Elect the 3 nominees identified in this proxy statement to the board of directors is soliciting your proxy to vote at our 2017 annual meeting of stockholders and any continuation, postponement or adjournment of the meeting. The meeting is scheduled for Thursday, November 16, 2017, at 3:00 p.m. US Pacific Time, Friday, November 17, 2017, at 10:00 a.m. Australian Eastern Time) in ResMed’s corporate office located at 9001 Spectrum Center Blvd., San Diego, California 92123 USA. If you held shares of our stock on September 19, 2017, we invite you to attend the annual meeting and vote on the proposals described below under the heading “What am I voting on?” You do not need to attend the annual meeting to vote your shares. Instead, you may vote over the internet, by telephone, or complete, sign, date, and return the enclosed proxy card by mail. When and where are proxy materials available?
We expect to first make this proxy statement available to our stockholders and our holders of Clearing House Electronic Subregister System, or CHESS, Units of Foreign Securities on the internet, and to mail notice and access materials on or about October 2, 2017. Our annual report on Form10-K was filed with the US Securities and Exchange Commission, or SEC, on August 4, 2017. You can review our10-K on our website, at investor.resmed.com, and at the website where our proxy materials are posted, at www.proxyvote.com and www.investorvote.com.au.
Please access and review the proxy materials before voting.
Voting instructions
Voting matters and board recommendations:(page 7)
| | | Matter
| | Vote recommendation
| Elect the 3 nominees identified in this proxy statement to the board of directors (page 8)
| | FOR each director nominee | | | Ratify selection of independent registered public accountants (page 16) | | FOR | Approve an amendment to the ResMed Inc. 2009 Employee Stock Purchase Plan (page 17) | | FOR | Advisory vote to approve executive compensation (page 23) | | FOR | | | Approve an amendment to the ResMed Inc. 2009 Incentive Award Plan (page 18)
| | FOR | | | Advisory vote to approve executive compensation (page 32)
| | FOR | | | Advisory vote to approve the frequency of futuresay-on-pay votes (page 33)
| | ONE YEAR |
Who can vote at the annual meeting? You are entitled to vote or direct the voting of your ResMed shares if you were a stockholder of record, a beneficial owner of shares held in street name, or a holder of CHESS Units of Foreign Securities, as of 4:00 p.m. US Eastern Time, on September 19, 2017, the record date for our annual meeting. As of the record date, there were 142,300,451 shares of ResMed common stock outstanding, excluding treasury shares. Treasury shares will not be voted. Each stockholder has one vote for each share of common stock held on the record date. As summarized below, there are some distinctions between shares held of record, those owned beneficially in street name, and those held through CHESS Units of Foreign Securities. What does it mean to be a stockholder of record?
If, on the record date, your shares of common stock were registered directly in your name with our transfer agent, Computershare, then you are a “stockholder of record.” As a stockholder of record, you may vote in person at the annual meeting or vote by proxy. Whether or not you plan to attend the annual meeting, we urge you to vote by the internet, by telephone, or to fill out and return the enclosed proxy card, to ensure your vote is counted.
What does it mean to beneficially own shares in “street name?”
If, on the record date, your shares of common stock were held in an account at a broker, bank, or other financial institution (we will refer to those organizations collectively as a “broker”), then you are the beneficial owner of shares held in “street name,” and these proxy materials are being forwarded to you by your broker. The broker holding your account is considered the stockholder of record for purposes of voting at our annual meeting. As the beneficial owner, you have the right to direct the voting of your ResMed shares if you were a stockholder of record, a beneficial owner of shares held in street name, or a holder of CHESS Units of Foreign Securities, as of 4:00 p.m. US Eastern Time, on September 17, 2018, the record date for our annual meeting. As of the record date, there were 142,691,815 shares of ResMed common stock outstanding, excluding treasury shares. Treasury shares will not be voted. Each stockholder has one vote for each share of common stock held on the record date. As summarized below, there are some distinctions between shares held of record, those owned beneficially in street name, and those held through CHESS Units of Foreign Securities.
What does it mean to be a stockholder of record? If, on the record date, your shares of common stock were registered directly in your name with our transfer agent, Computershare, then you are a “stockholder of record.” As a stockholder of record, you may vote in person at the annual meeting or vote by proxy. Whether or not you plan to attend the annual meeting, we urge you to vote by the internet, by telephone, or to fill out and return the enclosed proxy card, to ensure your vote is counted. What does it mean to beneficially own shares in “street name?” If, on the record date, your shares of common stock were held in an account at a broker, bank, or other financial institution (we will refer to those organizations collectively as a “broker”), then you are the beneficial owner of shares held in “street name,” and these proxy materials are being forwarded to you by your broker. The broker holding your account is considered the stockholder of record for purposes of voting at our annual meeting. As the beneficial owner, you have the right to direct your broker on how to vote the shares in your account. As a beneficial owner, you are invited to attend the annual meeting. But because you are not a stockholder of record, if you want to vote your shares in person at the annual meeting, you must request and obtain a valid proxy from your broker giving you that right, and must satisfy the annual meeting admission criteria described below. Your broker is not permitted to vote on your behalf on any matter to be considered at the annual meeting (other than ratifying our appointment of KPMG LLP as our independent registered public accounting firm) unless you specifically instruct the broker how to vote. We encourage you to communicate your voting decisions to your broker before the annual meeting date to ensure that your vote will be counted. What does it mean to be a holder of CHESS Units of Foreign Securities? CHESS Units of Foreign Securities are depositary interests issued by ResMed through CHESS, and traded on the Australian Securities Exchange, or ASX. The depositary interests are frequently called “CUFS”, or “CDIs.” If you own ResMed CUFS or CDIs, then you are the beneficial owner of one ResMed common share for every ten CUFS or CDIs you own. Legal title is held by CHESS Depositary Nominees Pty Limited. CHESS Depositary Nominees is considered the stockholder of record for purposes of voting at our annual meeting. As the beneficial owner, you have the right to direct CHESS Depositary Nominees on how to vote the shares in your account. As a beneficial owner, you are invited to attend the annual meeting. But because you are not a stockholder of record, if you want to vote your shares in person at the annual meeting, you must request and obtain a valid proxy from CHESS Depositary Nominees giving you that right, and must satisfy the annual meeting admission criteria described below. You will receive a notice from Computershare allowing you to deliver your voting instructions over the internet. In addition, you may request paper copies of the proxy statement and voting instructions by following the instructions on the notice provided by Computershare. Under the rules governing CUFS and CDIs, CHESS Depositary Nominees are not permitted to vote on your behalf on any matter to be considered at the annual meeting unless you specifically instruct CHESS Depositary Nominees how to vote. We encourage you to communicate your voting decisions to CHESS Depositary Nominees before the annual meeting date to ensure that your vote will be counted. How do I vote my shares before the annual meeting? Holders of common stock listed on the New York Stock Exchange, or NYSE.If you are a holder of common stock listed on the NYSE, you may vote before the meeting by submitting a proxy. The method of voting by proxy differs (1) depending on whether you are viewing this proxy statement on the internet or on a paper copy, and (2) for shares held as a record holder and shares held in “street name.” You may request paper copies of the proxy statement and proxy card by following the instructions on the notice described below. | | | Holder | | Method of voting | | Holders of record | | If you hold your shares of common stock as a record holder and you are viewing this proxy statement on the internet, you may vote by submitting a proxy over the internet or by telephone by following the instructions on the website referred to in the notice of internet availability of proxy materials previously mailed to you. If you hold your shares of common stock as a record holder and you are reviewing a paper copy of this proxy statement, you may vote your shares by completing, dating and signing the proxy card that was included with the proxy statement and promptly returning it in thepre-addressed, postage-paid envelope provided to you, or by using the toll-free number, or by submitting a proxy over the internet using the instructions on the proxy card. | | Shares held in “street name” | | If you hold your shares of common stock in street name, you will receive a notice from your broker with instructions on how to vote your shares. Your broker will allow you to deliver your voting instructions over the internet. | | Holders of CUFS or CDIs listed on the ASX | | If you hold our CUFS or CDIs, you will receive a notice from Computershare, which will allow you to make your voting instructions over the internet. In addition, you may request paper copies of the proxy statement and voting instructions from Computershare by following the instructions on the notice provided by Computershare. Under the rules governing CUFS and CDIs, CHESS Depositary Nominees are not permitted to vote on your behalf on any matter to be considered at the annual meeting unless you specifically instruct CHESS Depositary Nominees how to vote. We encourage you to communicate your voting decisions to CHESS Depositary Nominees before the annual meeting date to ensure that your vote will be counted.
How do I vote my shares before the annual meeting?
Holders of common stock listed on the New York Stock Exchange, or NYSE.If you are a holder of common stock listed on the NYSE, you may vote before the meeting by submitting a proxy. The method of voting by proxy differs (1) depending on whether you are viewing this proxy statement on the internet or on a paper copy, and (2) for shares held as a record holder and shares held in “street name.” You may request paper copies of the proxy statement and proxy card by following the instructions on the notice described below.
Internet voting closes in the US at 11:59 p.m., November 14, 2018 US Eastern Time for shares traded on the NYSE, and 10:00 a.m., November 14, 2018 Australian Eastern Time for holders of CHESS Units of Foreign Securities listed on the ASX. How do I vote in person at the annual meeting? If you attend our annual meeting and want to vote in person, you may vote your shares in person by requesting a ballot at our annual meeting. You will need to have proof of ownership and valid photo identification with you for admission to our annual meeting. Please note, however, that if your shares are held in street name, or if you hold CUFS or CDIs, you must bring a legal proxy from the record holder of the shares (which is the broker, other nominee, or CHESS nominee), authorizing you to vote at our annual meeting. How can I revoke my proxy or change my vote? You may revoke your proxy and change your vote at any time before the proxy is exercised by any of the following methods: | | Method of voting
| Holders of record | | If you hold your shares of common stock as a record holder and you are viewing this proxy statement on the internet, you may vote by submitting a proxy over the internet or by telephone by following the instructions on the website referred to in the notice of internet availability of proxy materials previously mailed to you. If you hold your shares of common stock as a record holder and you are reviewing a paper copy of this proxy statement, you may vote your shares by completing, dating and signing the proxy card that was included with the proxy statement and promptly returning it in thepre-addressed, postage-paid envelope provided to you, or by using the toll-free number, or by submitting a proxy over the internet using the instructions on the proxy card.
| | | Shares held in
“street name”
| | If you hold your shares of common stock in street name, you will receive a notice from your broker with instructions on how to vote your shares. Your broker will allow you to deliver your voting instructions over the internet.
| | | Holders of CUFS
or CDIs listed on
the ASX
| | If you hold our CUFS or CDIs, you will receive a notice from Computershare, which will allow you to make your voting instructions over the internet. In addition, you may request paper copies of the proxy statement and voting instructions from Computershare by following the instructions on the notice provided by Computershare.
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Internet voting closes in the US at 11:59 p.m., November 14, 2017 US Eastern Time for shares traded on the NYSE, and 10:00 a.m., November 15, 2017 Australian Eastern Time for holders of CHESS Units of Foreign Securities listed on the ASX.
How do I vote in person at the annual meeting?
If you attend our annual meeting and want to vote in person, you may vote your shares in person by requesting a ballot at our annual meeting. You will need to have proof of ownership and valid photo identification with you for admission to our annual meeting. Please note, however, that if your shares are held in street name, or if you hold CUFS or CDIs, you must bring a legal proxy from the record holder of the shares (which is the broker, other nominee, or CHESS nominee), authorizing you to vote at our annual meeting.
