-term equity component, thereby making a substantial portion of each executive officer’s target total direct compensation dependent upon our stock price and/or total stockholder return. ▪ “Double-Trigger” Change-in-Control Arrangements. All of our post-employment compensation arrangements in the event of a change in control of the Company are “double-trigger” arrangements that require both a change in control of the Company plus a qualifying termination of employment before payments and benefits are paid. ▪Succession Planning. We review the risks associated with our key executive officer positions to ensure adequate succession plans are in development. |
| | | | | ▪No Executive Retirement Plans. We do not offer pension arrangements or retirement plans or arrangements to our Named Executive Officers that are different from or in addition to those offered to our other employees. ▪Limited Perquisites. We provide limited perquisites or other personal benefits to our Named Executive Officers. ▪No Tax Reimbursements on Perquisites. We do not provide any tax reimbursement payments (including “gross-ups”) on any perquisites or other personal benefits, other than related to standard relocation and corporate housing benefits. ▪No Special Welfare or Health Benefits. Our Named Executive Officers participate in broad-based company-sponsored health and welfare benefits programs on the same basis as our other full-time, salaried employees. ▪No Post-Employment Tax Payment Reimbursement. We do not provide any tax reimbursement payments (including “gross-ups”) on any severance or change-in-control payments or benefits. ▪No Hedging of Our Equity Securities. We prohibit our executive officers, the members of our Board of Directors and certain other employees from engaging in certain derivative transactions and from hedging our securities. ▪No Pledging of Our Equity Securities. We prohibit our executive officers, the members of our Board of Directors and certain other employees from holding our securities in a margin account or pledging our securities as collateral for a loan.
▪No “single trigger” Change-in-Control Arrangements. We do not provide cash severance or automatic vesting of equity awards based solely upon a change in control of the Company. ▪No Stock Option Re-pricing. Our equity incentive and compensation plans do not permit options to be repriced to a lower exercise or strike price without the approval of our stockholders. |
Stockholder Advisory Vote on Executive Compensation |
At the Annual Meeting of Stockholders to which this Proxy Statement relates, we will be conducting a non-binding vote on the frequency of future non-binding advisory votes on the compensation of our Named Executive Officers (commonly known as a “Say-When-on-Pay” vote). See Proposal 3 in this Proxy Statement. We value the opinions of our stockholders. Our Board of Directors and the Compensation Committee will consider the outcome of future advisory votes on the compensation of our Named Executive Officers, as well as feedback received throughout the year, when making compensation decisions for our executive officers. Executive Compensation Philosophy Our overarching compensation philosophy is highly focused on rewarding individual performance while ensuring alignment of top performers to current market practices. Consistent with this philosophy, we have designed our executive compensation program to achieve the following primary objectives:
| ▪ | Enable the attraction and retention of high-caliber executive talent;
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| ▪ | Directly link rewards to the achievement of key financial, operational and strategic results that build long-term stockholder value; and |
| ▪ | Recognize individual performance by linking rewards to individual achievements in addition to measurable corporate results. |
Executive Compensation Program Design Consistent with our compensation philosophy, our current practice is to combine a mixture of compensation elements that balance achievement of our short-term goals with our long-term performance. We provide short-term incentive compensation opportunities in the form of an annual cash bonus plan, which focuses on our yearly operating results, and long-term incentive compensation opportunities are provided in the form of equity awards, including: | ▪ | Options, that are subject to multi-year vesting requirements, to purchase shares of our common stock that have value only to the extent that our stock price appreciates over the option term; and
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| ▪ | RSU awards that derive additional value from increases in our stock price over time and that are subject to multi-year vesting requirements. |
We do not have a specific policy on the percentage allocation between short-term and long-term compensation elements. While the pay mix may vary from year to year, the ultimate goal is to achieve our compensation objectives as described above. Governance of Executive Compensation Program Role of the Compensation Committee The Compensation Committee discharges many of the responsibilities of our Board of Directors relating to the compensation of our executive officers, including our Named Executive Officers. The Compensation Committee also reviews and provides specific compensation recommendations to our Board of Directors relating to the independent members of our Board of Directors. The Compensation Committee has overall responsibility for overseeing our compensation and benefits policies generally, and overseeing and evaluating the compensation plans, policies and practices applicable to our CEO and other executive officers. The Compensation Committee has authority to make decisions regarding the compensation of our Named Executive Officers (other than the CEO), and makes recommendations to the full Board of Directors regarding the compensation of the CEO. In 2017, the Compensation Committee chose, based on our former practice as a private company, to bring their recommendations for all Named Executive Officer compensation changes to the Board of Directors for final review and approval (with the CEO recusing himself). For 2018 and beyond, the Compensation Committee will make final decisions regarding the compensation of our Named Executive Officers, excluding the CEO. The Compensation Committee retains a compensation consultant that specializes in executive compensation standards and practices (as described below) to provide support in its review and assessment of our executive compensation program.
Compensation-Setting Process The Compensation Committee develops recommendations for the target total direct compensation opportunities, as well as each element of these opportunities, of our CEO and other Named Executive Officers. The Compensation Committee does not use a single method or measure in formulating its recommendations, nor does it establish specific targets for the total direct compensation of our Named Executive Officers. The Compensation Committee reviews the base salary levels, annual cash bonus opportunities and long-term
incentive compensation opportunities of our Named Executive Officers at the beginning of the year, or more frequently as warranted. When formulating its recommendations for the value of each compensation element and the target total direct compensation of our Named Executive Officers and determining the compensation of our Named Executive Officers, the Compensation Committee and our Board of Directors, respectively, consider the following factors: | ▪ | our performance against the financial and operational objectives established by the Compensation Committee and our Board of Directors;
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| ▪ | each individual Named Executive Officer’s skills, experience and qualifications relative to other similarly-situated executives at the companies in our compensation peer group;
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| ▪ | the scope of each Named Executive Officer’s role compared to other similarly-situated executives at the companies in our compensation peer group;
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| ▪ | the performance of each individual Named Executive Officer, based on a subjective assessment of his contributions to our overall performance, ability to lead his business unit or function and work as part of a team, all of which reflect our core values;
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| ▪ | compensation parity among our Named Executive Officers;
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| ▪ | our financial performance relative to our peers;
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| ▪ | the compensation practices of our compensation peer group and the positioning of each Named Executive Officer’s compensation in a ranking of peer company compensation levels; and
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| ▪ | the recommendations provided by our CEO with respect to the compensation of our other Named Executive Officers. |
These factors provide the framework for compensation decision-making and final decisions regarding the compensation opportunity for each Named Executive Officer. Neither the Compensation Committee, nor our Board of Directors, assigns relative weights or rankings to such factors. No single factor is determinative in setting pay levels, nor was the impact of any factor on the determination of pay levels quantifiable. The Compensation Committee’s or our Board of Directors’ consideration of any particular factor may range from inapplicable to significant, depending upon the individual and period under consideration. Rather, the Compensation Committee and our Board of Directors rely upon their members’ knowledge and judgment in assessing the various qualitative and quantitative inputs they receive as to each individual and makes compensation decisions accordingly. Role of Chief Executive Officer In discharging its responsibilities, the Compensation Committee works with members of our management, including our CEO and Vice President of Human Resources. Our management assists the Compensation Committee and our Board of Directors by providing information on corporate and individual performance, market compensation data and management’s perspective on compensation matters. The Compensation Committee solicits and reviews our CEO’s recommendations and proposals with respect to program structures, as well as his recommendations for adjustments to annual cash compensation, long-term incentive compensation opportunities and other compensation-related matters for our Named Executive Officers based on his evaluation of their performance for the prior year. Each year, our CEO reviews the performance of our other Named Executive Officers based on such individual’s level of success in accomplishing the business objectives established for him for the prior year and his overall performance during that year, and then shares these evaluations with, and makes recommendations to, the Compensation Committee for each element of compensation as described above. The annual business objectives for each Named Executive Officer are developed through mutual discussion and agreement between our CEO and the Named Executive Officers and are reviewed with our Board of Directors.
The Compensation Committee reviews and discusses management proposals and recommendations with our CEO and Vice President of Human Resources and considers them as one factor in formulating the recommendations for the compensation of our CEO and our other Named Executive Officers. Our CEO recuses himself from all discussions and recommendations regarding his own compensation. Role of Compensation Consultant The Compensation Committee engages an external compensation consultant to assist it by providing information, analysis and other advice relating to our executive compensation program and the decisions resulting from its annual executive compensation review. For 2017, the Compensation Committee engaged Compensia, Inc., a national compensation consulting firm (“Compensia”), as its compensation consultant to advise it on executive compensation matters. Services included competitive market pay practices for senior executives and data analysis and selection of the compensation peer group. Compensia’s analysis and advice are key components of the Compensation Committee’s determination of appropriate and competitive compensation for our Named Executive Officers. For 2017, Compensia regularly attended meetings of the Compensation Committee and the scope of its engagement included: | ▪ | the review and analysis of the compensation for our executive officers, including our Named Executive Officers;
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| ▪ | assessing executive compensation trends within our industry, and updating on corporate governance and regulatory developments;
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| ▪ | reviewing and providing input on the Compensation Discussion and Analysis section of our proxy statement for our 2018 Annual Meeting of Stockholders;
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| ▪ | providing analysis of market practice and support in the consideration and amendment of our post-employment compensation arrangements with our Named Executive Officers;
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| ▪ | reviewing competitive market practices for equity compensation, including burn rate and overhang, and advising on the mix of equity award types; |
| ▪ | the research, development and review of our compensation peer group; and
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| ▪ | support on other ad hoc matters throughout the year. |
The terms of Compensia’s engagement include reporting directly to the Compensation Committee and to the Compensation Committee chairman. Compensia also coordinates with our management for data collection and job matching for our executive officers. In 2017, they did not provide any other services to us. The Compensation Committee has evaluated Compensia’s independence pursuant to the listing standards of the NASDAQ and the relevant SEC rules and has determined that no conflict of interest has arisen as a result of the work performed. For purposes of comparing our executive compensation against the competitive market, the Compensation Committee reviews and considers the compensation levels and practices of a group of peer companies. This compensation peer group consists of life sciences companies that are similar to us in terms of revenue, market capitalization, stage of development, geographical location and number of employees. In December 2016, the Compensation Committee directed Compensia to review our compensation peer group and evaluate each peer group company for comparability to serve as a reference for purposes of subsequent executive compensation deliberations. In evaluating the companies, Compensia considered the following criteria: | ▪ | publicly-traded companies headquartered in the United States;
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| ▪ | companies in the healthcare equipment, healthcare supplies, and pharmaceutical/biotechnology sectors with a medical device product focus;
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| ▪ | companies within a similar revenue range - approximately $45 million to approximately $228 million; and
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| ▪ | companies within a similar market capitalization range - approximately $195 million to approximately $2.7 billion. |
Based on a review of the analysis prepared by Compensia, the Compensation Committee approved the following compensation peer group: 2017 Compensation Peer Group Antares Pharma | Rockwell Medical | AtriCure | SurModics | Cardiovascular Systems | Tandem Diabetes Care | Endologix | Vascular Solutions | Foundation Medicine | ConforMIS | GenMark Diagnostics | Entellus Medical | Inogen | Glaukos | Intersect ENT | Penumbra | LeMaitre Vascular | Teladoc | Nevro | |
This compensation peer group was used by the Compensation Committee for the remainder of 2016 and during much of 2017 as a reference for understanding the competitive market for executive positions in our industry sector.