How can I revoke my proxy or change my vote?
You may revoke your proxy and change your vote at any time before the proxy is exercised by any of the following methods:
| | | | | Holder | | Method of voting
| | | | Holders of record | | •
| | Method of voting | | Holders of record | | ●Delivering written notice of revocation to our secretary at our principal executive office located at 9001 Spectrum Center Boulevard, San Diego, California 92123 USA; | | •
| | Delivering another timely and later dated proxy to our secretary at our principal executive office located at 9001 Spectrum Center Boulevard, San Diego, California 92123 USA;
| | •
| | Revoking by internet or by telephone before 11:59 p.m. US Eastern Time on November 14, 2017, for shares traded on the NYSE and 10:00 a.m. Australian Eastern Time on November 15, 2017, for holders of CHESS Units of Foreign Securities listed on the ASX; or
| | •
| | Attending the 2017 annual meeting and voting in person by written ballot. Please note that your attendance at the meeting will not revoke your proxy unless you actually vote at the meeting.
| | | | Stock held by
brokers, banks
and nominees;
and CUFS or
CDIs
| | | | You must contact your broker, bank or other nominee to obtain instructions on how to revoke your proxy or change your vote. You may also obtain a “legal proxy” from your broker, bank or other nominee to attend our annual meeting and vote in person by written ballot.
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What happens if I return the proxy card to ResMed but do not make specific choices?
If you return a signed, dated proxy card to us with a choice specified on a voting matter, we will vote your shares according to your choice. If you return a signed, dated proxy card to us but do not make specific choices, we will vote your shares as follows: (1) FOR each of the three nominees to our board identified in this proxy statement; (2) FOR ratifying our selection of KPMG; (3) FOR amending andre-stating the ResMed Inc. 2009 Incentive Award Plan, (4) FOR approving, on anon-binding, advisory basis, the compensation we paid our named executive officers; and (5) ONE YEAR, on anon-binding, advisory basis, as the frequency of futuresay-on-pay votes.
What does it mean if I received more than one proxy card?
If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign and return each proxy card to ensure that all of your shares are voted.
General information
What are brokernon-votes and how are they counted?
If your broker holds your common stock in street name and you have not provided your broker with voting instructions, your broker may vote your shares in its discretion on proposals NYSE rules consider “routine.” The only proposal considered “routine” in our meeting is the proposal to ratify the selection of our independent registered public accounting firm. If you do not provide direction to your broker for that proposal, your broker may exercise its discretion to vote your shares. The election of directors, the approval of the amendment and restatement of the ResMed Inc. 2009 Incentive Award Plan, and the advisory votes on executive compensation are not considered “routine”, and brokers do not have discretionary authority to vote on these matters without your direction. You must indicate to your broker how you wish to vote on anynon-routine matter with respect to any shares you hold in street name or they will be considered a “brokernon-vote.”
Brokernon-votes will not affect the outcome of the election of our directors, the advisory vote to approve our executive compensation, the approval of the amendment and restatement of the ResMed Inc. 2009 Incentive Award Plan, or the advisory vote on the frequency of futuresay-on-pay votes, as these matters are generally determined based on the number of votes cast and brokernon-votes are not considered votes cast.
Your vote is important. Please submit your proxy, or provide instructions to your brokerage firm, bank or the CHESS Depositary Nominees. This will ensure that your shares are voted at our annual meeting.
How many shares must be present or represented to conduct business at the annual meeting?
A quorum of stockholders is necessary to hold a valid annual meeting. A quorum will be present if a majority of the outstanding shares entitled to vote are represented at our annual meeting. Shares represented by proxies that reflect abstentions or brokernon-votes will be counted as shares represented at our annual meeting for purposes of determining a quorum. If there are insufficient votes to constitute a quorum at the time of the annual meeting, we may adjourn the annual meeting to solicit additional proxies.
On the record date we had outstanding 142,300,451 shares of common stock (excluding treasury shares), the holders of which are entitled to one vote per share. Accordingly, an aggregate of 142,300,451 votes may be cast on each matter to be considered at our annual meeting, and at least 71,150,226 shares must be represented at the meeting to have a quorum.
What is the voting requirement to approve each of the proposals?
Proposal 1 – Directors will be elected by a majority of the votes cast in person or by proxy, which means that the number of votes cast “for” a candidate for director must exceed the number of votes cast “against” that candidate. Abstentions and brokernon-votes do not count as a vote cast either “for” or “against” and will not affect the outcome of the election.
Under our board’s policy, in uncontested elections, an incumbent director nominee who does not receive the required votes forre-election will continue to serve, but is expected to tender a resignation to the board. The nominating and governance committee, or another duly authorized committee of the board, will decide whether to accept or reject the tendered resignation, generally within 90 days after the election results are certified. We will publicly disclose the board’s decision on the tendered resignation and the rationale behind the decision.
Proposal 2 – The proposal to ratify our selection of KPMG LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2018 requires the affirmative vote of a majority of the aggregate votes cast in person or by proxy. Abstentions will not affect the outcome of this proposal. Brokers generally have discretionary authority to vote on the ratification of our independent registered public accounting firm, so we do not expect brokernon-votes to result from the vote on proposal 2. Any brokernon-votes that may result will not affect the outcome of this proposal.
Proposal 3 –The proposal to approve the amendment and restatement of the ResMed Inc. 2009 Incentive Award Plan requires the affirmative vote of a majority of shares cast in person or by proxy. Abstentions and brokernon-votes will not affect the outcome of this proposal.
Proposal 4 – The advisory vote to approve our executive compensation,(“say-on-pay” vote), requires the affirmative vote of a majority of shares cast in person or by proxy. Abstentions and brokernon-votes will not affect the outcome of this proposal. As an advisory vote, the results of this vote will not be binding on the board or the company. However, the board values the opinions of our stockholders and will consider the outcome of the vote when making future decisions on our named executive officers’ compensation, and on our executive compensation principles, policies and procedures.
Proposal 5– The advisory vote on the frequency of futuresay-on-pay votes requires the affirmative vote of a majority of shares cast in person or by proxy. However, if none of the frequency alternatives (every one year, two years or three years) receive a majority of the votes cast, we will consider the frequency with the highest number of votes cast “for” by stockholders to be the frequency that has been selected by our stockholders. As an advisory vote, the results of this vote will not be binding on the board or the company. However, the board values the opinions of our stockholders and will consider the outcome of the vote when establishing the actual frequency of future advisory votes by stockholders on executive compensation.
Who pays the costs of proxy solicitors?
The cost of soliciting proxies will be borne by us. After the original delivery of the notice and other proxy soliciting material, further solicitation of proxies may be made by mail, telephone, facsimile, electronic mail, and personal interview by our regular employees, who will not receive additional compensation for the solicitation. We will also request that brokerage firms and other nominees or fiduciaries deliver the notice and proxy soliciting material to beneficial owners of the stock held in their names, and we will reimburse them for reasonableout-of-pocket expenses they incur.
How can I see a list of stockholders?
Under Delaware law, a list of stockholders entitled to vote at our annual meeting will be available at the meeting and for ten days before our annual meeting in our principal executive office located at 9001 Spectrum Center Boulevard, San Diego, California 92123 USA, between the hours of 9:00 a.m.USA;
| | | ● Delivering another timely and 4:00later dated proxy to our secretary at our principal executive office located at 9001 Spectrum Center Boulevard, San Diego, California 92123 USA; | | | ● Revoking by internet or by telephone before 11:59 p.m. US Pacific Time. How will I receive my proxy materials?
We are furnishing proxy materials (proxy statement and annual reportEastern Time on Form10-K) to our stockholders by the internet, instead of mailing printed copies of proxy materials to each stockholder. Accordingly, we are sending a notice of internet availability of proxy materials to our stockholders of record. If yourNovember 14, 2018, for shares are listed in street nametraded on the NYSE and 10:00 a.m. Australian Eastern Time on November 14, 2018, for holders of CHESS Units of Foreign Securities listed on the ASX; or
| | | ● Attending the 2018 annual meeting and voting in person by written ballot. Please note that your attendance at the meeting will not revoke your proxy unless you actually vote at the meeting. | Stock held by brokers, who hold shares on your behalf will send you their own similar notice. If you holdbanks and nominees; and CUFS or CDIs listed | | You must contact your broker, bank or other nominee to obtain instructions on the ASX, you will receive your notice from Computershare. If you received the notice by mail, you will not automatically receive a printed copy of the proxy materials in the mail. Instead, the notice tells you how to use the internetrevoke your proxy or change your vote. You may also obtain a “legal proxy” from your broker, bank or other nominee to access and review this proxy statement,attend our annual report on Form10-K,meeting and proxy voting card. The notice also tells you how you may submit your proxy via the internet. Our proxy materials explain how you may request to receive your materialsvote in printed form on aone-time or ongoing basis. Certain stockholders who have previously given us a permanent request to receive a paper copy of our proxy materials will be sent paper copies in the mail.person by written ballot.
PROPOSALS
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What happens if I return the proxy card to ResMed but do not make specific choices? If you return a signed, dated proxy card to us with a choice specified on a voting matter, we will vote your shares according to your choice. If you return a signed, dated proxy card to us but do not make specific choices, we will vote your shares as follows: (1) FOR each of the three nominees to our board identified in this proxy statement; (2) FOR ratifying our selection of KPMG; (3) FOR amending the ResMed Inc. 2009 Employee Stock Purchase Plan; and (4) FOR approving, on anon-binding, advisory basis, the compensation we paid our named executive officers. What does it mean if I received more than one proxy card? If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign and return each proxy card to ensure that all of your shares are voted. What are brokernon-votes and how are they counted? If your broker holds your common stock in street name and you have not provided your broker with voting instructions, your broker may vote your shares in its discretion on proposals NYSE rules consider “routine.” The only proposal considered “routine” in our meeting is the proposal to ratify the selection of our independent registered public accounting firm. If you do not provide direction to your broker for that proposal, your broker may exercise its discretion to vote your shares. The election of directors, the approval of the amendments to the ResMed Inc. 2009 Employee Stock Purchase Plan, and the advisory votes on executive compensation are not considered “routine”, and brokers do not have discretionary authority to vote on these matters without your direction. You must indicate to your broker how you wish to vote on anynon-routine matter with respect to any shares you hold in street name or they will be considered a “brokernon-vote.” Brokernon-votes will not affect the outcome of the election of our directors, the advisory vote to approve our executive compensation, the approval of the amendment to the ResMed Inc. 2009 Employee Stock Purchase Plan, as these matters are determined based on the number of votes cast and brokernon-votes are not considered votes cast. Your vote is important. Please submit your proxy, or provide instructions to your brokerage firm, bank or the CHESS Depositary Nominees. This will ensure that your shares are voted at our annual meeting. How many shares must be present or represented to conduct business at the annual meeting? A quorum of stockholders is necessary to hold a valid annual meeting. A quorum will be present if a majority of the outstanding shares entitled to vote are represented at our annual meeting. Shares represented by proxies that reflect abstentions or brokernon-votes will be counted as shares represented at our annual meeting for purposes of determining a quorum. If there are insufficient votes to constitute a quorum at the time of the annual meeting, we may adjourn the annual meeting to solicit additional proxies. On the record date we had outstanding 142,691,815 shares of common stock (excluding treasury shares), the holders of which are entitled to one vote per share. Accordingly, an aggregate of 142,691,815 votes may be cast on each matter to be considered at our annual meeting, and at least 71,345,908 shares must be represented at the meeting to have a quorum. What is the voting requirement to approve each of the proposals? Proposal 1 – Directors will be elected by a majority of the votes cast in person or by proxy, which means that the number of votes cast “for” a candidate for director must exceed the number of votes cast “against” that candidate. Abstentions and brokernon-votes do not count as a vote cast either “for” or “against” and will not affect the outcome of the election. Under our board’s policy, in uncontested elections, an incumbent director nominee who does not receive the required votes forre-election will continue to serve, but is expected to tender a resignation to the board. The nominating and governance committee, or another duly authorized committee of the board, will decide whether to accept or reject the tendered resignation, generally within 90 days after the election results are certified. We will publicly disclose the board’s decision on the tendered resignation and the rationale behind the decision. Proposal 2 – The proposal to ratify our selection of KPMG LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2019 requires the affirmative vote of a majority of the aggregate votes cast in person or by proxy. Abstentions will not affect the outcome of this proposal. Brokers generally have discretionary authority to vote on the ratification of our independent registered public accounting firm, so we do not expect brokernon-votes to result from the vote on proposal 2. Any brokernon-votes that may result will not affect the outcome of this proposal. Proposal 3 –The proposal to approve an amendment to the ResMed Inc. 2009 Employee Stock Purchase Plan requires the affirmative vote of a majority of shares cast in person or by proxy. Abstentions and brokernon-votes will not affect the outcome of this proposal. Proposal 4 – The advisory vote to approve our executive compensation,(“say-on-pay” vote), requires the affirmative vote of a majority of shares cast in person or by proxy. Abstentions and brokernon-votes will not affect the outcome of this proposal. As an advisory vote, the results of this vote will not be binding on the board or the company. However, the board values the opinions of our stockholders and will consider the outcome of the vote when making future decisions on our named executive officers’ compensation, and on our executive compensation principles, policies and procedures. Who pays the costs of proxy solicitors? The cost of soliciting proxies will be borne by us. After the original delivery of the notice and other proxy soliciting material, further solicitation of proxies may be made by mail, telephone, facsimile, electronic mail, and personal interview by our regular employees, who will not receive additional compensation for the solicitation. We will also request that brokerage firms and other nominees or fiduciaries deliver the notice and proxy soliciting material to beneficial owners of the stock held in their names, and we will reimburse them for reasonableout-of-pocket expenses they incur. How can I see a list of stockholders? Under Delaware law, a list of stockholders entitled to vote at our annual meeting will be available at the meeting and for ten days before our annual meeting in our principal executive office, located at 9001 Spectrum Center Boulevard, San Diego, California, 92123 USA, between the hours of 9:00 a.m. and 4:00 p.m. US Pacific Time. How will I receive my proxy materials? We are furnishing proxy materials (proxy statement and annual report on Form10-K) to our stockholders by the internet, instead of mailing printed copies of proxy materials to each stockholder. Accordingly, we are sending a notice of internet availability of proxy materials to our stockholders of record. If your shares are listed in street name on the NYSE, brokers who hold shares on your behalf will send you their own similar notice. If you hold CUFS or CDIs listed on the ASX, you will receive your notice from Computershare. If you received the notice by mail, you will not automatically receive a printed copy of the proxy materials in the mail. Instead, the notice tells you how to use the internet to access and review this proxy statement, our annual report on Form10-K, and proxy voting card. The notice also tells you how you may submit your proxy via the internet. Our proxy materials explain how you may request to receive your materials in printed form on aone-time or ongoing basis. Certain stockholders who have previously given us a permanent request to receive a paper copy of our proxy materials will be sent paper copies in the mail. PROPOSAL 1: ELECTIONOFDIRECTORS Our bylaws authorize a board of directors with between one and thirteen members, with the exact number to be specified by the board from time to time. Our board currently authorizes eight directors. Our board is divided into three classes. One class is elected every year at our annual meeting for a term of three years. The class of directors whose term expires in 2018 has three members: Peter Farrell, Gary Pace, and Ron Taylor. Gary Pace will not stand forre-election at the annual meeting. On the nominating and governance committee’s recommendation, our board has nominated Peter Farrell and Ron Taylor, and a new nominee, Harjit Gill, as directors for election at this annual meeting. The directors to be elected at this annual meeting will hold office until the 2021 annual meeting or until the director’s earlier death, disability, resignation, or removal. We are soliciting proxies in favor of these nominees and proxies will be voted for them unless the proxy otherwise specifies. If Peter Farrell, Harjit Gill, or Ron Taylor becomes unable or unwilling to serve as director, the proxies will be voted for the election of another person, if any, that the board designates. Information concerning the nominees for director and the other directors who will continue in office after our annual meeting is set forth below: | | | | | | | | Director | | Current term expiration | | Age as of September 17, 2018 | | Position | Peter Farrell | | 2018 | | 76 | | Founder, chairman of the board, and nominee forre-election | Harjit Gill | | - | | 53 | | Nominee for election as director | Ron Taylor | | 2018 | | 70 | | Lead director, and nominee forre-election | Carol Burt | | 2019 | | 60 | | Director | Rich Sulpizio | | 2019 | | 68 | | Director | Michael Farrell | | 2020 | | 46 | | Chief executive officer and director | Karen Drexler | | 2020 | | 58 | | Director | Jack Wareham | | 2020 | | 77 | | Director |
The following biographical information is furnished with regard to our directors (including nominees) as of September 17, 2018. Nominees for election at our annual meeting to serve for a three-year term expiring at the 2021 annual meeting: | | |  | | Peter Farrellis the founder and chairman of the board of ResMed and has been chairman and a director since its inception in June 1989. Dr. Farrell also served as chief executive officer from July 1990 until December 2007, and from February 2011 until March 2013. Dr. Farrell served as executive chairman of the board from timeDecember 2007 until February 2011, and from March 2013 through December 2013. Since January 1, 2014, he has been anon-officer employee of ResMed. From July 1984 to time. OurJune 1989, Dr. Farrell served as vice president, research and development at various subsidiaries of Baxter International, Inc.; and from August 1985 to June 1989, he also served as managing director of the Baxter Center for Medical Research Pty Ltd., a Baxter subsidiary. From January 1978 to December 1989, he was foundation director of the Graduate School for Biomedical Engineering at the University of New South Wales, where he currently serves as a visiting professor and as chairman of the UNSW Centre for Innovation and Entrepreneurship. He also serves on the Visiting Committee of the Health Sciences & Technology Program at the Massachusetts Institute of Technology and on the MIT Dean of Engineering’s Advisory Council. In May 2018, Dr. Farrell was named chairman of the board at Arcturus Therapeutics Ltd (NASDAQ: ARCT), an RNA therapeutics company. He currently authorizes eight directors.serves on two faculty advisory boards at the University of California, San Diego: the Rady Business School and the Jacobs Engineering School. He holds a B.E. in chemical engineering with honors from the University of Sydney, an S.M. in chemical engineering from the Massachusetts Institute of Technology, a Ph.D. in chemical engineering and bioengineering from the University of Washington, Seattle and a D.Sc. from the University of New South Wales for research contributions in the field of treatment with the artificial kidney. Our
From 2005 through May 2018, Dr. Farrell was a director of NuVasive, Inc., a NASDAQ-listed company which develops and markets products for the surgical treatment of spine disorders. From 2007 through 2014, he was thenon-executive chairman of the board of QRx Pharma, a specialty pharmaceutical company. Dr. Farrell is divided into three classes. One class isa fellow or honorary fellow of several professional bodies, including being a member of the National Academy of Engineering, to which he was elected every yearin 2012. Dr. Farrell was named 1998 San Diego Entrepreneur of the Year for Health Sciences, Australian Entrepreneur of the Year in 2001 and US National Entrepreneur of the Year for Health Sciences in 2005. Dr. Farrell joined the Executive Council of the Division of Sleep Medicine at our annual meeting for a termHarvard Medical School in 1998, served as vice chairman from 2000 until 2010 when he became chairman; he served in that capacity until May 2013. In 2012, he joined the board of three years. The classtrustees of directors whose term expires in 2017 has three members:the Scripps Research Institute. Dr. Farrell’s son, Michael Farrell, Chris Roberts,is ResMed’s chief executive officer and Jack Wareham. Accordingly, three directors are to be elected at this annual meeting, who will hold office until the 2020 annual meeting or until the director’s earlier death, disability, resignation, or removal.one of its directors. |
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| | Dr. Farrell’s role as our founder and chief executive officer for over 20 years provides him with a unique and deep understanding of our operations, technology and industry. In addition, his background reflects significant executive experience with other publicly-held medical technology companies and public company governance experience and training. This experience and training includes more than seven years of experience on the nominating and governance committee’s recommendation,committee and one year of experience on the compensation committee of NuVasive, as well as coursework specific to corporate governance from the Harvard Business School. Dr. Farrell’s experience and skills led our board has nominated Michael Farrell, Karen Drexler, and Jack Wareham as directors at this annual meeting. Mr. Roberts is not standing forre-election. We are soliciting proxies in favor of these nominees and proxies will be voted for them unlessto the proxy otherwise specifies. If Michael Farrell, Karen Drexler, or Jack Wareham becomes unable or unwilling toconclusion that he should serve as director,a director. Harjit Gill is a newly-nominated candidate for director. Since 2016 Ms. Gill is Advisor to Delmedica Investments, a Singapore-based company focused on respiratory healthcare and inventors of the proxies will be voted for the electionX-Halo breath thermometer. She is also a member of such other person, if any, that the board designates. Information concerningof directors of Apollo Education and Training, Vietnam, a private company providing English teaching in Vietnam, where she has served since 2017. She is also the nominees for director andcurrent Chapter Chair Gold of the other directors who will continue in office after our annual meeting is set forth below:YPO Singapore Chapter.
| | | | | | | | | | | Director | | Current term
expiration | | | Age as of
September 19, 2017 | | | Position | Michael Farrell | | | 2017 | | | | 45 | | | Chief executive officer, and nominee forre-election | Karen Drexler | | | — | | | | 57 | | | Nominee for election | Jack Wareham | | | 2017 | | | | 76 | | | Director, and nominee forre-election | Peter Farrell | | | 2018 | | | | 75 | | | Founder, chairman of the board | Gary Pace | | | 2018 | | | | 69 | | | Director | Ron Taylor | | | 2018 | | | | 69 | | | Lead director | Carol Burt | | | 2019 | | | | 59 | | | Director | Rich Sulpizio | | | 2019 | | | | 67 | | | Director |
The following biographical information is furnished with regard to our directors (including nominees)From 2015-2016 she served as of September 19, 2017.
Nominees for election at our annual meeting to serve for a three-year term expiring at the 2020 annual meeting:Chief Operations and Marketing HTC, Taiwan.