In August 2017, the Compensation Committee, with the assistance of Compensia, reviewed and updated our compensation peer group to reflect changes in our market capitalization, to recognize our evolving business focus and to account for merger and acquisition activity of peer companies. In evaluating the companies comprising the compensation peer group at that time, Compensia considered the following criteria: | ▪ | publicly-traded companies headquartered in the United States;
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| ▪ | companies in the healthcare equipment, healthcare supplies, and pharmaceutical/biotechnology sectors with a medical device product focus;
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| ▪ | companies within a similar revenue range - approximately $30 million to approximately $275 million; and
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| ▪ | companies within a similar market capitalization range - approximately $300 million to approximately $2.7 billion.
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Based on a review of the analysis prepared by Compensia, the Compensation Committee approved a revised compensation peer group for the remainder of 2017 consisting of the following companies:
Late 2017 – 2018 Compensation Peer Group Abaxis | Glaukos | Antares Pharma | Inogen | AtriCure | Intersect ENT | Atrion | LeMaitre Vascular | BioTelemetry | Nevro | Cardiovascular Systems | OraSure Technologies | Endologix | Rockwell Medical | Entellus Medical | Surmodics | Foundation Medicine | Teladoc | GenMark Diagnostics | |
The Compensation Committee uses data drawn from our compensation peer group, as well as data from the Radford Global Life Sciences and Global Technology surveys, to evaluate the competitive market when determining the total direct compensation packages for our Named Executive Officers, including base salary, target annual cash incentive award opportunities and long-term incentive compensation opportunities. Given our objective of attracting, retaining, motivating, and rewarding a superior team of executive officers and employees, we aim to provide a total compensation package that is above the median as compared to peers. We emphasize equity incentive compensation to more effectively tie our Named Executive Officers' and employees' interests to those of our stockholders. In light of this, when undertaking its competitive analysis, the Compensation Committee reviews data generally at the 50th percentile for base salary and total cash compensation (base salary plus annual bonus) and the 75th percentile for long-term incentive compensation. This competitive analysis is one factor, among others, taken into account by the Compensation Committee in assessing compensation levels and recommending changes to compensation or additional awards. The Compensation Committee reviews our compensation peer group at least annually and makes adjustments to its composition if warranted, taking into account changes in both our business and the businesses of the companies in the peer group. Individual Compensation Elements In 2017, the principal elements of our executive compensation program, and the purposes for each element, were as follows: Element | | Type of Element | | Form of Element | | Primary Objective | | Reward Realized on Achievement of | Base Salary | | Fixed | | Cash | | Attract and retain highly talented executives by providing amounts that are competitive in the market and reward performance | | Continued service | Annual Cash Bonuses | | Variable | | Cash | | Motivate our executives to achieve annual business objectives and provide financial incentives to meet or exceed these | | Pre-established research and development, clinical, financial and/or operational metrics based on our annual operating plan | Long Term Incentive Compensation | | Variable | | - Options to purchase shares of our common stock - Restricted stock unit awards to be settled for shares of our common stock | | Motivate our executives to achieve long-term stockholder value creation and align their interests with those of our stockholders | | Stock price performance |
We also provide certain post-employment compensation payments and benefits and other benefits, such as health and welfare programs, including a Section 401(k) retirement savings plan. In general, executive officers participate in the standard employee benefit programs available to our other full-time employees.
Base Salary
Base salary represents the fixed portion of the compensation of our Named Executive Officers and is an important element of compensation intended to attract and retain highly-talented individuals. Using the competitive market data provided by its compensation consultant Compensia, the Compensation Committee reviews and develops a recommendation for appropriate adjustments to the base salaries of our CEO and our other Named Executive Officers as part of its annual executive compensation review. In addition, the base salaries of our Named Executive Officers may be adjusted in the event of a promotion or significant change in responsibilities. In February 2017, the Compensation Committee reviewed the base salaries of our Named Executive Officers. The Compensation Committee recommended to our Board of Directors that the base salary of our CEO be increased by 10%. In addition, the Compensation Committee recommended to our Board of Directors that certain of our Named Executive Officers also receive base salary adjustments for 2017. In making these recommendations, the Compensation Committee considered the current risks and challenges facing us, as well as the factors described in “Governance of Executive Compensation Program – Compensation-Setting Process” above. In the case of our CEO, the increase to his base salary was determined to be appropriate, reflecting competitive market data that aligned with his performance. Subsequently, increases to the base salaries of our CEO and certain of our other Named Executive Officers were approved by our Board of Directors (with our CEO recusing himself from all such actions). The annual base salaries of our Named Executive Officers for 2017 were as follows: Named Executive Officer | | 2016 Annual Base Salary | | | 2017 Annual Base Salary (1) | | | Percentage Adjustment | | Mr. King | | $ | 500,000 | | | $ | 550,000 | | | 10.00% | | Mr. Garrett | | $ | 310,000 | | | $ | 325,500 | | | 5.00% | | Mr. Vort | | $ | 270,000 | | | $ | 270,000 | | | — | | Mr. Sung | | $ | 290,000 | | | $ | 300,000 | | | 3.50% | |
| (1) | These annual base salary adjustments were effective March 1, 2017. |
The actual base salaries paid to our Named Executive Officers in 2017 are set forth in the “2017 Summary Compensation Table” below. Annual Cash Bonuses We use an annual cash bonus plan to motivate our Named Executive Officers (other than Mr. Vort, our Executive Vice President of Sales, who participates in a separate sales bonus plan) to achieve our annual business goals. In February 2017, the Compensation Committee approved the 2017 Executive Incentive Compensation Plan (the “2017 Incentive Plan”) to provide financial incentives to meet or exceed the principal goals set forth in our 2017 annual operating plan. The 2017 Incentive Plan provided for bonus payments to be funded based on our level of achievement with respect to both corporate performance goals and individual performance goals (as described below). Target Annual Cash Bonus Opportunities For purposes of the 2017 Incentive Plan, cash bonuses were based upon a specific percentage of each participant’s annual base salary. In February 2017, the Compensation Committee reviewed the target annual cash bonus opportunities of our Named Executive Officers. The Compensation Committee recommended to our Board of Directors that the target annual cash bonus opportunities of our CEO be increased and the target annual cash bonus opportunities of our other Named Executive Officers be maintained at their 2016 levels. In addition, the Compensation Committee allowed for review of corporate goal achievement and individual performance to determine the specific annual cash bonus payment for each executive officer, including each Named Executive Officer. In making these recommendations, the Compensation Committee considered current risks and challenges, as well as the factors described in “Governance of Executive Compensation Program – Compensation-Setting Process” above. In the case of our CEO, the increase to his target annual cash bonus opportunity was determined to be appropriate because it reflected competitive market data that aligned with his performance. Subsequently, the increase
to the target annual cash bonus opportunity of our CEO was approved by the Board of Directors (with the CEO recusing himself from the approval discussion). The target annual cash bonus opportunities of our Named Executive Officers, with the exception of Mr. Vort, for 2017 were as follows, expressed as a percentage of each Named Executive Officer’s base salary: Named Executive Officer | | Target Award | | | Actual Award Amount | | Kevin M. King | | $ | 467,500 | | | $ | 771,375 | | Matthew C. Garrett | | $ | 146,475 | | | $ | 241,684 | | Derrick Sung | | $ | 105,000 | | | $ | 173,250 | |
Our Named Executive Officers were eligible to earn up to 200% of their target annual cash bonus opportunities, with the exception of Mr. Vort, who participates in a separate sales bonus plan. Corporate Performance Measures Participants in the 2017 Incentive Plan were eligible to receive a bonus payment based upon the attainment of one or more corporate performance measures that were established by the Compensation Committee and which related to financial and operational metrics that were important to us. The 2017 Incentive Plan was funded based on our actual results for the year as evaluated against these performance measures. In February 2017, the Compensation Committee selected revenue growth over 2016 (weighted 60%), gross margin growth over 2016 (weighted 30%), and operating expense (weighted 10%) as the corporate performance measures for the 2017 Incentive Plan. The Compensation Committee believed these performance measures were appropriate because they provided a balance between revenue growth, margin expansion, and expense control, which it believed would most directly influence long-term stockholder value. For each of these performance measures, the Board of Directors established a target achievement level. These target levels were intended to require significant effort on the part of our executive officers and, therefore, were set at levels ordinarily difficult to achieve and for which, average or below-average performance would not warrant a bonus payment. Each corporate performance measure was weighted according to the Compensation Committee’s assessment of its relative significance related to the successful execution of our annual operating plan. For purposes of the 2017 Incentive Plan, each corporate performance measure was to be evaluated independently, in accordance with the following conditions:
| ▪ | With respect to the revenue and gross margin growth performance measures: |
For any cash bonus payment to be made, at least 75% of the target revenue growth must be achieved;
For actual performance between the threshold and target performance levels for each such performance measure, the actual cash bonus payment was to be calculated on a straight-line basis; and
For actual performance above the target performance level, the cash bonus payment was to increase by 3% for each 1% of growth subject to a payment cap of 200%.
| ▪ | With respect to the operating expense performance measure, for any cash bonus payment to be made, it was necessary to achieve the target performance level. |
Annual Cash Bonus Plan Formula The following formula was used in 2017 to calculate the actual annual cash bonus pool funding for the 2017 Incentive Plan: 
Individual cash bonus payments for the CEO and other Named Executive Officers were then determined based on a combination of corporate and individual performance. Annual Cash Bonus Payments In January 2018, the Compensation Committee reviewed performance with respect to each of the corporate performance measures and determined the extent to which each objective had been achieved during the year. Specifically, the Compensation Committee determined that achievement, and corresponding payment levels, with respect to the corporate performance measures under the 2017 Incentive Plan were as follows: Corporate Performance Measure | | Weighting | | | Percentage Achievement versus Target | | | Payout Level | | Revenue growth | | 60% | | | 121% | | | 98% | | Gross margin growth | | 30% | | | 130% | | | 57% | | Operating expense | | 10% | | | 100% | | | 10% | | Total | | | | | | | | | | 165% | |
Based on these determinations, the Compensation Committee recommended to the Board of Directors that our CEO receive an annual cash bonus payment equal to 165% of his target annual cash bonus opportunity. In addition, the Compensation Committee recommended to the Board of Directors that our other Named Executive Officers receive annual cash bonus payments ranging from 130% to 165% of their target annual cash bonus opportunities. Subsequently, the annual cash bonus payments for the Named Executive Officers were approved by the Board of Directors (with the CEO recusing himself from the approval of his own annual cash bonus payment). The following table sets forth the target annual cash bonus opportunities and the actual cash bonus payments made to our Named Executive Officers, with the exception of Mr. Vort, for 2017:
Named Executive Officer | | Annual Base Salary | | | Target Annual Cash Bonus Opportunity | | | Actual Annual Cash Bonus Earned | | | Actual Annual Cash Bonus Earned (as a percentage of target annual cash bonus opportunity) | | Mr. King | | $ | 550,000 | | | $ | 467,500 | | | $ | 771,375 | | | 165% | | Mr. Garrett | | $ | 325,500 | | | $ | 146,475 | | | $ | 241,684 | | | 165% | | Mr. Sung | | $ | 300,000 | | | $ | 105,000 | | | $ | 173,250 | | | 165% | |
Sales Plan with Mr. Vort As our Executive Vice President of Sales, Mr. Vort’s annual cash incentive for 2017 was based on his ability to drive annual sales. In 2017, Mr. Vort was eligible to earn a cash bonus of up to $202,500 (75% of his 2017 annual base salary). This bonus was to be measured and paid in quarterly installments based on actual performance against his quarterly and annual unit targets. The targets for our sales executive are not disclosed because we believe to do so would be competitively harmful, as it would give competitors insight into our strategic and financial planning processes. To be eligible to earn a bonus payment for a given calendar quarter, Mr. Vort must have achieved a minimum of 90% of his unit target for that period. Payments were based on a sliding scale where the percentage payout based on the achievement of 90% of his unit target for the period started at 80% and increased by 2% for every one percentage point above 90% of plan. For every one percentage point over 100% to target achieved, payout increased by 5%. In 2017, Mr. Vort earned a cash bonus under the sales plan in the amount of $180,225, based on achievement of his 2017 unit target. The Compensation Committee reviewed Mr. Vort’s achievement in relation to the corporate performance measure for revenue growth and determined that he earned an additional cash bonus in the amount of $85,050 as a result of having exceeded our corporate revenue target for 2017. The additional bonus payment was calculated per the terms of Mr. Vort’s annual cash incentive plan as described above.