From 1990-2015, she worked for Royal Philips in various roles. From 2012-2015, she was executive vice president and chief executive officer for Philips ASEAN & Pacific, based in Singapore responsible for Healthcare/Lighting and Consumer Lifestyle. From 2009-2012, she was senior vice president – international sales, and from 2006-2009, was vice president – Asia, both for Philips Consumer Lifestyle Products. Before 2006, she held progressive roles in the Netherlands, Hong Kong, Dubai, and Singapore for Consumer Electronics From 2012 to January 2018, she served as a board member of the National University of Singapore, Entrepreneurship Committee. From 2012 to 2015, she was a board member of the Singapore International Chamber of Commerce. She is also a former member of the World Economic Forum South East Asia Council 2014/2015 Ms. Gill has a bachelor of arts (honors) in combined studies from the University of Manchester. Ms. Gill was first recommended to us by a search firm retained by the nominating and governance committee. Her executive and operational experience and skills led our board to the conclusion that she should serve as a director, particularly her background in consumer healthcare, her experience in Asia, and her executive experience. | | | 
| | Michael Farrell has served as our director since March 1, 2013.
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| | |  | | Ron Taylor has served as our director since January 2005 and our independent lead director since July 1, 2013. He is chair of our nominating and governance committee and a member of our audit committee. In 1987, Mr. Taylor founded Pyxis Corporation, a manufacturer of automated drug dispensers for hospitals, where he served as chairman, president, and chief executive officer until its purchase by Cardinal Health, Inc., in 1996. For six years before founding Pyxis, Mr. Taylor was responsible for operations and international sales at Hybritech, Inc., a biotechnology company. Before joining Hybritech, he served over 10 years in management roles at Allergan Pharmaceuticals. Mr. Taylor served as a director of Allergan plc, a NYSE-listed specialty pharmaceutical company from 1994 until May 2018. During his tenure he served on the audit, compensation, and nominating and governance committees. From 1998 through 2014, he served as a director of Red Lion Hotels Corporation and was at various times a member of the nominating and governance, compensation and audit committees. From 2002 until his appointment to the ResMed board in 2005, he served as chairman of the ResMed Foundation. Mr. Taylor received a B.A. from the University of Saskatchewan and an M.A. from the University of California, Irvine. Mr. Taylor’s background reflects significant executive and operational experience with publicly-held medical technology and pharmaceutical companies, including experience in evaluating and investing in healthcare companies as a partner in a venture capital firm, and public company governance experience. He has been a director of approximately 20 publicly and privately held companies over the past 27 years. In addition, he has more than 15 years of experience as a member of the Red Lion Hotel’s governance, compensation and audit committees, and more than 20 years of experience as a member of the Allergan (formerly Watson and Actavis) audit, compensation and governance committees. Mr. Taylor’s experience and skills led the board to the conclusion that he should serve as a director. |
Mr. Farrell has been our chief executive officer and a director since March 1, 2013. Before that appointment, he served as our president – Americas from May 2011; our senior vice president, strategic business unit – sleep from July 2007 to May 2011; our vice president, marketing for the Americas from June 2005 through July 2007; and before that was our vice president, business development. Before joining ResMed in September 2000, Mr. Farrell worked in management consulting, biotechnology, chemicals and steel manufacturing at Arthur D. Little, Genzyme Corporation (now part of Sanofi), Dow Chemical, and BHP Billiton.
Mr. Farrell serves on the board of directors of Zimmer Biomet (NYSE: ZBH), a multi-billion dollar public company that provides implantable musculoskeletal medical devices for patients globally. Mr. Farrell is a member of the Compensation and Management Development committee as well as the Nominating and Governance committee at Zimmer Biomet. Mr. Farrell also serves on the board of directors of the Advanced Medical Technology Association (AdvaMed), based in Washington, DC. Mr. Farrell volunteers as a trustee fornon-profit organizations: UC San Diego Foundation, Rady Children’s Hospital, the La Jolla Playhouse, and the Museum of Man.
Mr. Farrell holds a bachelor of engineering, with first-class honours, from the University of New South Wales, a master of science in chemical engineering from the Massachusetts Institute of Technology, and an M.B.A. from the MIT Sloan School of Management.
Mr. Farrell’s father, Peter Farrell, is our founder and chairman of the board.
Mr. Farrell was appointed to serve as a director on the board effective March 1, 2013, at the same time he was appointed as chief executive officer. Mr. Farrell does not serve on any of the ResMed board committees.
Mr. Farrell’s skills and more than 17 years’ experience with ResMed and over 22 years’ experience with healthcare and manufacturing industries provides him with a unique and deep understanding of our operations, technology and market, and led the board to the conclusion that he should serve as a director. In addition, the board believes it appropriate for the chief executive officer to serve as a member of the board.
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| | Karen Drexleris a newly-nominated candidate for director.
Ms. Drexler is chief executive officer and a board member of Sandstone Diagnostics, Inc., a private company developing instruments and consumables forpoint-of-care medical testing. She has been on its board since 2014, and became CEO in 2016. Since 2011, Ms. Drexler has served as chairman of the board of directors of Hygieia, Inc., a private digital insulin therapy company. Ms. Drexler also serves on the board of directors of AP360, afor-profit subsidiary of Medicines360, a women’s health company. Ms. Drexler also acts as a senior strategic advisor for several other early stage companies and is on the board of directors for the Keller Center for Innovation in Engineering Education at Princeton University.
Ms. Drexler has served on numerous private company boards in the past in the fields of diagnostics, medical devices and digital health. From 2010 until 2016, she served as a director of Diadexus, Inc., a publicly-traded cardiac disease diagnostics company. Ms. Drexler is an active mentor and advisor with Astia, a global nonprofit that supports high potential female founders. She is a founding member of Astia Angels, a network of individual investors who fund such founders. Ms. Drexler is also a lead mentor with StartX, the Stanford University incubator. Through her work with Astia and StartX, Ms. Drexler interacts with many promising young medtech companies.
Ms. Drexler was the president and chief executive officer of Amira Medical Inc., a private company focused on minimally invasive glucose monitoring technology, from 1996 until it was sold to Roche Holding AG in 2001. From 1984 to 1995, she held various positions in marketing, sales, manufacturing, business development, and research and development at LifeScan. She played a key role in the sale of LifeScan to Johnson & Johnson in 1986.
Ms. Drexler holds a B.S.E. in Chemical Engineering from Princeton University and an M.B.A. from Stanford University Graduate School of Business.
Ms. Drexler’s executive and board experience in the medical diagnostics and medical device industries, particularly her experience in technology and data security, andout-of-hospital care models, led our board to conclude she should serve as a director.
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| | Jack Wareham has served as our director since January 2005. He is chair of our audit committee and a member of our nominating and governance committee.
From September 1993 to January 2004, Mr. Wareham was the president of Beckman Coulter, Inc., a NYSE-listed biomedical company that develops and markets instruments, chemistries, software and supplies to simplify and automate laboratory processes. Mr. Wareham also served as chief executive officer from August 1998 to February 2005 and chairman from January 1999 to April 2005. Before joining Beckman Coulter in 1984, Mr. Wareham was president of Norden Laboratories, Inc., a wholly-owned subsidiary of SmithKline Beckman. He first joined a predecessor of SmithKline Beckman Corporation in 1968.
Mr. Wareham is a director andnon-executive chairman of STERIS plc, a NYSE-listed market leader in infection prevention, decontamination and health science technologies, products and services. Mr. Wareham previously served as a director on the boards of Beckman Coulter, Inc., Greatbatch, Inc. and Accuray Incorporated. From 2000-2001, Mr. Wareham served as chairman of the Advanced Medical Technology Association, or AdvaMed, a medical device industry trade association.
Mr. Wareham holds a B.S.cum laude, in pharmacy, from Creighton University in Omaha, Nebraska, and an M.B.A., with honors, from Washington University in St. Louis, Missouri. Mr. Wareham’s background reflects significant executive and operational experience with publicly-held medical technology companies, including president, chief executive officer, and chairman of Beckman Coulter, as well as governance experience on other public companies’ boards. In particular, this experience includes more than five and ten years of service on the STERIS compliance and compensation committees, respectively, six years of experience on the Greatbatch technology and audit committee and two years of experience on the Accuray governance committee.
Mr. Wareham’s experience and skills led our board to the conclusion that he should serve as a director.
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BOARD RECOMMENDATION YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH OF THE THREE NOMINEES TO THE BOARD OF DIRECTORS. Directors continuing in office until our 2018 annual meeting:
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| | Peter Farrell is the founder and chairman of the board of ResMed and has been chairman and a director since our inception in June 1989.
Dr. Farrell also served as chief executive officer from July 1990 until December 2007, and from February 2011 until March 2013. Dr. Farrell served as executive chairman of the board from December 2007 until February 2011, and from March 2013 through December 2013. Since January 1, 2014, he has been anon-officer employee of ResMed.
From July 1984 to June 1989, Dr. Farrell served as vice president, research and development at various subsidiaries of Baxter International, Inc., and from August 1985 to June 1989, he also served as managing director of the Baxter Center for Medical Research Pty Ltd., a Baxter subsidiary. From January 1978 to December 1989, he was foundation director of the Graduate School for Biomedical Engineering at the University of New South Wales, where he currently serves as a visiting professor and as chairman of the UNSW Centre for Innovation and Entrepreneurship. He also serves on the Visiting Committee of the Health Sciences & Technology Program at the Massachusetts Institute of Technology and on the MIT Dean of Engineering’s Advisory Council.
Dr. Farrell serves on two faculty advisory boards at the University of California, San Diego: the Rady Business School and the Jacobs Engineering School. He holds a B.E. in chemical engineering with honors from the University of Sydney, an S.M. in chemical engineering from the Massachusetts Institute of Technology, a Ph.D. in chemical engineering and bioengineering from the University of Washington, Seattle and a D.Sc. from the University of New South Wales for research contributions in the field of treatment with the artificial kidney.
Since 2005, Dr. Farrell has been a director of NuVasive, Inc., a NASDAQ-listed company which develops and markets products for the surgical treatment of spine disorders. From 2007 through 2014, he was thenon-executive chairman of the board of QRx Pharma, anASX-listed specialty pharmaceutical company.
Dr. Farrell is a fellow or honorary fellow of several professional bodies, including being a member of the National Academy of Engineering, to which he was elected in 2012. Dr. Farrell was named 1998 San Diego Entrepreneur of the Year for Health Sciences, Australian Entrepreneur of the Year in 2001 and US National Entrepreneur of the Year for Health Sciences in 2005. Dr. Farrell joined the Executive Council of the Division of Sleep Medicine at Harvard Medical School in 1998, served as vice chairman from 2000 until 2010 when he became chairman; he served in that capacity until May 2013. In 2012, he joined the board of trustees of the Scripps Research Institute.
Dr. Farrell’s son, Michael Farrell, is our chief executive officer and one of our directors.
Dr. Farrell’s role as our founder and chief executive officer for over 20 years provides him with a unique and deep understanding of our operations, technology and industry. In addition, his background reflects significant executive experience with other publicly-held medical technology companies and public company governance experience and training. This experience and training includes more than seven years of experience on the nominating and governance committee and one year of experience on the compensation committee of NuVasive, as well as coursework specific to corporate governance from the Harvard Business School.
Dr. Farrell’s experience and skills led our board to the conclusion that he should serve as a director.
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| | Gary Pace has served as our director since July 1994. He is a member of our nominating and governance committee and our compensation committee.
Dr. Pace is currently a director of Pacira Pharmaceuticals, a NASDAQ-listed specialty pharmaceutical company developingnon-opioid products for post-surgical pain control. He is also a director of twoASX-listed companies: Antisense Therapeutics Ltd, developing antisense drugs; and Simavita Ltd, developing devices for assessing urinary incontinence. He is also a founder and director of Sova Pharmaceuticals, Inc., a privately-held pharmaceutical development company targeting hydrogen sulfide signaling, including central sleep apnea.
From 2002 to August 2016, Dr. Pace was a director of Transition Therapeutics, a NASDAQ andTSX-listed company developing new therapies. Dr. Pace was aco-founder and director of QRxPharma Limited, anASX-listed specialty pharmaceutical company, from 2002 to 2014.
Dr. Pace has more has more than 40 years of experience in the development and commercialization of advanced life sciences and related technologies, spanning biotechnology, pharmaceuticals, medical devices, and food industries. He is a serial entrepreneur and has held senior positions in small to and large-scale life sciences ventures and companies in Australia, the USA and Europe.
Dr. Pace holds a B.Sc. with honours from the University of New South Wales and a Ph.D. from Massachusetts Institute of Technology. He is a fellow of the Australian Academy of Technological Sciences and Engineering.
Dr. Pace’s background reflects significant executive and operational experience in publicly-held pharmaceutical companies as well as scientific knowledge and directorial and governance experience. In 2011 the Corporate Directors Forum honored Dr. Pace as “Director of the Year in Corporate Governance.” His experience includes more than five years of service on the compensation committee of Peplin Inc., a specialty pharmaceutical company focused on advancing and commercializing innovative medical dermatology products listed on the ASX, seven years’ experience on the nominating and governance and compensation committees of Celsion Corp., an oncology drug development company listed on NASDAQ, and fourteen years’ experience as lead director and a member of the compensation and audit committees of Transition Therapeutics.
Dr. Pace’s executive and operational experience and skills led our board to the conclusion that he should serve as a director. In addition, the board believes Dr. Pace’s lengthy tenure as a director of ResMed provides valuable depth of understanding of ResMed and its business environment, and continuity with board decisions and discussions. The board also believes that directors with longer tenure are more willing to criticize and challenge management, thus providing more independence. The board also believes that Dr. Pace’s background and ongoing experience in pharmaceutical areas provides an important resource for the board.
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| | Ron Taylor has served as our director since January 2005 and our independent lead director since July 1, 2013. He is chair of our nominating and governance committee and a member of our compensation committee.
In 1987, Mr. Taylor founded Pyxis Corporation, a manufacturer of automated drug dispensers for hospitals, where he served as chairman, president, and chief executive officer until its purchase by Cardinal Health, Inc., in 1996. For six years before founding Pyxis, Mr. Taylor was responsible for operations and international sales at Hybritech, Inc., a biotechnology company. Before joining Hybritech, he served over 10 years in management roles at Allergan Pharmaceuticals.
Mr. Taylor is a director of Allergan plc, a NYSE-listed specialty pharmaceutical company. From 1998 through 2014, he served as a director of Red Lion Hotels Corporation and was at various times a member of the nominating and governance, compensation and audit committees. From 2002 until his appointment to the ResMed board in 2005, he served as chairman of the ResMed Foundation.
Mr. Taylor received a B.A. from the University of Saskatchewan and an M.A. from the University of California, Irvine.
Mr. Taylor’s background reflects significant executive and operational experience with publicly-held medical technology and pharmaceutical companies, including experience in evaluating and investing in healthcare companies as a partner in a venture capital firm, and public company governance experience. He has been a director of approximately 20 public and privately held companies over the past 27 years. In addition, he has more than 15 years of experience as a member of the Red Lion Hotel’s governance, compensation and audit committees, and more than 20 years of experience as a member of the Allergan (formerly Watson and Actavis) audit, compensation and governance committees.
Mr. Taylor’s experience and skills led the board to the conclusion that he should serve as a director.
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Directors continuing in office until our 2019 annual meeting: | | | 
| | Carol Burthas served as our director since November 2013. She is a member of our audit committee.
Ms. Burt has been a principal of Burt-Hilliard Investments since 2008, and since January 2013, serves on the operating council and acts as advisor to Consonance Capital Partners, a New York-based private equity firm focused on investing in the healthcare industry. Ms. Burt was formerly an executive of WellPoint, Inc. (now Anthem, Inc.), where she served from 1997 to 2007, most recently as WellPoint’s senior vice president, corporate finance and development. In her time at WellPoint, Ms. Burt was responsible for, among other things, corporate strategic planning and execution, mergers and acquisitions, strategic investments, finance, treasury, and real estate management. In addition, WellPoint’s financial services and international insurance business units reported to her.
Before joining WellPoint, Ms. Burt was senior vice president finance and treasurer at American Medical Response, a medical transportation company. Ms. Burt also spent 16 years at Chase Securities, Inc. (now JP Morgan), most recently as founder, managing director, and head of the healthcare investment banking group.
Ms. Burt serves on the board of WellCare Health Plans, Inc., a publicly-held managed care company focused on government-sponsored healthcare programs and Envision Healthcare, a publicly-held company providing integrated facility-based physician services, medical transportation services, ambulatory surgery and comprehensive patient care management. Ms. Burt chairs WellCare’s compensation committee, and serves on the audit, finance and regulatory compliance committee, as well as the nominating and corporate governance committee. She also serves on Envision’s audit committee and chairs the nominating and governance committee. Previously, Ms. Burt served on the board of Vanguard Health Systems, Inc., Transitional Hospitals Corporation, and KEPRO.
Ms. Burt graduated magna cum laude, from the University of Houston, earning a Bachelor of Business Administration.
Ms. Burt’s skills and experience, particularly her over 35 years of experience in operations, strategy, mergers and acquisitions, corporate finance and accounting, and investment banking in the health insurance, healthcare services and financial services industries, combined with her board experience, led the board to the conclusion that she should serve as a director.
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| | Rich Sulpizio has served as our director since August 2005. He is chair of our compensation committee.
Mr. Sulpizio retired as president and chief operating officer of Qualcomm, Inc. in 2001. He served on Qualcomm’s board of directors from 2000 until 2007. Mr. Sulpizio joined Qualcomm in 1991 and in 1994, was appointed president of Qualcomm Wireless Business Solutions. Four years later, he became Qualcomm’s president and chief operating officer. In 2002, here-joined Qualcomm to serve as interim president of Qualcomm China and then took the helm of Qualcomm Europe in 2004. He was appointed as interim president in 2005 of MediaFLO USA, Inc. (now FLO TV Incorporated), a wholly-owned subsidiary of Qualcomm, and was chartered with overseeing the development and deployment of MediaFLO technology and bringing multimedia services to the wireless industry. Mr. Sulpizio’s last assignment, from December 2009 to November 2013, was president and chief executive officer of Qualcomm Enterprise Services (QES), a division of Qualcomm, Inc., which was sold to a private equity firm.
Before joining Qualcomm, Mr. Sulpizio worked at Unisys Corporation and Fluor Corporation.
Mr. Sulpizio currently serves as a director of CA, Inc., an information technology management software company. He also serves as an honorary board member of the advisory board of the University of California San Diego’s Sulpizio Family Cardiovascular Center. Mr. Sulpizio holds a B.A. from California State University, Los Angeles, and an M.S. in Systems Management from the University of Southern California. Mr. Sulpizio’s background reflects significant executive and operational experience with publicly-held technology companies, including his service as the president and chief operating officer of Qualcomm, and seven years as a member of the Qualcomm board’s strategic committee. In addition, Mr. Sulpizio also serves as the chair of the compensation committee and is a member of the governance committee of CA Technologies. In 2015 the Corporate Directors Forum honored Mr. Sulpizio as “Director of the Year in Corporate Governance.”
Mr. Sulpizio’s experience and skills led the board to the conclusion that he should serve as a director.
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PROPOSAL 2: RATIFICATIONOFSELECTIONOF KPMG LLPASOURINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRMFORFISCALYEARENDING JUNE 30, 2018
| | |  | | The audit committee has appointed the firm of KPMG LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2018. KPMGCarol Burt has served as our independent registereddirector since November 2013. She is chair of our audit committee.
Ms. Burt has been a principal of Burt-Hilliard Investments since 2008, and since January 2013, serves on the operating council and acts as a senior advisor to Consonance Capital Partners, a New York-based private equity firm focused on investing in the US healthcare industry. In addition to ResMed, Ms. Burt serves on the boards of Envision Healthcare, a publicly-held company providing integrated facility-based physician services, ambulatory surgery and comprehensive patient care management and WellDyne RX, a privately-held pharmacy benefit management company. Ms. Burt chairs Envision’s nominating and governance committee and serves on the audit committee. In addition, Ms. Burt chairs WellDyne’s audit committee. Previously, Ms. Burt served on the public boards of WellCare Health Plans, Inc., Vanguard Health Systems, Inc., Transitional Hospitals Corporation, and privately-held KEPRO. Ms. Burt was formerly an executive of WellPoint, Inc. (now Anthem, Inc.), where she served from 1997 to 2007, most recently as WellPoint’s senior vice president, corporate finance and development. Ms. Burt was a member of the executive team that built WellPoint from a small single state Blue Cross plan to one of the country’s leading health benefits companies with nationwide reach, revenues of $61 billion and market cap of $50 billion. In her time at WellPoint, Ms. Burt was responsible for, among other things, corporate strategic planning and execution, mergers and acquisitions, strategic investments, finance, treasury, and real estate management. In addition, WellPoint’s financial services and international insurance business units reported to her. Prior to joining WellPoint, Ms. Burt was senior vice president and treasurer of American Medical Response overseeing its sale to Laidlaw, Inc. Ms. Burt spent 16 years at Chase Securities, Inc. (now JP Morgan), most recently as managing director and head of the Health Care Investment Banking Group. Ms. Burt founded and built Chase’s Health Care Group into the industry leader in healthcare financing. Ms. Burt is a member of Women Corporate Directors and NACD where she is a board fellow. She most recently served as Chair of the Fortune 1000 Working Group for the Women’s Leadership Foundation of Colorado. Over the years, Ms. Burt has served in leadership positions on numerousnot-for-profit boards including currently as the chair for The Nature Conservancy of Colorado. Ms. Burt graduated magna cum laude, from the University of Houston, earning a Bachelor of Business Administration. Ms. Burt’s skills and experience, particularly her over 35 years of experience in executive management, operations, strategy, mergers and acquisitions, corporate finance, accounting, firmand investment banking in the health insurance, healthcare services and financial services industries, combined with her board experience, led the board to the conclusion that she should serve as a director. |
| | |  | | Rich Sulpizio has served as our director since 1994. NeitherAugust 2005. He is chair of our compensation committee. Mr. Sulpizio retired as president and chief operating officer of Qualcomm, Inc. in 2001. He served on Qualcomm’s board of directors from 2000 until 2007. Mr. Sulpizio joined Qualcomm in 1991 and in 1994, was appointed president of Qualcomm Wireless Business Solutions. Four years later, he became Qualcomm’s president and chief operating officer. In 2002, here-joined Qualcomm to serve as interim president of Qualcomm China and then took the firm norhelm of Qualcomm Europe in 2004. He was appointed as interim president in 2005 of MediaFLO USA, Inc. (now FLO TV Incorporated), a wholly-owned subsidiary of Qualcomm, and was chartered with overseeing the development and deployment of MediaFLO technology and bringing multimedia services to the wireless industry. Mr. Sulpizio’s last assignment, from December 2009 to November 2013, was president and chief executive officer of Qualcomm Enterprise Services (QES), a division of Qualcomm, Inc., which was sold to a private equity firm. Before joining Qualcomm, Mr. Sulpizio worked at Unisys Corporation and Fluor Corporation. Mr. Sulpizio currently serves as a director of CA, Inc., an information technology management software company. He also serves as an honorary board member of the advisory board of the University of California San Diego’s Sulpizio Family Cardiovascular Center. Mr. Sulpizio holds a B.A. from California State University, Los Angeles, and an M.S. in Systems Management from the University of Southern California. Mr. Sulpizio’s background reflects significant executive and operational experience with publicly-held technology companies, including his service as the president and chief operating officer of Qualcomm, and seven years as a member of the Qualcomm board’s strategic committee. In addition, Mr. Sulpizio also serves as the chair of the compensation committee and is a member of the governance committee of CA Technologies. In 2015 the Corporate Directors Forum honored Mr. Sulpizio as “Director of the Year in Corporate Governance.” Mr. Sulpizio’s experience and skills led the board to the conclusion that he should serve as a director. |