The annual cash bonus payments made to our Named Executive Officers for 2017 are set forth in the “2017 Summary Compensation Table” below. Long-Term Incentive Compensation We view long-term incentive compensation in the form of equity awards as a critical component of our executive compensation program. The realized value of these equity awards bears a direct relationship to our stock price, and, therefore, these awards are an incentive for Named Executive Officers to create value for stockholders. Equity awards also help us retain qualified executive officers in a competitive market.
Long-term incentive compensation opportunities in the form of equity awards are granted to the CEO and other Named Executive Officers by the independent members of the Board of Directors, based on the recommendations of the Compensation Committee. The amount and forms of such equity awards are determined by the Compensation Committee after considering the factors described in “Governance of Executive Compensation Program – Compensation-Setting Process” above. The amounts and relative weighting of the equity awards are intended to provide competitively-sized awards and resulting target total direct compensation opportunities that the Board of Directors believes are reasonable and appropriate taking into consideration the factors described in “Governance of Executive Compensation Program – Compensation-Setting Process” above. In February 2017, the Compensation Committee determined that the equity awards to be granted to our executive officers should be in the form of options to purchase shares of common stock and time-based restricted stock unit (“RSU”) awards that may be settled for shares of common stock. Further, the Compensation Committee determined that the dollar value of the stock options should comprise 50% of each executive officer’s 2017 equity award, and the RSU award should comprise 50% of the dollar value of the award.
At that time, the Compensation Committee recommended, and the Board of Directors subsequently approved (with the CEO recusing himself from the approval process), the grant of stock options and RSU awards after considering the factors described in “Governance of Executive Compensation Program – Compensation-Setting Process” above. The aggregate equity awards granted to our Named Executive Officers for 2017 were as follows: Named Executive Officer | | Options to Purchase Shares of Common Stock (number of shares) | | | Restricted Stock Unit Awards for Shares of Common Stock (number of shares) | | | Aggregate Grant Date Fair Value | | Mr. King | | | 100,000 | | | | 42,000 | | | $ | 3,316,770 | | Mr. Garrett | | | 24,900 | | | | 14,000 | | | $ | 950,731 | | Mr. Vort | | | 25,400 | | | | 14,300 | | | $ | 970,488 | | Mr. Sung | | | 14,000 | | | | 7,900 | | | $ | 535,553 | |
The options to purchase shares of our common stock vest (and become exercisable) over a four-year period, with one-quarter of the shares vesting on the first anniversary of the vesting commencement date of March 1, 2017, and the remaining shares vesting monthly thereafter over 36 months in equal monthly increments, contingent upon the Named Executive Officer remaining continuously employed by us through each applicable vesting date. The time-based RSU awards also vest over a four-year period, with one-quarter of the shares vesting on each of the first four anniversaries of the vesting commencement date of March 1, 2017, contingent upon the Named Executive Officer remaining continuously employed by us through each applicable vesting date. The form of awards will remain similar in 2018 with a mix of both stock options and RSUs. The equity awards granted to our Named Executive Officers in 2017 are set forth in the “2017 Summary Compensation Table” and the “2017 Grants of Plan-Based Awards Table” below. Health and Welfare Benefits Our Named Executive Officers are eligible to receive the same employee benefits that are generally available to all full-time employees, subject to the satisfaction of certain eligibility requirements. These benefits include flexible spending accounts, medical, dental and vision benefits, business travel insurance, employee assistance program, basic life insurance benefits, accidental death and dismemberment insurance policies, short-term and long-term disability insurance, commuter benefits and reimbursement for mobile phone coverage. In structuring these programs, we seek to provide an aggregate level of benefits that are comparable to those provided by similar companies, compliant with applicable laws and affordable to employees. We maintain a tax-qualified Section 401(k) retirement savings plan (the “Section 401(k) Plan”) that provides eligible employees, including our Named Executive Officers, with an opportunity to save for retirement on a tax-advantaged basis. In 2017, we offered eligible participants a discretionary matching contribution to the Section 401(k) Plan, and we may make a discretionary employer contribution to each eligible employee each year. All participants’ interests in the matching contributions vest immediately from the time of contribution. Pre-tax contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to the participants’ directions. The Section 401(k) Plan is intended to qualify under Sections 401(a) and 501(a) of the Internal Revenue Code (the “Code”). As a tax-qualified retirement plan, contributions to the Section 401(k) Plan and earnings on those contributions are not taxable to the employees until distributed from the Section 401(k) Plan, and all contributions are deductible by us when made. Perquisites and Other Personal Benefits Currently, we do not view perquisites or other personal benefits as a significant component of our executive
compensation program. Accordingly, we do not provide significant perquisites or other personal benefits to our Named Executive Officers, except as generally made available to our employees, or in situations where we believe it is appropriate to assist an individual in the performance of his duties, to make him more efficient and effective and for recruitment and retention purposes. During 2017, our Named Executive Officers did not receive perquisites or other personal benefits that were, in the aggregate, $10,000 or more for each individual, except our CEO and CFO who each used an apartment leased by the company from time-to-time in connection with working at our corporate headquarters in San Francisco, California. Our Compensation Committee believes that this commuting-related benefit is reasonable and necessary to retain Messrs. King and Garrett, and is intended to reduce obstacles in their ability to perform services for the company. Employment Arrangements We have entered into written employment offer letters with the CEO and each of the other Named Executive Officers. Each of these letters provides for “at will” employment, meaning that either we or the Named Executive Officer may terminate the employment relationship at any time without cause. In addition, each of these letters required the Named Executive Officer to execute our standard At-Will Employment, Confidential Information, Invention Assignment and Arbitration Agreement. Each of these employment offer letters also provided for certain initial payments and benefits in the event of certain qualifying terminations of employment, including a qualifying termination of employment in connection with a change in control of the Company. These post-employment compensation arrangements have been superseded by the Change of Control Severance Agreements discussed in “Post-Employment Compensation Arrangements” below. For detailed descriptions of the employment offer letters of our Named Executive Officers, see “Potential Payments upon Termination or Change in Control” below. Post-Employment Compensation Arrangements We believe that reasonable and competitive post-employment compensation arrangements are essential to attracting and retaining highly-qualified executive officers. We further believe that when recruiting executive talent these arrangements are necessary to offer compensation packages that are competitive. The Compensation Committee does not consider the specific amounts payable under these post-employment compensation arrangements, however, when determining the annual compensation of our executive officers. We have entered into Change of Control and Severance Agreements with each Named Executive Officer, which provides for specified payments and benefits in the event of certain terminations of employment, including a qualifying termination of employment in connection with a change in control of the Company. Each of these agreements has a term of two years. However, if the company enters into an agreement with respect to a change in control that limits our ability to extend the applicable Change of Control and Severance Agreement when there are fewer than 12 months remaining in the term, the Change of Control and Severance Agreement will extend through the 12-month anniversary of such change in control transaction. These agreements are designed to provide reasonable compensation to our Named Executive Officers if their employment is terminated under certain circumstances to facilitate their transition to new employment. Further, in some instances we seek to mitigate any potential employer liability and avoid future disputes or litigation by requiring departing Named Executive Officers to sign a separation and release agreement acceptable to us as a condition to receiving post-employment compensation payments or benefits. In August 2017, the Compensation Committee reviewed our Change of Control and Severance provisions compared to our updated peer group and determined they were in need of enhancement in order to recruit and retain of top talent. As a result of the review, the Compensation Committee approved certain amendments to the Change of Control and Severance Agreements with the Named Executive Officers to: | ▪ | increase the payments and benefits to be received by the CEO in the event of a qualifying termination of employment not involving a change in control of the Company;
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| ▪ | provide that, in the event of a qualifying termination of employment in connection with a change in control of the Company, the Named Executive Officers will receive, in addition to other specified payments and benefits, a lump sum cash payment equal to their target bonus in effect for the fiscal year in which termination of employment occurs; and
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| ▪ | move Mr. Sung from the Tier 3 to the Tier 2 payment and benefit level. For detailed descriptions of the post-employment compensation arrangements maintained with the Named Executive Officers, as well as an estimate of the potential payments and benefits payable under these arrangements, see “Potential Payments upon Termination or Change in Control” below. |
We believe these arrangements align the interests of our Named Executive Officers and our stockholders when considering the long-term future. The primary purpose of these arrangements in the case of a change in control of the Company is to keep our most senior executive officers focused on pursuing all corporate transaction activity in the best interests of our stockholders regardless of whether those transactions may result in their own job loss. Reasonable post-acquisition payments and benefits should serve the interests of both the executive officer and our stockholders. In determining payment and benefit levels under the various circumstances triggering post-employment compensation provisions under our Change of Control and Severance Agreements, the Compensation Committee has drawn a distinction between (i) voluntary terminations of employment without good reason or terminations of employment for cause and (ii) terminations of employment without cause or voluntary terminations of employment for good reason. Payment in the latter circumstances has been deemed appropriate in light of the benefits described in the prior paragraph, as well as the likelihood that the executive officer's departure is due, at least in part, to circumstances not within his or her control. In contrast, we believe that payments are not appropriate in the event of a termination of employment for cause or a voluntary resignation without good reason because such events often reflect either performance challenges or an affirmative decision by the executive officer to end his or her relationship without fault by the Company. All payments and benefits in the event of a change in control of the Company are payable only if there is a subsequent loss of employment by a Named Executive Officer (a so-called “double-trigger” arrangement). In the case of the acceleration of vesting of outstanding equity awards, we use this double-trigger arrangement to protect against the loss of retention power following a change in control of the Company and to avoid windfalls, both of which could occur if vesting accelerated automatically as a result of the transaction. Under each of the Change of Control and Severance Agreements, in the event any payment to a Named Executive Officer pursuant to his agreement would be subject to the excise tax imposed by Section 4999 of the Code (as a result of the payment being classified as a “parachute payment” under Section 280G of the Code), he will receive such payment as would entitle him to receive the greatest after-tax benefit, even if it means that we pay him a lower aggregate payment so as to minimize or eliminate the potential excise tax that would be imposed by Section 4999. We do not use excise tax payments (or “gross-ups”) relating to a change in control of the Company and have no such obligations in place with respect to any of our executive officers, including our Named Executive Officers.