Directors continuing in office until our 2020 annual meeting: | | |  | | Michael Farrell has served as our director since March 2013. Mr. Farrell has been our chief executive officer and a director since March 1, 2013. Before that appointment, he served as our president – Americas from May 2011; our senior vice president, strategic business unit – sleep from July 2007 to May 2011; our vice president, marketing for the Americas from June 2005 through July 2007; and before that was our vice president, business development. Before joining ResMed in September 2000, Mr. Farrell worked in management consulting, biotechnology, chemicals and steel manufacturing at Arthur D. Little, Genzyme Corporation, Dow Chemical, and BHP Billiton. Mr. Farrell serves on the board of directors of Zimmer Biomet (NYSE: ZBH), a multi-billion-dollar public company that provides implantable musculoskeletal medical devices for patients globally. Mr. Farrell is a member of the Compensation and Management Development committee as well as the Nominating and Governance committee at Zimmer Biomet. Mr. Farrell also serves on the board of directors of the Advanced Medical Technology Association (AdvaMed), based in Washington, DC. Mr. Farrell volunteers as a trustee fornon-profit organizations: UC San Diego Foundation, Rady Children’s Hospital, the La Jolla Playhouse, and the Museum of Man. Mr. Farrell holds a bachelor of engineering, with first-class honors, from the University of New South Wales, a master of science in chemical engineering from the Massachusetts Institute of Technology, and an M.B.A. from the MIT Sloan School of Management. Mr. Farrell’s father, Peter Farrell, is our founder and chairman of the board. Mr. Farrell was appointed to serve as a director on the board effective March 1, 2013, at the same time he was appointed as chief executive officer. Mr. Farrell does not serve on any of its members has any relationshipthe ResMed board committees. Mr. Farrell’s skills and more than 18 years’ experience with us or anyResMed and over 23 years’ experience with healthcare and manufacturing industries provides him with a unique and deep understanding of our affiliates exceptoperations, technology and market, and led the board to the conclusion that he should serve as a director. In addition, the board believes it appropriate for the chief executive officer to serve as a member of the board. |
| | |  | | Karen Drexlerhas served as our director since November 2017. She is a member of our compensation committee. Ms. Drexler is currently president, chief executive officer and a board member of Sandstone Diagnostics, Inc., a private company developing instruments and consumables forpoint-of-care medical testing. She has been on its board since 2014, and became CEO in 2016. Ms. Drexler also serves on the board of directors of AP360, afor-profit subsidiary of Medicines360, a women’s health company. From 2011 to 2017, Ms. Drexler served as chairman of the board of directors of Hygieia, Inc., a private digital insulin therapy company. She remains involved as an advisor to the CEO. Ms. Drexler also acts as a senior strategic advisor for several other early stage companies and is on the board of directors for the Keller Center for Innovation in Engineering Education at Princeton University. Ms. Drexler has served on numerous private company boards in the firm’s capacitypast in the fields of diagnostics, medical devices and digital health. Ms. Drexler is an active mentor and advisor with Astia, a global nonprofit that supports high potential female founders. She is a founding member of Astia Angels, a network of individual investors who fund such founders. Ms. Drexler is also a lead mentor with StartX, the Stanford University incubator. She is also on the Life Science Council for Springboard, an accelerator forwomen-led technology-oriented companies. Through her work with Astia, Springboard and StartX, Ms. Drexler interacts with many promising young medtech companies. Ms. Drexler was the president and chief executive officer of Amira Medical Inc., a private company focused on minimally invasive glucose monitoring technology, from 1996 until it was sold to Roche Holding AG in 2001. From 1984 to 1995, she held various positions in marketing, sales, manufacturing, business development, and research and development at LifeScan. She played a key role in the sale of LifeScan to Johnson & Johnson in 1986. Ms. Drexler holds a B.S.E. in Chemical Engineering from Princeton University and an M.B.A. from Stanford University Graduate School of Business. Ms. Drexler’s executive and board experience in the medical diagnostics and medical device industries, particularly her experience in technology and data security, andout-of-hospital care models, led our board to conclude she should serve as a director. |
| | |  | | Jack Wareham has served as our independent registered public accounting firm.director since January 2005. He is a member of our audit committee and our nominating and governance committee. Stockholder ratification
From September 1993 to January 2004, Mr. Wareham was the president of Beckman Coulter, Inc., a NYSE-listed biomedical company that develops and markets instruments, chemistries, software and supplies to simplify and automate laboratory processes. Mr. Wareham also served as chief executive officer from August 1998 to February 2005 and chairman from January 1999 to April 2005. Before joining Beckman Coulter in 1984, Mr. Wareham was president of Norden Laboratories, Inc., a wholly-owned subsidiary of SmithKline Beckman. He first joined a predecessor of SmithKline Beckman Corporation in 1968. From January 2005 to July 2018, Mr. Wareham served as a director andnon-executive chairman of STERIS plc, a NYSE-listed market leader in infection prevention, decontamination and health science technologies, products and services. Mr. Wareham previously served as a director on the boards of Beckman Coulter, Inc., Greatbatch, Inc. and Accuray Incorporated. From 2000-2001, Mr. Wareham served as chairman of the selectionAdvanced Medical Technology Association, or AdvaMed, a medical device industry trade association. Mr. Wareham holds a B.S.cum laude, in pharmacy, from Creighton University in Omaha, Nebraska, and an M.B.A., with honors, from Washington University in St. Louis, Missouri. Mr. Wareham’s background reflects significant executive and operational experience with publicly-held medical technology companies, including president, chief executive officer, and chairman of KPMG LLPBeckman Coulter, as well as governance experience on other public companies’ boards. In particular, this experience includes more than five and ten years of service on the STERIS compliance and compensation committees, respectively, six years of experience on the Greatbatch technology and audit committee and two years of experience on the Accuray governance committee. Mr. Wareham’s experience and skills led our independent registered public accounting firm is not required by our bylaws or otherwise. However, the board is submitting the selection of KPMG LLP to the stockholders for ratificationconclusion that he should serve as a director. |
PROPOSAL 2: RATIFICATIONOFSELECTIONOF KPMG LLPASOURINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRMFORFISCALYEARENDING JUNE 30, 2019 The audit committee has appointed the firm of KPMG LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2019. KPMG has served as our independent registered public accounting firm since 1994. Neither the firm nor any of its members has any relationship with us or any of our affiliates except in the firm’s capacity as our independent registered public accounting firm. Stockholder ratification of the selection of KPMG LLP as our independent registered public accounting firm is not required by our bylaws or otherwise. However, the board is submitting the selection of KPMG LLP to the stockholders for ratification as a matter of corporate practice. If the stockholders fail to ratify the selection, the audit committee will reconsider whether to retain KPMG. Even if the selection is ratified, the audit committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the audit committee determines that the change would be in our and our stockholders’ best interests. We expect representatives of KPMG LLP to be present at the meeting. They will be able to make statements if they so desire and to respond to appropriate questions from stockholders. | BOARD RECOMMENDATION YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL OF THE RATIFICATION OF THE SELECTION OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING JUNE 30, 2018.2019. PROPOSAL 3: APPROVALOFTHEAMENDMENTANDRESTATEMENTOFTHE RESMED INC. 2009 INCENTIVE AWARD PLAN,INCLUDINGINCREASEOFRESERVEDSHARESANDRE-
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PROPOSAL 3: APPROVALOFANAMENDMENTTOTHE RESMED INC. 2009 EMPLOYEE STOCK PURCHASE PLAN,WHICHINCREASESTHENUMBEROFSHARESAUTHORIZEDFORISSUEUNDERTHEPLANBY 2 MILLIONSHARES,FROM 4.2 MILLIONSHARESTO 6.2 MILLIONSHARES,ANDEXTENDSTHEPLAN’STERMUNTIL NOVEMBER 15, 2028. We are asking our stockholders to approve an amendment (the “ESPP Amendment”) to the ResMed Inc. 2009 Employee Stock Purchase Plan, originally adopted on November 13, 2003 and most recently amended on August 17, 2018 (the “Current ESPP”). The Current ESPP, as proposed to be amended by the ESPP Amendment is referred to in this proposal as the ESPP. The ESPP is designed to provide employees with the opportunity to purchase our common stock at a discount through accumulated payroll deductions during successive offering periods. The ESPP Amendment will make the following changes: Increase the number of shares of our common stock available for future awards under the Current ESPP by 2 million shares, from 4.2 million shares to 6.2 million shares. Extend the term of the Current ESPP so that the ESPP will remain in effect until November 15, 2028 (previously September 29, 2019). Rename the Current ESPP as the “ResMed Inc. 2018 Employee Stock Purchase Plan.” If our stockholders approve the ESPP Amendment, we will incorporate the ESPP Amendment and restate the Current ESPP in full, in the form attached as Appendix B to this proxy statement. On August 17, 2018, based on the recommendation of the compensation committee, the board approved and adopted the ESPP Amendment (subject to approval by our stockholders). The ESPP Amendment became effective on adoption by our board (subject to our stockholders’ approval). Also on August 17, 2018, the board approved certain administrative changes to the ResMed Inc. 2009 Employee Stock Purchase Plan, which do not require stockholder approval, and which therefore became effective on adoption by our board. As a broad-based plan, our ESPP is intended to provide equity grant compensation to many employees who are not eligible for discretionary equity grants, as well as to supplement option grants for management. As a compensation tool, the ESPP will continue to assist us in: (1) retaining the services of our employees; (2) securing the services of new employees; (3) providing incentives for our employees to exert maximum efforts for our success; and (4) aligning the interests of our employees with the interests of our stockholders. The ESPP Amendment is intended to increase the number of shares of our common stock that may be issued or transferred by awards under the ESPP by 2 million shares, from 4.2 million shares to 6.2 million shares, and to enable us to continue offering the ESPP until November 15, 2028. As of September 17, 2018, there were 537,876 shares remaining available for future awards under the ESPP. We estimate that approximately 400,000 shares will remain available for future awards at the time of the annual stockholders meeting. Accordingly, the ESPP Amendment would increase the number of shares available for future awards to approximately 2.4 million shares, but no greater than 2,537,876. If the ESPP Amendment is not approved by our stockholders, it will have no effect. However, the Current ESPP will remain in full force and effect through September 29, 2019. No shares will be sold under the increase in shares being proposed under the ESPP Amendment unless our stockholders approve the ESPP Amendment under this proposal. MATERIAL CHANGES TO THE CURRENT ESPP As noted above, the aggregate number of shares of our common stock reserved for issuance under the ESPP has been increased by 2 million shares to 6.2 million shares, the expiration of the term of the ESPP has been extended from September 29, 2019 to November 15, 2028, and the Current ESPP has been renamed as the “ResMed Inc. 2018 Employee Stock Purchase Plan.” SUMMARY OF THE MATERIAL FEATURES OF THE ESPP The principal features of the ESPP are summarized below, but the summary is qualified in its entirety by (1) the ESPP, as amended and restated to incorporate amendments through August 17, 2018, including the ESPP Amendment, which is included as Appendix B to this proxy statement; and (2) the ESPP Amendment, which is included as Appendix C to this proxy statement. We encourage you to read the ESPP and the ESPP Amendment carefully. The ESPP is intended to qualify under Section 423 of the US Internal Revenue Code, which affords certain tax benefits under US law to US participants. The ESPP also authorizes the grant of options that are not intended to qualify under Section 423 of the US Internal Revenue Code under“Non-423 Offerings” of the plan, which will generally be made tonon-US employees. Plan administration The compensation committee administers the ESPP. The compensation committee has discretionary authority