Other Compensation Policies and Practices
Equity Award Grant Policy We maintain an Equity Award Grant Policy that governs the grant of equity awards under our equity incentive and compensation plan. Among other things, this policy authorizes a committee consisting of the CEO, the CFO and the Vice President of Human Resources to grant certain equity awards up to a maximum amount of 500,000 shares of common stock in the aggregate to employees and consultants. The policy does not allow approval of grants to members of this committee, the CEO and executive officers who are direct reports to the CEO or the non-employee members of the Board of Directors. In addition, the Equity Award Grant Policy:
| ▪ | has clear requirements regarding the dates to approve grants each month, official effective date of grants post-approval and other measures to ensure unbiased and consistent practice is in place;
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| ▪ | provides that the committee has authority to approve grants that are within an approved equity grant framework, which is itself reviewed and approved by the Compensation Committee at the beginning of each calendar year based on market and competitive review;
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| ▪ | provides that the committee has authority to approve grants as noted above that are for new hire or annual equity awards only; any other awards must be presented to the Compensation Committee and/or our Board of Directors for review and approval; and |
| ▪ | provides that the exercise price of all options to purchase shares of common stock and stock appreciation rights covering shares of common stock will not be less than 100% of the fair market value of a share of our common stock on the grant date of the award. |
It is also our policy not to time the grant of equity awards in relation to the release of material non-public information, and it is the intent of the Equity Award Grant Policy to specify the timing of effectiveness of the grant of equity awards under the policy to avoid such timing. Policy Prohibiting Hedging and Pledging of Equity Securities Under our Insider Trading Policy, employees, including Named Executive Officers, and the non-employee members of our Board of Directors are prohibited from engaging in “short sales” and from engaging in transactions in publicly-traded options, such as puts and calls, and other derivative securities with respect to our securities. This latter prohibition extends to any hedging or similar transaction designed to decrease the risks associated with holding company securities. In addition, employees, including Named Executive Officers, and the non-employee members of the Board of Directors are prohibited from pledging company securities as collateral for a loan or holding such securities in a margin account. Tax and Accounting Considerations Deductibility of Executive Compensation Generally, Section 162(m) of the Code disallows a federal income tax deduction for public corporations of remuneration in excess of $1 million paid in any fiscal year to certain specified executive officers. For taxable years beginning before January 1, 2018 (i) these executive officers consisted of a public corporation’s Chief Executive Officer and up to three other executive officers (other than the Chief Financial Officer) whose compensation is required to be disclosed to stockholders under the Securities Exchange Act of 1934 because they are the most highly-compensated executive officers and (ii) qualifying “performance-based compensation” was not subject to this deduction limit if specified requirements are met. Pursuant to the Tax Cuts and Jobs Act of 2017, which was signed into law on December 22, 2017, for taxable years beginning after December 31, 2017, the remuneration of a public corporation’s Chief Financial Officer is also subject to the deduction limit. In addition, subject to certain transition rules (which apply to remuneration provided pursuant to written binding contracts which were in effect on November 2, 2017 and which are not subsequently modified in any material respect), for taxable years beginning after December 31, 2017, the exemption from the deduction limit for “performance-based compensation” is no longer available. Consequently, for fiscal years beginning after December 31, 2017, all remuneration in excess of $1 million paid to a covered executive will not be deductible. In designing our executive compensation program and determining compensation of our executive officers, including Named Executive Officers, the Compensation Committee considers a variety of factors, including the potential impact of the Section 162(m) deduction limit. However, the Compensation Committee has not and will not necessarily limit executive compensation to that which is or may be deductible under Section 162(m). To maintain flexibility to compensate our executive officers in a manner designed to promote short-term and
long-term corporate goals and objectives, the Compensation Committee has not adopted a policy that all compensation must be deductible. The Compensation Committee believes that our stockholders’ interests are best served if its discretion and flexibility in awarding compensation is not restricted, even though some compensation awards may result in non-deductible compensation expense. The Compensation Committee may approve compensation for our Named Executive Officers that does not comply with an exemption from the deduction limit when it believes that such compensation is consistent with the goals of our executive compensation program and is in the best interests of the Company and our stockholders. Accounting for Stock-Based Compensation We follow the Financial Accounting Standard Board’s Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”) for stock-based compensation awards. FASB ASC Topic 718 requires the measurement of compensation expense for all share-based payment awards made to employees and the non-employee members of our Board of Directors, including options to purchase shares of common stock and other stock awards, based on the grant date “fair value” of these awards. This calculation is performed for accounting purposes and reported in the executive compensation tables required by the federal securities laws, even though the recipient of the awards may never realize any value from their awards.
Processes and Procedures forfor Compensation Decisions Our compensation committeeCompensation Committee is responsible for the executive compensation programs for our executive officers and reports to our boardBoard of directorsDirectors on its discussions, decisions and other actions. Our compensation committeeCompensation Committee reviews and approves corporate goals and objectives relating to the compensation of our Chief Executive Officer, evaluates the performance of our Chief Executive Officer in light of those goals and objectives and determines and approves the compensation of our Chief Executive Officer based on such evaluation. Our compensation committeeCompensation Committee reviews and makes recommendations to the boardBoard of directorsDirectors regarding our Chief Executive Officer’s compensation and the compensation of our directors. In addition, our compensation committee,Compensation Committee, in consultation with our Chief Executive Officer, reviews and approves all compensation for other officers. Our Chief Executive Officer, and Chief Financial Officer and Vice President of Human Resources also make compensation recommendations for our other executive officers and initially propose the corporate and departmental performance objectives under our Executive Incentive Compensation Plan to the compensation committee.Compensation Committee. The compensation committeeCompensation Committee is authorized to retain the services of one or more executive compensation and benefits consultants or other outside experts or advisors as it sees fit, in connection with the establishment of our compensation programs and related policies. For example, in 2016,fiscal year 2017, we engaged Compensia, Inc., to advise us on compensation philosophy, as we transitioned towards becoming a publicly-traded company, selection of a group of peer companies to use for compensation benchmarking purposes and cash and equity compensation levels for our directors, executives and other employees based on current market practices. Fiscal 20162017 Summary Compensation Table The following table presents summary information regarding the total compensation for services rendered in all capacities that was earned by our Chief Executive Officer, our Chief Financial Officer and our two other most highly compensated executive officers in our fiscal year ended December 31, 2016.2017. The individuals listed in the table below are our named executive officersNamed Executive Officers for our fiscal year ended December 31, 2016:2017: Name and Principal Position | | Year | | Salary ($) | | | Bonus ($) | | | Stock Awards ($)(1) | | | Option Awards ($)(1) | | | Non-Equity Incentive Plan Compensation ($)(2) | | | All Other Compensation ($) | | | Total ($) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Kevin M. King | | 2017 | | | 541,923 | | | | — | | | | 1,480,500 | | | | 1,836,270 | | | | 771,375 | | | | 85,368 | | | | 4,715,436 | | President and Chief Executive Officer | | 2016 | | | 456,346 | | | | 50,000 | | | | — | | | | 776,784 | | | | 585,000 | | | | — | | | | 1,868,130 | | | | 2015 | | | 364,289 | | | | — | | | | — | | | | 578,494 | | | | 248,625 | | | | — | | | | 1,191,408 | | Matthew C. Garrett | | 2017 | | | 322,996 | | | | — | | | | 493,500 | | | | 457,231 | | | | 241,684 | | | | 89,976 | | | | 1,605,387 | | Chief Financial Officer | | 2016 | | | 280,335 | | | | 20,000 | | | | — | | | | 291,293 | | | | 195,300 | | | | — | | | | 786,928 | | | | 2015 | | | 239,285 | | | | — | | | | — | | | | 157,454 | | | | 76,167 | | | | — | | | | 472,906 | | David A. Vort | | 2017 | | | 270,000 | | | | — | | | | 504,075 | | | | 466,413 | | | | 265,275 | | | | 23,199 | | | | 1,528,962 | | Executive Vice President, Sales | | 2016 | | | 260,262 | | | | 20,000 | | | | — | | | | 242,741 | | | | 223,550 | | | | — | | | | 746,553 | | | | 2015 | | | 194,846 | | | | — | | | | — | | | | 328,897 | | | | 204,000 | | | | — | | | | 727,743 | | Derrick Sung | | 2017 | | | 298,385 | | | | — | | | | 278,475 | | | | 257,078 | | | | 173,250 | | | | 31,532 | | | | 1,038,720 | | Executive Vice President, Strategy and Corporate Development | | 2016 | | | 288,577 | | | | 20,000 | | | | — | | | | — | | | | 130,500 | | | | — | | | | 439,077 | | | | 2015 | | | 175,577 | | | | — | | | | — | | | | 521,043 | | | | 48,395 | | | | — | | | | 745,015 | |
| | | | | | | | | | | | | | | | | | | | | | | | | Name and Principal Position | | Year | | | Salary
($) | | | Bonus
($) | | | Option
Awards
($)(1) | | | Non-Equity
Incentive
Plan
Compensation
($)(2) | | | Total
($) | | Kevin M. King | | | 2016 | | | | 456,346 | | | | 50,000 | | | | 776,784 | | | | 585,000 | | | | 1,868,130 | | President and Chief Executive Officer | | | 2015 | | | | 364,289 | | | | — | | | | 578,494 | | | | 248,625 | | | | 1,191,408 | | | | | | | | | Matthew C. Garrett | | | 2016 | | | | 280,335 | | | | 20,000 | | | | 291,293 | | | | 195,300 | | | | 786,928 | | Chief Financial Officer | | | 2015 | | | | 239,285 | | | | — | | | | 157,454 | | | | 76,167 | | | | 472,906 | | | | | | | | | David A. Vort | | | 2016 | | | | 260,262 | | | | 20,000 | | | | 242,741 | | | | 223,550 | | | | 746,553 | | Executive Vice President, Sales | | | 2015 | | | | 194,846 | | | | — | | | | 328,897 | | | | 204,000 | | | | 727,743 | | | | | | | | | Derrick Sung | | | 2016 | | | | 288,577 | | | | 20,000 | | | | — | | | | 130,500 | | | | 439,077 | | Executive Vice President, Strategy and Corporate Development | | | 2015 | | | | 175,577 | | | | — | | | | 521,043 | | | | 48,395 | | | | 745,015 | |
(1) | The amounts reported represent the aggregate grant-date fair value of the stock awards and stock options awardedgranted to the named executive officer in 2016,Named Executive Officer, calculated in accordance with ASC Topic 718. Such grant-date fair value does not take into account any estimated forfeitures related to service-vesting conditions. The assumptions used in calculating the grant-date fair value of the stock awards and options reported in this columnthese columns are set forth in the section in our Annual Report on Form 10-K for the year ended December 31, 20162017 titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Stock-Based Compensation.” |
(2) | The amounts in the Non-Equity Incentive Plan Compensation column for 2017, 2016, for all named executive officers except for Mr. Vort were paid in March 2017 pursuant to our 2016 Bonus Plan, as described in the section below titled “ExecutiveCompensation—Non-Equity Incentive Plan Compensation,” and amounts for 2015 for all named executive officersNamed Executive Officers except for Mr. Vort were paid in February 2018, March 2017 and March 2016, respectively, |
| pursuant to our 2017, 2016, and 2015 Bonus Plan.Plans, respectively, as described in the section below titled “Executive Compensation—Non-Equity Incentive Plan Compensation”. Mr. Vort’s bonus amount was paid quarterly pursuant to the performance bonus arrangement set forth in his employment offer letter, as described in the section below titled “Executive Compensation—Compensation – Executive Officer Employment Letters—Letters – David A. Vort.” |
Non-Equity Incentive Plan Compensation We provide each of our named executive officersNamed Executive Officers an opportunity to receive formula-based incentive payments. The payments are based on a target incentive amount for each named executive officer.Named Executive Officer. Non-Equity Incentive Payments for Messrs. King, Sung and Garrett For 2016,2017, the target incentive amount andyear-end payments for Messrs. King, Sung and Garrett under our 20162017 Bonus Plan were as follows: | Named Executive Officer | | Target
Award
($) | | | Actual Award
Amount
($) | | | Target Award | | | Actual Award Amount | | Kevin M. King | | | 212,500 | | | | 585,000 | | | $ | 467,500 | | | $ | 771,375 | | Matthew C. Garrett | | | 65,100 | | | | 195,300 | | | $ | 146,475 | | | $ | 241,684 | | Derrick Sung | | | 68,750 | | | | 130,500 | | | $ | 105,000 | | | $ | 173,250 | |
The 20162017 Bonus Plan provided fornon-equity incentive compensation based upon our achievement of performance goals for 2016.2017. The actual target incentive payments were weighted toward achievement of revenue growth, improving gross margin, and achievement of operating expense targets. Non-Equity Incentive Payments for Mr. Vort Mr. Vort is eligible to receive formula-based incentive payments through his employment offer letter agreement, as described below in the section titled “Executive Compensation—Executive Officer Employment Letters—David A. Vort.” For 2016,2017, Mr. Vort had a target incentive amount of $170,000,$202,500, and received an actual award amount of $243,550$265,275 in quarterly payments. Executive Officer Employment Agreements
Kevin M. King We entered into an employment offer letter in July 2012 with Kevin M. King, our President and Chief Executive Officer. The letter has no specific term and provides forat-will employment. Mr. King’s current annual base salary is $550,000 and he is eligible to receive an annual performance bonus for fiscal year 20172018 with the target amount determined as 85%100% of Mr. King’s annual base salary and the actual bonus amount to be determined based upon achievement of a mix of Company and individual performance objectives pursuant to the Company’s Executive Incentive Compensation Plan discussed below. Matthew C. Garrett We entered into an employment offer letter in December 2012 with Matthew C. Garrett, our Chief Financial Officer. The letter has no specific term and provides forat-will employment. Mr. Garrett’s current annual base salary is $325,500$355,500 and he is eligible to receive an annual performance bonus for fiscal year 20172018 with the target amount determined as 45%50% of Mr. Garrett’s annual base salary and the actual bonus amount to be determined based upon achievement of a mix of Company and individual performance objectives pursuant to our Executive Incentive Compensation Plan as discussed below.