to administer and interpret the ESPP, including authority to: (1) determine when rights (or options) to purchase our common stock are granted and the terms and conditions of each offering period; (2) designate from time to time which of our subsidiaries are participating subsidiaries, so that employees of those participating subsidiaries may be eligible to participate in the ESPP; (3) construe and interpret the ESPP and the rights offered under the ESPP; (4) establish, amend and revoke rules and regulations for ESPP administration; (5) amend the ESPP, as explained below; and (6) exercise other powers and perform other acts deemed necessary to carry out the intent of the ESPP. To the extent not prohibited by applicable laws, the compensation committee may delegate some or all of its authority to a subcommittee, to company officers, or to other persons or groups as it deems necessary, appropriate or advisable. Our board, in its sole discretion, may assume the responsibilities and duties of the compensation committee under the ESPP. Shares available under the ESPP. The ESPP Amendment increases the maximum number of shares authorized for sale under the ESPP, from 4.2 million to 6.2 million. This total number of shares is equal to approximately 4.3% of the total number of our shares of common stock outstanding on September 17, 2018. But, as mentioned above, only approximately 2.4 million of these would be available for future awards, representing approximately 1.7% of the stock outstanding. The common stock available for sale under the ESPP may be authorized, but unissued shares, treasury shares or shares purchased in the open market or in private transactions. Eligible employees Employees eligible to participate in the ESPP generally include our employees and employees of our subsidiaries that have been designated from time to time by the compensation committee as participating subsidiaries in the ESPP. As of June 30, 2018, we had approximately 5,700 employees who are eligible to participate in the ESPP, including all seven of our executive officers. The compensation committee may, in its sole discretion and consistent with Section 423 of the US Internal Revenue Code, exclude employees who, as of the first date of the offering period, (1) have been employed by us or by a designated subsidiary for less than two years, (2) customarily work five months or less in a calendar year or are customarily scheduled to work less than 20 hours per week, (3) are a highly compensated employee of ResMed Inc. or any participating subsidiary (within the meaning of Section 414(q) of the US Internal Revenue Code), or (4) are a citizen or resident of anon-US jurisdiction, where the grant of an option under the ESPP would be prohibited under the laws of that jurisdiction, or compliance with the laws of that jurisdiction would cause the ESPP to violate the requirements of Section 423 of the US Internal Revenue Code. Any exclusion of employees under offerings of the ESPP that are intended to qualify under Section 423 of the US Internal Revenue Code (“Section 423 Offerings”) will be applied in an identical manner to all employees of the company and its participating subsidiaries whose employees are granted options under those Section 423 Offerings, in accordance with Section 423 of the US Internal Revenue Code. In the case of aNon-423 Offering, eligible employees may be excluded from participation in the ESPP or an offering if the compensation committee has determined that participation of such eligible employees is not advisable or practicable for any reason. An employee who owns (or is deemed to own through attribution) 5% or more of the combined voting power or value of all of the classes of our stock or the stock of one of our subsidiaries is not allowed to participate in the ESPP. Non-USSub-plansAPPROVALOFMATERIALTERMSFOR CODE SECTION 162(M)PURPOSES The ESPP authorizes the compensation committee to adopt rules, procedures, agreements, appendices, orsub-plans (collectively,“Sub-Plans”) to ensure that the terms of the ESPP, as applicable tonon-US subsidiaries designated as participating subsidiaries, accommodate the requirements of applicable local laws, customs and procedures. TheseSub-Plans may vary the terms of the ESPP, other than with respect to the number of shares reserved for issuance under the ESPP. To the extent inconsistent with the requirements of Section 423 of the US Internal Revenue Code, any suchSub-Plan will be considered part of aNon-423 Offering. Offering Under the ESPP, participants are offered the right to purchase shares of our common stock at a discount during successive offering periods. Each offering period under the ESPP will be for a period of time determined by the compensation committee of no less than three months and no more than 27 months. Currently, the compensation committee has approved successivesix-month offering periods for the ESPP. The first trading day of an offering period is referred to as the date of grant. On the date of grant, participants are granted the right to acquire shares of our common stock on the last trading day of the offering period. The last trading day during an offering period is referred to as the date of purchase. Unless a participant has previously cancelled participation in the ESPP, the participant will be deemed to have exercised the right to purchase shares in full as of each date of purchase. At exercise, the participant will purchase the number of shares of common stock that the participant’s accumulated payroll deductions during that offering will buy at the purchase price for that offering period. The purchase price for our common stock under the ESPP will be the lesser of 85% of the fair market value of our common stock on the date of grant or 85% of the fair market value of our common stock on the date of purchase. The fair market value of our common stock on the current period’s grant date (May 1, 2018) was $95.12 and on September 17, 2018, was $112.76. We expect future offering periods to begin on the conclusion of each offering period and continue for a period of six months, unless otherwise determined by the compensation committee. Participation Eligible employees can enroll under the ESPP by completing a participation agreement within the time specified by the compensation committee. Each participation agreement must authorize the deduction of at least 1%, but not more than 50%, of the eligible employee’s ESPP-eligible compensation towards the purchase of our common stock, unless the compensation committee sets a different maximum percentage. A participant’s authorized payroll deduction will be deducted on each payday during an offering period. In no case may a participant be granted an option to purchase shares of common stock under the ESPP that, together with the other options to purchase shares of common stock under all other employee stock purchase plans (if any) of the company or its subsidiary, accrues at a rate that exceeds $25,000 of the fair market value of the shares of common stock for any calendar year in which the option is outstanding, in accordance with Section 423 of the US Internal Revenue Code. In addition, the compensation committee will place a limit on the maximum number of shares any participant can acquire in a single offering period (this limit is currently 5,000 shares and is also subject to the annual $25,000 limit discussed above). If the aggregate subscriptions by all participants exceed the number of authorized shares of common stock available for purchase under the ESPP, all subscriptions will be reduced on apro-rata basis. Except as otherwise provided by the compensation committee in the terms of an offering period, a participant may cancel his or her payroll deduction authorization at any time before the end of the offering period, subject to the ESPP’s notice requirements. On cancellation, the balance of the participant’s account will be refunded in cash, without interest. The compensation committee may provide that a participant can increase, decrease, or suspend a payroll deduction authorization during an offering period, in accordance with Section 423 of the US Internal Revenue Code. Additionally, if a participant ceases to be an eligible employee during an offering period, that person’s participation in the ESPP will cease and the balance of that participant’s account will be refunded in cash, without interest. In the event of a death of a participant, if the participant’s option is transferred to the participant’s estate by will or the laws of descent or distribution, the decedent’s balance may continue to be applied for the acquisition of shares at the end of the relevant offering period. Other than upon a participant’s death, options granted under the ESPP are not transferable by a participant and are exercisable only by the participant. Subject to the discretion of the compensation committee, if a participant is on a paid leave of absence, the participant’s payroll deductions will continue and amounts credited to the participant’s account may be used to purchase shares under the ESPP. If a participant is on an unpaid leave of absence, the participant’s payroll deductions will be discontinued and no other contributions will be permitted, but any amounts credited to the participant’s account may be used to purchase shares on the next applicable purchase date. In any event, where the period of leave exceeds three months and the participant’s right to reemployment is not guaranteed by statute or by contract, the participant will be deemed to have terminated employment under the ESPP three months and one day following the commencement of leave. Unless otherwise determined by the compensation committee, a participant whose employment transfers between companies participating in the ESPP will not be treated as having terminated employment under the plan. Adjustments on changes in capitalization, dissolution, liquidation, merger or asset sale In the event of any dividend or other distribution, recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation,split-up,spin-off, combination, repurchase, liquidation, dissolution, sale, transfer, exchange or other disposition of all or substantially all of our assets, or exchange of shares of our common stock or other securities, issuance of warrants or other rights to purchase shares of our common stock or other securities, or other similar corporate transactions or events, then if the compensation committee determines that it is appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the ESPP or with respect to any right under the ESPP, the compensation committee will adjust the number and kind of shares of securities with respect to which options may be granted, the number and kind of shares of stock subject to outstanding options, and the option price with respect to any option. In the event of any transaction or event described above that is an unusual or nonrecurring transaction or event affecting us, any of our affiliates, or our financial statements or those of any of our affiliates, or of changes in applicable laws, regulations, or accounting principles, the compensation committee may take any one or more of the following actions whenever the compensation committee determines that it is appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the ESPP or with respect to any right under the ESPP, to facilitate the transactions or events or to give effect to the changes in laws, regulations or principles: provide that all rights then outstanding under the ESPP will terminate without being exercised on a date the compensation committee determines in its sole discretion; provide that all rights then outstanding under the ESPP will be exercised and terminate immediately after the exercise; provide for either the purchase of any rights then outstanding under the ESPP for an amount of cash equal to the amount that could have been obtained on the exercise of that right had the right been currently exercisable, or the replacement of the right with other rights or property selected by the compensation committee in its sole discretion; provide that rights then outstanding under the ESPP will be assumed by the successor or survivor corporation, or a parent or subsidiary of the successor or survivor corporation, or will be substituted for by similar rights for the stock of the successor or survivor corporation, or a parent or subsidiary of the successor or survivor corporation, with appropriate adjustments as to the number and kind of shares and prices; and make adjustments in the number and type of shares of common stock (or other securities or property) subject to outstanding rights, or in the terms and conditions of outstanding rights, or rights which may be granted in the future. Amendment and termination The compensation committee may amend, suspend or terminate the ESPP. However, without obtaining stockholder approval within 12 months before or after the action, the compensation committee may not amend the ESPP to either increase the number of shares that may be purchased under the ESPP or to amend the ESPP in a way that requires stockholder approval under the US Internal Revenue Code. Without stockholder consent and without regard to whether any participant rights may be considered to have been adversely affected, the board or the compensation committee, as applicable, may change the offering periods, limit the frequency and number of changes in the amount withheld during an offering period, establish the exchange ratio applicable to amounts withheld in a currency other than US dollars, permit payroll withholding in excess of the amount designated by a participant to adjust for delays or mistakes in our processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and accounting and crediting procedures to ensure that amounts applied toward the purchase of stock for each participant properly correspond with amounts withheld from the participant’s compensation, and establish other limitations or procedures the board or the compensation committee, as applicable, determines in its sole discretion advisable which are consistent with the ESPP and Section 423 of the US