David A. Vort We entered into an employment offer letter in November 2013 with David A. Vort, our Executive Vice President, Sales. The letter has no specific term and provides forat-will employment. Mr. Vort’s current annual base salary is $270,000$320,000 and he is eligible to receive an annual performance bonus for fiscal year 20172018 with the target amount determined as 75% of Mr. Vort’s annual base salary based upon the achievement of our revenue plan and other employment objectives set by us. Mr. Vort will be eligible to receive this bonus each calendar quarter based upon achievement of target sales goals. In addition to the bonus noted above, Mr. Vort will receive an annual bonus of 0.5% of every dollar of revenue earned above our yearly revenue plan. Derrick Sung We entered into an employment offer letter in March 2015 with Derrick Sung, our Executive Vice President, Strategy & Corporate Development. The letter has no specific term and provides forat-will employment. Mr. Sung’s current annual base salary is $300,000$310,000 and he is eligible to receive an annual performance bonus for fiscal year 20172018 with the target amount determined as 35% of Mr. Sung’s annual base salary and the actual bonus amount to be determined based upon achievement of a mix of Company and individual performance objectives pursuant to the Company’s Executive Incentive Compensation Plan as discussed below. Pension Benefits and Nonqualified Deferred Compensation We do not provide a defined benefit pension plan for our employees, and none of our named executive officersNamed Executive Officers participated in a nonqualified deferred compensation plan in 2016.2017.
Outstanding Equity AwardsAwards at FiscalYear-End The following table provides information regarding equity awards held by our named executive officersNamed Executive Officers at December 31, 2016:2017: | | | | | | | | | | | | | | | | | | | | | | | | Option Awards | | | Name | | Grant Date(1) | | | Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable | | | Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable | | | Option
Exercise
Price ($)(2) | | | Option
Expiration
Date | | Kevin M. King | | | 9/27/2012 | (3) | | | 377,813 | | | | — | | | | 4.12 | | | | 9/27/2022 | | | | | 9/27/2012 | (3) | | | 97,137 | | | | — | | | | 4.12 | | | | 9/27/2022 | | | | | 2/26/2013 | (4) | | | 25,558 | | | | — | | | | 4.12 | | | | 2/26/2023 | | | | | 6/13/2013 | (5) | | | 176,243 | | | | 25,178 | | | | 3.65 | | | | 6/13/2023 | | | | | 7/10/2014 | (6) | | | 47,809 | | | | 28,686 | | | | 4.00 | | | | 7/10/2024 | | | | | 2/10/2015 | (7) | | | 25,321 | | | | 29,925 | | | | 5.82 | | | | 2/10/2025 | | | | | 4/14/2015 | (8) | | | 19,546 | | | | — | | | | 5.82 | | | | 4/14/2025 | | | | | 7/21/2015 | (9) | | | 9,030 | | | | 16,468 | | | | 7.47 | | | | 7/21/2025 | | | | | 12/15/2015 | (10) | | | 12,324 | | | | 36,973 | | | | 8.18 | | | | 12/15/2025 | | | | | 10/20/2016 | (11) | | | — | | | | 81,595 | | | | 17.00 | | | | 10/20/2026 | | Matthew C. Garrett | | | 1/24/2013 | (12) | | | 66,579 | | | | 1,417 | | | | 4.12 | | | | 1/24/2023 | | | | | 6/14/2013 | (5) | | | 35,355 | | | | 5,051 | | | | 3.65 | | | | 6/14/2023 | | | | | 4/17/2014 | (13) | | | 10,022 | | | | — | | | | 3.65 | | | | 4/17/2024 | | | | | 7/10/2014 | (6) | | | 7,968 | | | | 4,781 | | | | 4.00 | | | | 7/10/2024 | | | | | 2/10/2015 | (7) | | | 3,506 | | | | 4,143 | | | | 5.82 | | | | 2/10/2025 | | | | | 7/21/2015 | (9) | | | 4,515 | | | | 8,234 | | | | 7.47 | | | | 7/21/2025 | | | | | 12/15/2015 | (10) | | | 4,249 | | | | 12,750 | | | | 8.18 | | | | 12/15/2025 | | | | | 10/20/2016 | (11) | | | — | | | | 30,598 | | | | 17.00 | | | | 10/20/2026 | |
| | | | | | | | | | | | | | | | | | | | | | | | Option Awards | | | Name | | Grant Date(1) | | | Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable | | | Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable | | | Option
Exercise
Price ($)(2) | | | Option
Expiration
Date | | David A. Vort | | | 2/4/2014 | (14) | | | 73,131 | | | | 27,163 | | | | 3.65 | | | | 2/4/2024 | | | | | 7/10/2014 | (6) | | | 10,517 | | | | 6,312 | | | | 4.00 | | | | 7/10/2024 | | | | | 2/10/2015 | (7) | | | 3,896 | | | | 4,603 | | | | 5.82 | | | | 2/10/2025 | | | | | 7/21/2015 | (9) | | | 12,041 | | | | 21,957 | | | | 7.47 | | | | 7/21/2025 | | | | | 12/15/2015 | (10) | | | 8,499 | | | | 25,499 | | | | 8.18 | | | | 12/15/2025 | | | | | 10/20/2016 | (11) | | | — | | | | 25,498 | | | | 17.00 | | | | 10/20/2026 | | Derrick Sung | | | 6/15/2015 | (15) | | | 57,194 | | | | 87,297 | | | | 6.35 | | | | 6/15/2025 | |
| | Option Awards | Name | | Grant Date(1) | | | Number of Securities Underlying Unexercised Options (#) Exercisable | | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | | Option Exercise Price ($)(2) | | | Option Expiration Date | Kevin M. King | | 9/27/2012 | (3) | | | 266,150 | | | | — | | | | 4.12 | | | 9/27/2022 | | | 2/26/2013 | (4) | | | 25,558 | | | | — | | | | 4.12 | | | 2/26/2023 | | | 6/13/2013 | (5) | | | 201,421 | | | | — | | | | 3.65 | | | 6/13/2023 | | | 7/10/2014 | (6) | | | 66,933 | | | | 9,562 | | | | 4.00 | | | 7/10/2024 | | | 2/10/2015 | (7) | | | 39,132 | | | | 16,114 | | | | 5.82 | | | 2/10/2025 | | | 4/14/2015 | (8) | | | 19,546 | | | | — | | | | 5.82 | | | 4/14/2025 | | | 7/21/2015 | (9) | | | 15,405 | | | | 10,093 | | | | 7.47 | | | 7/21/2025 | | | 12/15/2015 | (10) | | | 24,648 | | | | 24,649 | | | | 8.18 | | | 12/15/2025 | | | 10/20/2016 | (11) | | | 25,497 | | | | 56,098 | | | | 17.00 | | | 10/20/2026 | | | 2/16/2017 | (16) | | | — | | | | 100,000 | | | | 35.25 | | | 2/16/2027 | Matthew C. Garrett | | 1/24/2013 | (12) | | | 42,910 | | | | — | | | | 4.12 | | | 1/24/2023 | | | 6/13/2013 | (5) | | | 40,406 | | | | — | | | | 3.65 | | | 6/13/2023 | | | 4/17/2014 | (13) | | | 10,022 | | | | — | | | | 3.65 | | | 4/17/2024 | | | 7/10/2014 | (6) | | | 11,155 | | | | 1,594 | | | | 4.00 | | | 7/10/2024 | | | 2/10/2015 | (7) | | | 5,418 | | | | 2,231 | | | | 5.82 | | | 2/10/2025 | | | 7/21/2015 | (9) | | | 7,701 | | | | 5,048 | | | | 7.47 | | | 7/21/2025 | | | 12/15/2015 | (10) | | | 8,499 | | | | 8,500 | | | | 8.18 | | | 12/15/2025 | | | 10/20/2016 | (11) | | | 9,561 | | | | 21,037 | | | | 17.00 | | | 10/20/2026 | | | 2/16/2017 | (16) | | | — | | | | 24,900 | | | | 35.25 | | | 2/16/2027 | David A. Vort | | 2/4/2014 | (14) | | | 93,204 | | | | 2,090 | | | | 3.65 | | | 2/4/2024 | | | 7/10/2014 | (6) | | | 14,725 | | | | 2,104 | | | | 4.00 | | | 7/10/2024 | | | 2/10/2015 | (7) | | | 6,020 | | | | 2,479 | | | | 5.82 | | | 2/10/2025 | | | 7/21/2015 | (9) | | | 20,540 | | | | 13,458 | | | | 7.47 | | | 7/21/2025 | | | 12/15/2015 | (10) | | | 16,999 | | | | 16,999 | | | | 8.18 | | | 12/15/2025 | | | 10/20/2016 | (11) | | | 7,967 | | | | 17,531 | | | | 17.00 | | | 10/20/2026 | | | 2/16/2017 | (16) | | | — | | | | 25,400 | | | | 35.25 | | | 2/16/2027 | Derrick Sung | | 6/15/2015 | (15) | | | 93,317 | | | | 51,174 | | | | 6.35 | | | 6/15/2025 | | | 2/16/2017 | (16) | | | — | | | | 14,000 | | | | 35.25 | | | 2/16/2027 |
(1) | Each of the outstanding equity awards was granted pursuant to our 2006 Stock Plan or our 2016 Stock Plan. |
(2) | This column represents the fair value of our common stock on the date of grant, as determined by our boardBoard of directors.Directors. |
(3) | 25% of the shares of our common stock subject to this option vested on July 30, 2013, and the balance vestsvested in 36 successive equal monthly installments, subject to continued service through each such vesting date.installments. |
(4) | 100% of the shares of our common stock subject to this option were vested as of January 1, 2013. |
(5) | 25% of the shares of our common stock subject to this option vested on June 13, 2014, and the balance vests in 36 successive equal monthly installments, subject to continued service through each such vesting date. |
(6) | 25% of the shares of our common stock subject to this option vested on June 10, 2015, and the balance vests in 36 successive equal monthly installments, subject to continued service through each such vesting date. |
(7) | 25% of the shares of our common stock subject to this option vested on February 10, 2016, and the balance vests in 36 successive equal monthly installments, subject to continued service through each such vesting date. |
(8) | 100% of the shares of our common stock subject to this option were vested as of January 1, 2015. |
(9) | 25% of the shares of our common stock subject to this option vested on July 21, 2016, and the balance vests in 36 successive equal monthly installments, subject to continued service through each such vesting date. |
(10) | 25% of the shares of our common stock subject to this option vested on December 15, 2016, and the balance vests in 36 successive equal monthly installments, subject to continued service through each such vesting date. |
(11) | 25% of the shares of our common stock subject to this option will vestvested on September 21, 2017, and the balance vests in 36 successive equal monthly installments, subject to continued service through each such vesting date. |
(12) | 25% of the shares of our common stock subject to this option vested on January 2, 2014, and the balance vestsvested in 36 successive equal monthly installments, subject to continued service through each such vesting date.installments. |
(13) | 100% of the shares of our common stock subject to this option were vested as of January 1, 2014. |
(14) | 25% of the shares of our common stock subject to this option vested on January 1, 2015, and the balance vests in 36 successive equal monthly installments, subject to continued service through each such vesting date. |
(15) | 25% of the shares of our common stock subject to this option vested on May 1, 2016, and the balance vests in 36 successive equal monthly installments, subject to continued service through each such vesting date. |
(16) | 25% of the shares of our common stock subject to this option vested on March 1, 2018, and the balance vests in 36 successive equal monthly installments, subject to continued service through each such vesting date. |
Potential Payments upon Termination or Change of Control We entered into change of control and severance agreements with each of our named executive officersNamed Executive Officers that supersede all previous severance and change of control arrangements we had entered into with these employees. Each of these agreements has a term of 2 years, except if we enter into an agreement regarding a change of control that limits our ability to extend the applicable change of control and severance agreement when there are fewer than 12 months remaining in the term, the agreement will extend through the 12 month anniversary of such change of control. Under each of these agreements, if, within the period 3 months prior to and 12 months following a “change of control” (such period, the change“change in control period)period”), we terminate the employment of the applicable employee other than for “cause,” death or “disability,” or the employee resigns for “good reason” (as such terms are defined in the employee’s change of control and severance agreement) and, within 60 days following the employee’s termination, the employee executes an irrevocable separation agreement and release of claims, the employee is entitled to receive (i) a lump sum severance payment equal to the payment of employee’s base salary, at the highest rate in effect during the term of the agreement, for 24 months for Mr. King, 15 months for Messrs. Vort and Garrett and 9 months for Mr. Sung, respectively, (ii) payment of premiums to maintain group health insurance continuation benefits pursuant to “COBRA” for the employee and the employee’s dependents for up to 24 months for Mr. King, 15 months for Messrs. Vort and Garrett and 9 months for Mr. Sung, respectively, (iii) accelerated vesting as to 100% of the employee’s outstanding unvested equity awards (if vesting depends on achievement of performance criteria, then assuming performance criteria has been achieved at target levels), and (iv) in the case of Mr. King only, extension of the post-termination exercise period for the options granted to Mr. King on September 27, 2012 and June 13, 2013 to the extent such options are outstanding and vested until the 18 month anniversary of the termination date (but not beyond the earlier of the option’s original maximum term or the 10th anniversary of the original date of grant). In addition, under each of these agreements, if, outside of the change in control period, we terminate the employment of the applicable employee other than for cause, death or disability, or the employee resigns for good reason and, within 60 days following the employee’s termination, the employee executes an irrevocable separation agreement and release of claims, the employee is entitled to receive (i) continuing payments of severance pay at a rate equal to the aggregate amount of the employee’s base salary, at the highest rate in effect during the term of the agreement, for up to 12 months for Mr. King, 9 months for Messrs. Vort and Garrett and 6 months for Mr. Sung, respectively, and (ii) payment of premiums to maintain group health insurance continuation benefits pursuant to “COBRA” for the employee and the employee’s dependents for 12 months for Mr. King, 9 months for Messrs. Vort and Garrett and 6 months for Mr. Sung, respectively, and (iii) in the case of Mr. King only, extension of the post-termination exercise period for the options granted to Mr. King on September 27, 2012 and June 13, 2013 to the extent such options are outstanding and vested until the 18 month anniversary of the termination date (but not beyond the earlier of the option’s original maximum term or the 10th anniversary of the original date of grant). Under each of these agreements, in the event any payment to the applicable named executive officerNamed Executive Officer pursuant to his change of control and severance agreement would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, as amended, or the Code (as a result of a payment being classified as a parachute payment under Section 280G of the Code), the officer will receive such payment as would entitle him to receive the greatestafter-tax benefit, even if it means that we pay him a lower aggregate payment so as to minimize or eliminate the potential excise tax imposed by Section 4999 of the Code.
Executive Incentive Compensation Plan Our boardBoard of directorsDirectors has adopted an Executive Incentive Compensation Plan, or the Bonus Plan. The Bonus Plan is administered by our compensation committee.Compensation Committee. The Bonus Plan allows our compensation committeeCompensation Committee to provide cash incentive awards to selected employees, including our named executive officers,Named Executive Officers, based upon performance goals established by our compensation committee.Compensation Committee. Under the Bonus Plan, our compensation committeeCompensation Committee determines the performance goals applicable to any award, which goals may include, without limitation: attainment of research and development milestones, sales bookings, business divestitures and acquisitions, cash flow, cash position, earnings (which may include any calculation of earnings, including but not limited to earnings before interest and taxes, earnings before taxes, earnings before interest, taxes, depreciation and amortization and net earnings), earnings per share, net income, net sales, operating cash flow, operating expenses, operating income, operating margin, overhead or other expense reduction, product defect measures, product release timelines, productivity, profit, return on assets, return on capital, return on equity, return on investment, return on sales, revenue, revenue growth, sales results, sales growth, stock price, time to market, total stockholder return, working capital, and individual objectives such as peer reviews or other subjective or objective criteria. Performance goals that include our financial results may be determined in accordance with GAAP or such financial results may consist ofnon-GAAP financial measures and any actual results may be adjusted by the compensation committeeCompensation Committee forone-time items or unbudgeted or unexpected items when performance goals that include our financial results may be determined in accordance with GAAP, or such financial results may consist ofnon-GAAP financial measures, and any actual results may be adjusted by the compensation committeeCompensation Committee forone-time items or unbudgeted or unexpected items when determining whether the performance goals have been met. The goals may be on the basis of any factors the compensation committeeCompensation Committee determines relevant, and may be adjusted on an individual, divisional, business unit or company-wide basis. The performance goals may differ from participant to participant and from award to award. Our compensation committeeCompensation Committee may, in its sole discretion and at any time, increase, reduce or eliminate a participant’s actual award, and/or increase, reduce or eliminate the amount allocated to the bonus pool for a particular performance period. The actual award may be below, at or above a participant’s target award, in the compensation committee’sCompensation Committee’s discretion. Our compensation committeeCompensation Committee may determine the amount of any reduction on the basis of such factors as it deems relevant, and it is not required to establish any allocation or weighting with respect to the factors it considers. Actual awards are paid in cash only after they are earned, which usually requires continued employment through the date a bonus is paid. Our compensation committeeCompensation Committee has the authority to amend, alter, suspend or terminate the Bonus Plan provided such action does not impair the existing rights of any participant with respect to any earned bonus. 401(k) Plan We maintain atax-qualified retirement plan that provides eligible employees with an opportunity to save for retirement on a tax advantaged basis. We may make a discretionary matching contribution to the 401(k) plan, and may make a discretionary employer contribution to each eligible employee each year. All participants’ interests in our matching contributions vest immediately from the time of contribution.Pre-tax contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to the participants’ directions. The 401(k) plan is intended to qualify under Sections 401(a) and 501(a) of the Code. As atax-qualified retirement plan, contributions to the 401(k) plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) plan, and all contributions are deductible by us when made.
Compensation Committee Report The compensation committeeCompensation Committee has reviewed and discussed the section titled “Executive Compensation”“Compensation Discussion and Analysis” included in this Proxy Statement with management. Based on such review and discussion, the compensation committeeCompensation Committee has recommended to the boardBoard of directorsDirectors that the section titled “Executive Compensation”“Compensation Discussion and Analysis” be included in this Proxy Statement. Respectfully submitted by the members of the compensation committeeCompensation Committee of the boardBoard of directors:Directors: Casper L. de ClercqBruce G. Bodaken (Chair)
Vijay K. Lathi Raymond W. Scott C. Noel Bairey Merz Equity Compensation Plan Information The following table summarizes our equity compensation plan information as of December 31, 2016.2017. Information is included for equity compensation plans approved by our stockholders. We do not have any equity compensation plans not approved by our stockholders. | Plan Category | | (a) Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights | | (b) Weighted
Average Exercise
Price of Outstanding
Options, Warrants
and Rights | | (c) Number of Securities
Remaining Available
for Future
Issuance Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column (a)) | | | (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | | | (b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | | | (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | | Equity compensation plans approved by stockholders(1) | | | 3,299,992 | (2) | | $ | 5.76 | (3) | | 4,226,068 | | | | 3,074,464 | | (2) | $ | 12.22 | | (3) | | 4,650,669 | | | Equity compensation plans not approved by stockholders | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | Total | | | 3,299,992 | | | $ | 5.76 | | | 4,226,068 | | | | 3,074,464 | | | $ | 12.22 | | | | 4,650,669 | |
(1) | Includes the following plans: 2006 Stock Plan, 2016 Equity Incentive Plan (“2016 Plan”), and 2016 Employee Stock Purchase Plan (“2016 ESPP”). Our 2016 Plan provides that on January 1st of each fiscal year commencing in 2017 and ending on (and including) January 1, 2026, the number of shares authorized for issuance under the 2016 Plan is automatically increased by a number equal to the lesser of (i) 3,865,000 shares; (ii) 5% of the outstanding shares of our common stock as of the last day of the immediately preceding fiscal year, or; (iii) such other amount as our boardBoard of directorsDirectors may determine. Our 2016 ESPP provides that on January 1st of each fiscal year commencing in 2017 and ending on (and including) January 1, 2036, the number of shares authorized for issuance under the 2016 ESPP is automatically increased by a number equal to the lesser of (i) 966,062 shares; (ii) 1.5% of the outstanding shares of our common stock as of the last day of the immediately preceding fiscal year; or (iii) such other amount as our boardBoard of directorsDirectors may determine. |
(2) | This number includes 105,529468,426 shares subject to restricted stock units. |
(3) | The weighted average exercise price relates solely to outstanding stock option shares since shares subject to the restricted stock units have no exercise price. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIALBENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information with respect to the beneficial ownership of our capital stock as of March 31, 201729, 2018 for: each person or group of affiliated persons known by us to be the beneficial owner of more than 5% of our common stock; each of our named executive officers;Named Executive Officers; each of our directors and nominees for director; and all of our current executive officers and directors as a group. We have determined beneficial ownership in accordance with the rules and regulations of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Except as indicated by the footnotes below, we believe, based on information furnished to us, that the persons and entities named in the table below have sole voting and sole investment power with respect to all shares of our capital stock that they beneficially own, subject to applicable community property laws. Applicable percentage ownership is based on 22,153,14623,591,959 shares of our common stock outstanding as of March 31, 2017.29, 2018. In computing the number of shares of capital stock beneficially owned by a person and the percentage ownership of such person, we deemed to be outstanding all shares of our capital stock subject to options held by the person that are currently exercisable or exercisable within 60 days of March 31, 2017.29, 2018. However, we did not deem such shares of our capital stock outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o iRhythm Technologies, Inc., 650 Townsend Street, Suite 500, San Francisco, California 94103. The information provided in the table is based on our records, information filed with the SEC and information provided to us, except where otherwise noted: | | | | | | | | | Name of Beneficial Owner | | Number of Shares
Beneficially Owned | | | Percentage of Shares
Beneficially Owned | | 5% and Greater Stockholders | | | | | | | | | Synergy Life Science Partners, LP(1) | | | 2,434,105 | | | | 10.96 | % | Entities affiliated with Norwest Venture Partners(2) | | | 2,369,494 | | | | 10.70 | % | Novo A/S(3) | | | 2,024,448 | | | | 9.14 | % | New Leaf Ventures II, L.P(4) | | | 1,813,978 | | | | 8.16 | % | MDV—Revelation LLC(5) | | | 1,443,723 | | | | 6.52 | % | Entities affiliated with Kaiser Permanente Ventures(6) | | | 1,416,233 | | | | 6.38 | % | Capital Research Global Investors(7) | | | 1,180,600 | | | | 5.33 | % | | | | Named Executive Officers and Directors | | | | | | | | | Kevin M. King(8) | | | 833,274 | | | | * | | Matthew C. Garrett(9) | | | 143,040 | | | | * | | David A. Vort(10) | | | 128,251 | | | | * | | Derrick Sung(11) | | | 72,244 | | | | * | | Casper L. de Clercq(12) | | | 2,369,936 | | | | 10.70 | % | Vijay K. Lathi(4) | | | 1,813,978 | | | | 8.16 | % | Mark J. Rubash(13) | | | 8,705 | | | | * | | Raymond W. Scott(14) | | | 89,765 | | | | * | | Abhijit Y. Talwalkar(15) | | | 7,082 | | | | * | | All executive officers and directors as a group (9 persons)(16) | | | 5,466,275 | | | | 23.30 | % |
Name of Beneficial Owner | | Number of Shares Beneficially Owned | | | Percentage of Shares Beneficially Owned | | 5% and Greater Stockholders | | | | | | | | | Capital Research Global Investors(1) | | | 2,439,180 | | | | 10.34 | % | BlackRock, Inc(2) | | | 1,604,250 | | | | 6.80 | % | FMR LLC(3) | | | 2,069,810 | | | | 8.77 | % | Named Executive Officers and Directors | | | | | | | | | Kevin M. King(4) | | | 729,554 | | | 3.09% | | Matthew C. Garrett(5) | | | 110,722 | | | * | | David A. Vort(6) | | | 183,670 | | | * | | Derrick Sung(7) | | | 116,683 | | | * | | Abhijit Y. Talwalkar(8) | | | 18,582 | | | * | | Bruce G. Bodaken(9) | | | 1,135 | | | * | | Mark J. Rubash(10) | | | 19,359 | | | * | | Ralph Snyderman, M.D.(11) | | | 1,135 | | | * | | Raymond W. Scott(12) | | | 6,877 | | | * | | Vijay K. Lathi(13) | | | 4,412 | | | * | | C. Noel Bairey Merz | | | — | | | * | | All executive officers and directors as a group (11 persons)(14) | | | 1,192,129 | | | | 5.05 | % |
* | Represents beneficial ownership of less than one percent (1%) of the outstanding shares of our common stock. |
(1) | Consists of 2,384,524 shares and 49,581 shares of common stock issuable upon exercise of warrants. Synergy Venture Partners, LLC, or SVP, serves as the sole general partner of Synergy Life Science Partners, LP, or SLSP. William N. Starling, Jr., a member of our board of directors, Richard S. Stack and Mudit K. Jain are the managers of SVP and share voting and dispositive power over the securities held by SLSP. The address for this entity is 1350 Bayshore Highway, Suite 920, Burlingame, CA 94010.
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(2) | As of December 31, 2016, the reporting date of the most recent filingreported on Schedule 13G/A filed with the SEC by entities affiliated with Norwest Venture Partners pursuant to section 13(g) of the Exchange Act on February 14, 2017, Norwest Venture Partners XI, LP (“NVP XI”) held of record and has sole voting and dispositive power with respect to1,184,747 shares of common stock and Norwest Venture Partners XII, LP (“NVP XII”) held of record and has sole voting and dispositive power with respect to 1,184,747 shares of common stock. Genesis VC Partners XI, LLC (“Genesis XI”) may be deemed to beneficially own, by virtue of its status as general partner of NVP XI, 1,184,747 shares of common stock. Genesis VC Partners XII, LLC (“Genesis XII”) may be deemed to beneficially own, by virtue of its status as general partner of NVP XII, 1,184,747 shares of common stock. NVP Associates, LLC (“NVP Associates”) may be deemed to beneficially own 2,369,494 shares of common stock consisting of the following: (1) 1,184,747 shares of common stock by virtue of its status as managing member of Genesis XI, the general partner of NVP XI, the record owner of such shares; and (2) 1,184,747 shares of Common Stock by virtue of its status as managing member of Genesis XII, the general partner of NVP XII, the record owner of such shares. Promod Haque, Jeffrey Crowe and Matthew D. Howard may each be deemed to beneficially own 2,369,494 shares of common stock consisting of the following: (1) 1,184,747 shares of common stock by virtue of his status asco-Chief Executive Officer of NVP Associates, the managing member of Genesis XI, which is the general partner of NVP XI, the record owner of such shares; and (2) 1,184,747 shares of common stock by virtue of his status asco-Chief Executive Officer of NVP Associates, the managing member of Genesis XII, which is the general partner of NVP XII, the record owner of such shares.2018. The address for these entities is 525 University Avenue, Suite 800, Palo Alto, CA 94301. |
(3) | As of December 31, 2016, the reporting date of the most recent filing with the SEC by Novo A/S pursuant to section 13(g) of the Exchange Act on February 8, 2017, Novo A/S has sole voting and dispositive power with respect to 2,024,448 shares of common stock. Novo A/S, through its Board of Directors (the “Novo Board”), has the sole power to vote and dispose of the securities of the Company held by Novo A/S (the “Novo Shares”). The Novo Board, currently comprised of Sten Scheibye, Goran Ando, Jeppe Christiansen, Steen Riisgaard and Per Wold-Olsen, may exercise voting and dispositive control over the Novo Shares only with the support of a majority of the Novo Board. As such, no individual member of the Novo Board is deemed to hold any beneficial ownership or reportable pecuniary interest in the Novo Shares. The address of Novo A/S is Tuborg Havnevej 19,DK-2900 Hellerup, Denmark.
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(4) | As of December 31, 2016, the reporting date of the most recent filing with the SEC by entities affiliated with New Leaf Ventures pursuant to section 13(g) of the Exchange Act on February 10, 2017, New Leaf Ventures II, L.P. (“NLV II”) is the record owner of and has shared voting and dispositive power with respect to (i) 1,741,589 shares of common stock and (ii) 72,389 shares of common stock issuable upon exercise of warrants held by NLV II. As the sole general partner of NLV II, New Leaf Venture Associates II, L.P. (“NLV Associates”) may be deemed to own beneficially the shares held by NLV II. As the sole general partner of NLV Associates, New Leaf Venture Management II, L.L.C. (“NLV Management”) may be deemed to own beneficially the shares held by NLV II. As the individual managers of NLV Management, each of Philippe O. Chambon, Vijay Lathi, Ronald Hunt, Jeani Delagardelle and Liam Ratcliffe also may be deemed to own beneficially the shares held by NLV II. Each of these individuals disclaims beneficial ownership in all shares held byNLV-II, except for the shares, if any, such entity or individual holds of record. The address for this entity is c/o New Leaf Venture Partners, 1200 Park Place, Suite 300, San Mateo, CA 94043.
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(5) | As of December 31, 2016, the reporting date of the most recent filing with the SEC by entities affiliated with MDV—Revelation LLC pursuant to section 13(g) of the Exchange Act on February 10, 2017, MDV—
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| Revelation LLC (“Revelation”) is the record owner of and has shared voting and dispositive power with respect to 1,443,723 shares of common stock. MDV VIII, L.P. (“MDV”), MDV Leaders’ VIII, L.P. (“Leaders”) and MDV ENF VIII, L.P. (“ENF”) serve as the managing members of Revelation and owns none of our securities directly. As such, MDV, Leaders and ENF may be deemed to share voting and dispositive power over the shares held by Revelation. The address for these entities is 777 Mariners Island Blvd., Suite 550, San Mateo, CA 94404.
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(6) | As of October 19, 2016, the reporting date of the most recent filing with the SEC by entities affiliated with Kaiser Permanente Ventures, LLC pursuant to section 13(d) of the Exchange Act on November 1, 2016, (i) Kaiser Permanente Ventures, LLC—Series A(“KV-A”) has sole voting and dispositive power with respect to 778,151 shares of common stock (consisting of (a) 750,309 shares of common stock held byKV-A and (b) 27,842 shares of common stock issuable upon exercise of warrants held byKV-A), (ii) Kaiser Permanente Ventures, LLC—Series B(“KV-B”) has sole voting and dispositive power with respect to 486,344 shares of common stock (consisting of (a) 468,943 shares of common stock held byKV-B and (b) 17,407 shares of common stock issuable upon exercise of warrants held byKV-B), (iii) The Permanente Federation, LLC—Series I(‘PF-I”) has sole voting and dispositive power with respect to102,816 shares of common stock, and (iv) The Permanente Federation, LLC—Series J(“PF-J”) has sole voting and dispositive power with respect to 48,922 shares of common stock (consisting of (a) 43,493 shares of common stock and (b) 5,429 shares of common stock issuable upon the exercise of warrants).KV-A andKV-B are investment vehicles used by affiliates of Kaiser Foundation Hospitals (“KFH”), a California nonprofit corporation to own securities issued in connection with technology investments by KFH and its affiliates, and in this paragraph the term “Ventures Filing Persons” refers to those two investment vehicles.PF-I andPF-J are investment vehicles used to own securities issued in connection with technology investments by Kaiser Permanente Medical Groups and certain of its affiliates, and in this paragraphPF-I andPF-J are referred to collectively as the “Federation Filing Persons”). The Ventures Filing Persons, on the one hand, and the Federation Filing Persons, on the other hand, are managed by fully independent committees whose membership does not overlap and which are appointed by separate,non-affiliated entities. However, from time to time the two management committees meet collectively and confer with respect to the acquisition, disposition and voting of securities owned by the several Filing Persons and certain of their respective affiliates. There is no written or unwritten agreement between or among the Filing Persons relating to such voting power or dispositive power, and collective meetings may be discontinued or curtailed at any time. Accordingly, each of the Ventures Filing Persons disclaimsreport states that it is acting in concert with respect to the voting and disposition of the securities held by each of the Federation Filing Persons, and vice versa, except to the extent described above. The address for all of these entities is 1 Kaiser Plaza, Suite 2243, Oakland, CA 94612.
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(7) | As of December 30, 2016, the reporting date of the most recent filing with the SEC by Capital Research Global Investors pursuant to section 13(g)has sole voting power over 2,439,180 shares and sole dispositive power over 2,439,180 shares. The address of the Exchange Act on February 13, 2017, Capital Research Global Investors (“CRGI”) has sole voting and dispositive power with respect to 1,180,600 shares of common stock. CRGI is a division of Capital Research and Management Company (“CRMC”) and as a result CRGI is deemed to be the beneficial owner of the shares believed to be outstanding as a result of CRMC acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940. Beneficial ownership is disclaimed pursuant to Rule13d-4. The address for this entity is 333 South Hope Street, Los Angeles, CA 90071.
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(8)(2) | As reported on Schedule 13G filed with the SEC on February 1, 2018. The report states that BlackRock Inc. has the sole voting power over 1,573,078 shares and sole dispositive power over 1,604,250 shares. The address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055 |
(3) | As reported on Schedule 13G filed with the SEC on February 13, 2018. The report states that FMR LLC has sole voting power over 395,557 shares and sole dispositive power over 2,069,810 shares. The address of FMR LLC is 245 Summer Street, Boston, MA 02210. |
(4) | Consists of 833,274(i) 46,087 shares of common stock, and (ii) 683,467 shares issuable upon the exercise of options exercisable within 60 days of March 31, 2017.29, 2018. |
(9)(5) | Consists of 143,040(i) 2,289 shares of common stock and (ii) 108,433 shares issuable upon the exercise of options exercisable within 60 days of March 31, 2017.29, 2018. |
(10)(6) | Consists of 128,251(i) 2,342 shares of common stock and (ii) 181,328 shares issuable upon the exercise of options exercisable within 60 days of March 31, 2017.29, 2018. |
(11)(7) | Consists of 72,244(i) 4,233 shares of common stock and (ii) 112,450 shares issuable upon the exercise of options exercisable within 60 days of March 31, 2017.29, 2018. |
(12)(8) | Consists of (i)442 17,147 shares issuable upon the exercise of options exercisable within 60 days of March 31, 201729, 2018 and (ii)2,369,494 shares of common stock beneficially held by entities affiliated by Norwest Venture |
| Partners as set forth in footnote 2 hereto. Mr. de Clercqis a member of the general partner and an officer of the managing member of Norwest Venture Partners XI and Norwest Venture Partners XII, Mr. de Clercq may be deemed to beneficially own the shares held by those entities. Mr. de Clercq disclaims beneficial ownership of all such shares, except to the extent of his pecuniary interest therein.
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(13) | Consists of 8,705 shares issuable upon the exercise of options exercisable 1,435 Restricted Stock Units vesting within 60 days of February 28, 2017.March 29, 2018.
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(14)(9) | Consists of (i) 52,903 shares of common stock held of record by Mr. Scott and (ii) 36,8621,135 shares issuable upon the exercise of options exercisable within 60 days of March 31, 2017.29, 2018. |
(15)(10) | Consists of 7,082(i) 1,361 shares of common stock, and (ii) 17,998 shares issuable upon the exercise of options exercisable within 60 days of March 31, 2017.29, 2018. |
(16)(11) | Consists of (i) 4,163,986 shares of common stock, (ii) 72,389 shares of common stock issuable upon exercise of warrants, and (iii) 1,229,3101,135 shares issuable upon the exercise of options exercisable within 60 days of March 31, 2017.29, 2018. |
(12) | Consists of 6,877 shares issuable upon the exercise of options exercisable within 60 days of March 29, 2018. |
(13) | Consists of (i) 3,007 shares issuable upon the exercise of options exercisable within 60 days of March 29, 2018 and (ii) 1,405 Restricted Stock Units vesting within 60 days of March 29, 2018. |
(14) | Consists of (i) 56,312 shares of common stock and (ii) 1,132,977 shares issuable upon the exercise of options exercisable within 60 days of March 29, 2018 and (iii) 2,840 Restricted Stock Units vesting within 60 days of March 29, 2018. |
RELATED PERSON TRANSACTIONS We describe below transactions and series of similar transactions, since the beginning of our last fiscal year, to which we were a party or will be a party, in which: the amounts involved exceeded or will exceed $120,000; and any of our directors, nominees for director, executive officers or beneficial holders of more than 5% of our outstanding common stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities (each, a related person), had or will have a direct or indirect material interest. Participation inCertain Transactions with Related Persons
During 2017, the IPO Novo A/S purchased 1.0 million sharesson of Raymond W. Scott, a member of our common stock,Board of Directors and New Leaf Ventures II, L.P. and Kaiser Permanente Ventures each purchased 25,000 sharesChairman of our commonNominating and Corporate Governance Committee, was employed by the Company as a manager of software engineering. Mr. Scott’s son earned total compensation of approximately $400,000. Total compensation includes salary, bonus, and stock offered in our IPO pursuant toawards. The compensation of Mr. Scott’s son is consistent with that of other employees with equivalent qualifications and responsibilities and holding similar positions, and Mr. Scott recused himself from any decision regarding the same terms as the shares that are sold to the public generally and not pursuant to anypre-existing contractual rightshiring of, or obligations.
Agreement for Outpatient Telemetry Services
We entered into an Agreement for Outpatient Telemetry Services effective as of March 1, 2012, as amended (the “Agreement”), with KP Select, Inc. which entered into the Agreement on behalf of Kaiser Permanente and any affiliated or associated healthcare provider, or KP entities. Entities affiliated with Kaiser Permanente Ventures, which are Kaiser Permanente Ventures, LLC—Series A, Kaiser Permanente Ventures, LLC—Series B and The Permanente Federation, LLC—Series J, are affiliated with KP entities and hold more than 5% of our capital stock. Pursuant to the Agreement, we provided the ZIO Service to KP entities and in return received $1.4 million in 2014, $1.8 million in 2015 and $2.5 million in 2016. The amounts receivable from transactions with the KP entities were $192,000, $366,000 and $449,000 as of December 31, 2014, 2015 and 2016, respectively.
Kaiser additionally performs servicescompensation related to clinical trialshis son.
During 2017, the daughter of Kevin M. King, our Chief Executive Officer, was employed by the Company as a Director of Product Launch. Mr. King’s daughter earned total compensation of approximately $372,000. Total compensation includes salary, bonus, commissions, and we utilize Kaiser for employee healthcare beginning in 2016.stock awards. The compensation of Mr. King’s daughter is consistent with that of other employees with equivalent qualifications and responsibilities and holding similar positions and Mr. King recused himself from any decision regarding the hiring of, or compensation related to his daughter. During 2017, the company engaged CM Consulting, LLC. The wife of David A. Vort, our Executive Vice President of Sales is a consultant of CM Consulting, LLC. The total expense recordedamount of fees paid to CM Consulting during 2017 was $193,000, $597,000 and $614,000 asapproximately $260,000. Mr. Vort recused himself from any decision regarding the engagement of December 31, 2014, 2015 and 2016, respectively. The amounts outstanding and included in accounts payable and accrued liabilities were $53,000, $261,000, and $229,000 as of December 31, 2014, 2015 and 2016, respectively.CM Consulting, LLC. Other TransactionsExecutive Officer Employment Letters
We have entered into employment arrangements with certain current and former executive officers. See “Executive Compensation—Executive Officer Employment Letters.” Indemnification Agreements We have entered into indemnification agreements with our directors and executive officers. The indemnification agreements and our certificate of incorporation and bylaws require us to indemnify our directors and executive officers to the fullest extent permitted by Delaware law.
Policies and Procedures for Related Party Transactions Our boardBoard of directorsDirectors has adopted a written policy that our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of any class of our common stock and any members of the immediate family of any of the foregoing persons are not permitted to enter into a related person transaction with us without the prior consent of our audit committee.Audit Committee. Any request for us to enter into a transaction with an executive officer, director, nominee for election as a director, beneficial owner of more than 5% of any class of our common stock or any member of the immediate family of any of the foregoing persons in which the amount involved exceeds $120,000 and such person would have a direct or indirect interest must first be presented to our audit committeeAudit Committee for review, consideration and approval. In approving or rejecting any such proposal, our audit committeeAudit Committee is to consider the material facts of the transaction, including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related person’s interest in the transaction. We did not have a formal review and approval policy for related party transactions at the time of any of the transactions described above. However, all of the transactions described above were entered into after presentation, consideration and approval by our boardBoard of directorsDirectors and/or our audit committee.Audit Committee.
OTHER MATTERSMATTERS Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires that our executive officers, directors and 10% stockholders file reports of ownership and changes of ownership with the SEC. Such directors, executive officers and 10% stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. SEC regulations require us to identify in this Proxy Statement anyone who filed a required report late during the most recent fiscal year. Based on our review of forms we received and written representations of our executive officers, directors and 10% stockholders, we believe that during our fiscal year ended December 31, 2016,2017, all Section 16(a) filing requirements were satisfied on a timely basis.basis, with the exception of the following reports.
Name | | Transaction Date | | Filing Date | Abhijit Talwalkar | | 5/23/2017 | | 7/7/2017 | Mark Rubash | | 3/27/2017 | | 7/7/2017 | Vijay Lathi | | 4/26/2017 | | 7/7/2017 |
Fiscal Year 20162017 Annual Report and SEC Filings Our consolidated financial statements for our fiscal year ended December 31, 20162017 are included in our Annual Report on Form 10-K, which we will make available to stockholders at the same time as this Proxy Statement. This Proxy Statement and our annual report are posted on our website at www.irhythmtech.com under “Investors—SEC Filings.” and are available from the SEC at its website at www.sec.gov. You may also obtain a copy of our annual report without charge by sending a written request to iRhythm Technologies, Inc., Attention: Investor Relations, 650 Townsend Street, Suite 500, San Francisco, California 94103. * * * The boardBoard of directorsDirectors does not know of any other matters to be presented at the Annual Meeting. If any additional matters are properly presented at the Annual Meeting, the persons named in the enclosed proxy card will have discretion to vote the shares of our common stock they represent in accordance with their own judgment on such matters. It is important that your shares of our common stock be represented at the Annual Meeting, regardless of the number of shares that you hold. You are, therefore, urged to vote by telephone or by using the Internet as instructed on the enclosed proxy card or execute and return, at your earliest convenience, the enclosed proxy card in the envelope that has also been provided. | THE BOARD OF DIRECTORS | | | | San Francisco, California | | April 27, 201710, 2018 |
IRHYTHM TECHNOLOGIES, INC.
650 TOWNSEND STREET
SUITE 500
SAN FRANCISCO, CA 94103
VOTE BY INTERNET - www.proxyvote.com
Use the Internetinternet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the 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 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 viae-mail or the Internet.internet. To sign up for electronic delivery,deliver, please follow the instructions above to vote using the Internetinternet 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 meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, Mar, 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.
IRYTHM TECHNOLOGIES, INC. 650 TOWNSEND STREET SUITE 500 SAN FRANCISCO, CA 94103 TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACKBLANK INK AS FOLLOWS:
KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
FOR ALL WITHHOLD ALL FOR ALL EXCEPT 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. The Boardboard of Directorsdirectors recommends you vote FORfor the following:
1. To 1 to elect two Class Iclass II directors to serveservice until our 20202021 annual meeting of Stockholdersstockholders and until their successors are duly elected and qualified.
Nominees
1A Kevin M. King
For Against Abstain
1B Raymond W. Scott
01 C. Noel Bairey Merz 02 Mark J. Rubash The Boardboard of Directorsdirectors recommends you vote FORfor the following proposal:
proposal 2 Toto ratify the appointment of PricewaterhouseCoopers LLP Accounting Firm as our Independent Registered Public Accounting Firm for the fiscal year ending December 31, 2017.
For Against Abstain
2018. for against abstain The board of Directors recommends you vote 3 years on the following proposal: 3 Advisory vote on the frequency of advisory votes on Named Executive Officer Compensation 1 year 2 years 3 years abstain NOTE: Such other business as may properly come before the meeting or any adjournment thereof.
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](please sign within box) Date Signature (Joint Owners)(joint owners) Date
0000337056_1 R1.0.1.15 0000375613_1 R.1.0.1.17
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice & Proxy Statement, Form10-KAnnual Report is/are available at www.proxyvote.com
IRHYTHM TECHNOLOGIES, INC.
Annual Meeting of Shareholders
June 14, 2017 10: May 23, 2018 2:00 AMPM Pacific Time
This proxy is solicited by the Board of Directors
The shareholder(s) hereby appoint(s) Kevin M. King and Matthew C. Garrett, , 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 ballot, all of the shares of Common stock of IRHYTHM TECHNOLOGIES, INC. that the shareholder(s) are entitled to vote at the Annual Meeting of shareholder(s) to be held at 10:2:00 AM,PM, Pacific time on June 14, 2017,May 23, 2018, at 650 Townsend Street Suite 500 San Francisco, CA 94103, 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 in accordance with the Board of Directors’Directors' recommendations.
Continued and to be signed on reverse side
0000337056_2 R1.0.1.150000375613_2 R1.0.1.17 |