Internal Revenue Code. The ESPP will be in effect until November 15, 2028, unless sooner terminated by our board in accordance with the ESPP. CERTAIN US FEDERAL INCOME TAX CONSEQUENCES OF THE EMPLOYEE STOCK PURCHASE PLAN The following discussion is required by rules of the Securities and Exchange Commission, and summarizes the US federal income tax consequences of an employee’s participation in the ESPP. It does not summarize tax consequences for any employees who are not US taxpayers. This summary does not address federal employment taxes, state, local andnon-US income taxes and other taxes that may apply, and is not intended to completely describe the tax consequences of participation in the ESPP. Section 423 Offerings The ESPP is intended to be an employee stock purchase plan within the meaning of Section 423 of the US Internal Revenue Code. Under a plan that so qualifies, no taxable income is recognized by a participant, and no deductions are allowed to us, in connection with the grant of the option under the plan that occurs on the date of grant (first trading day) of an offering period or the automatic exercise of the option and acquisition of shares under the plan that occurs on the last trading day of an offering period. Taxable income will not be recognized until there is a sale or other disposition of the shares acquired under the ESPP or if the participant dies while still owning the purchased shares. If a participant sells or otherwise disposes of the purchased shares less than two years after the grant date, or within one year after the purchase date for those shares, then the participant generally will recognize ordinary income equal to the amount by which the fair market value of the shares on the purchase date exceeds the purchase price paid for those shares, and we generally will be entitled to an income tax deduction equal in amount to the excess (subject to applicable limits under the US Internal Revenue Code). The income is recognized by the participant, and the deduction taken by us, for the taxable year in which the sale or disposition occurs. The amount of this ordinary income will be added to the participant’s basis in the shares, and any resulting gain or loss recognized upon the sale or disposition will be a capital gain or loss. If the shares have been held for more than one year since the date of purchase, the gain or loss will be long-term. For purposes of the US Internal Revenue Code, the purchase date means the date the shares are issued on automatic exercise of the option on the last trading day of the offering period. If the participant sells or disposes of the purchased shares more than two years after the grant date and more than one year after the purchase date for those shares, then the participant will recognize ordinary income equal to the lesser of: (1) the amount by which the fair market value of the shares on the sale or disposition exceeds the purchase price paid for those shares; or (2) 15% of the fair market value of the shares on the grant date for the offering period in which the shares were acquired, and any additional gain on the disposition generally will be taxed as a long-term capital gain. The income is recognized by the participant for the taxable year in which the sale or disposition occurs. We generally will not be entitled to any income tax deduction with respect to the sale or disposition. If the participant still owns the purchased shares at death, the lesser of: (1) the amount by which the fair market value of the shares on the date of death exceeds the purchase price; or (2) 15% of the fair market value of the shares on the date of grant for the offering period in which those shares were acquired, will constitute ordinary income in the year of death. Non-423 Offerings If an option is granted under aNon-423 Offering of the ESPP, then to the extent a participant is subject to US federal income tax, the amount equal to the difference between the fair market value of the shares on the purchase date and the purchase price is taxed as ordinary income at the time of the purchase and is subject to tax withholding. The amount of ordinary income will be added to the participant’s basis in the shares, and any resulting gain or loss recognized on the sale or disposition of the shares will be a capital gain or loss. If the shares have been held for more than one year since the date of purchase, the gain or loss will be long-term. We generally will be entitled to an income tax deduction in the year of purchase equal to the amount of ordinary income realized by the participant (subject to applicable limits under the US Internal Revenue Code). PLAN BENEFITS FOR DIRECTORS Directors who are not employees will not receive any benefits under the ESPP and may not participate in the ESPP. Peter Farrell, our chairman of the board andnon-officer employee, will not participate in the ESPP. Dr. Farrell previously irrevocably elected not to participate in the ESPP. If Dr. Farrell were to elect to participate in the ESPP, we would seek stockholder approval, and would not issue any shares to Dr. Farrell under the ESPP before obtaining stockholder approval. Because the number of shares that may be purchased under the ESPP will depend on each employee’s voluntary election to participate and on the fair market value of our ordinary shares at various future dates, the actual number of shares that may be purchased by any individual cannot be determined in advance. SHARES PURCHASED UNDER THE ESPP The following table shows the number of shares of our common stock purchased by employees, including our named executive officers, and the other identified individuals and groups under options granted under the ESPP from its inception through September 17, 2018. | | | | | | Name | | Options (a) | | Weighted average
exercise price (a) | Named executive officers | | | | | Michael Farrell | | 3,297 | | $35.41 | Rob Douglas | | 3,440 | | $39.33 | Jim Hollingshead | | 3,291 | | $41.22 | David Pendarvis | | 14,121 | | $21.29 | Brett Sandercock | | 2,748 | | $41.79 | All current executive officers as a group | | 30,564 | | $28.98 |
| | | | | All current directors or nominees, who are not executive officers, as a group | | - | | - | Current directors or nominees, who are not executive officers | | | | | Carol Burt | | - | | - | Karen Drexler | | - | | - | Peter Farrell | | - | | - | Harjit Gill | | - | | - | Gary Pace | | - | | - | Rich Sulpizio | | - | | - | Ron Taylor | | - | | - | Jack Wareham | | - | | - | Associate of any directors, executive officers or nominees | | - | | - | Other persons who received or are to receive 5% of such options or rights | | - | | - | Allnon-executive officer employees as a group | | 3,617,148 | | $35.88 |
| | | We are asking our stockholders to approve an amendment and restatement (the “Amendment”) to the ResMed Inc. 2009 Incentive Award Plan, as approved by our stockholders on November 18, 2009 and subsequently amended and approved by our stockholders on each of November 17, 2011 and November 13, 2013 (the “2009 Plan”). We are also asking our stockholders to approve the 2009 Plan, as restated by the Amendment, to satisfy the stockholder approval requirements of section 162(m) of the US Internal Revenue Code (the “Code”). Any references to the 2009 Plan below assume the Amendment is approved, unless stated otherwise.(a)
| | Material changes to the 2009 Plan
The Amendment would provide for the following material changes to the 2009 Plan, as well as certain other administrative, clarifying, and conforming changes:
Increase the number of shares of our common stock reserved for issuance under the 2009 Plan by 7,392,471 shares, such that there would be 19,000,000 shares available for new grants, less grants made after June 30, 2017 and before stockholder approval of the Amendment.
Impose a maximum award amount which may be granted under the 2009 Plan to anon-employee director in a calendar year, which, when taken together with any other cash fees earned for services as anon-employee director during the calendar year, has a total value of $700,000, or $1,200,000 in the case of anon-employee director who is also serving as chairman of our board of directors.
Increase the maximum amount payable pursuant to cash-denominated performance awards granted to any Code Section 162(m) “covered employee” in any calendar year from $3,000,000 to $5,000,000.
Extend the existing prohibition on the payment of dividends or dividend equivalents on unvested awards to apply to all awards, including time-based restricted stock, deferred stock and stock payments.
Extend the term of the 2009 Plan by four years so that the plan expires on September 11, 2027.
Background to the 2009 Plan amendment
On September 11, 2017, based on our compensation committee’s recommendation, our board approved and adopted the Amendment, subject to approval by our stockholders. The Amendment will become effective on its adoption by our board, subject to our stockholders’ approval at our 2017 annual stockholders meeting.
Stockholder approval of the Amendment is necessary for us to (1) meet the stockholder approval requirements of the NYSE; (2) take tax deductions for certain compensation resulting from awards granted under the 2009 Plan that may be intended to qualify as performance-based compensation under section 162(m) of the US Internal Revenue Code; and (3) grant incentive stock options (“ISOs”) under the 2009 Plan.
If the requisite stockholder approval of the Amendment is not obtained, the amended and restated 2009 Plan will not take effect. However, we will continue to grant awards under the 2009 Plan’s existing terms and from the shares available for issuance under the 2009 Plan, without regard to the Amendment proposed in this Proposal 3. We will not grant any awards under the changes proposed in this Amendment unless and until our stockholders approve this Proposal 3.
Approval of material terms of the performance goals under US Internal Revenue Code Section 162(m)
We propose there-approval of the material terms of the performance goals under the 2009 Plan for purposes of preserving our ability to grant awards to Section 162(m) covered employees under the 2009 Plan that are intended to qualify as performance-based compensation that is deductible under Section 162(m) of the Code (“Section 162(m)”).
Under Section 162(m), we must seek stockholder approval of the material terms of the performance goals under the 2009 Plan every five years. These material terms include: (a) the employees eligible to receive awards under the 2009 Plan (as described under “Eligibility” below); (b) the business criteria on which performance goals may be based (as described under “Section 162(m) ‘Performance-Based’ Awards” below); and (c) the limits on the maximum aggregate amounts of awards that are intended to qualify as “performance-based compensation” under Section 162(m) that may be made to any individual participant during specified periods under the 2009 Plan (as described under “Award Limits” below).
Because stockholder approval of the Amendment will constitute approval of the material terms of the performance goals set forth in the 2009 Plan under the stockholder approval requirements of Section 162(m), such approval will enable us to continue to award performance-based compensation within the meaning of Section 162(m) through our 2022 annual meeting of stockholders, preserving the deductibility of such compensation for federal income tax purposes. However, we reserve our right in the future to pay compensation that is not deductible under Section 162(m).
If this Proposal 3 is not approved by our stockholders, we may continue to grant performance-based compensation within the meaning of Section 162(m) under the current terms of the 2009 Plan (without regard to the Amendment) until our 2018 annual meeting of stockholders, based on our stockholders’ November 13, 2013 approval of the 2009 Plan. If our stockholders do not approve the performance criteria under the 2009 Plan at either our 2017 or 2018 annual meeting of stockholders, we will lose the tax deduction for grants of performance-based awards to our covered executive officers that are intended to qualify as performance-based compensation under Section 162(m). Currently, our annual cash incentive program, our performance stock units (“PSUs”) (which typically comprise 50% of the equity value granted to our executives) and our performance-based RSUs are all intended to qualify as performance-based compensation under Section 162(m). Because these awards are key to our executive compensation program, the loss of this tax deduction will put us at a disadvantage and will compromise our executive compensation program.
Dilution under the 2009 Plan
The following includes aggregated information regarding the overhang and dilution associated with the 2009 Plan and the potential stockholder dilution that would result if the Amendment is approved. This information is as of June 30, 2017. As of that date, there were approximately 142,174,724 shares of common stock outstanding:
Outstanding full-value awards (restricted stock units and performance stock units): 1,906,395 shares (1.2% of our fully-diluted shares outstanding);
Outstanding stock options: 1,495,573 shares (1.0% of our fully-diluted shares outstanding) (outstanding stock options have a weighted average exercise price of $47.09 and a weighted average remaining term of 3.9 years);
Total shares of common stock subject to outstanding awards, as described above (restricted stock units, performance stock units and stock options): 3,401,968 shares (2.4% of our fully-diluted shares outstanding);
Total shares of common stock available for future awards under the 2009 Plan: 11,607,529 shares (7.4% of our fully-diluted shares outstanding);
The total number of shares of common stock subject to outstanding awards (3,401,968 shares), plus the total number of shares available for future awards under the 2009 Plan (11,607,529 shares), represents a current fully-diluted overhang percentage of 9.5% (in other words, the potential dilution of our stockholders represented by the 2009 Plan); and
If the Amendment is approved, the total shares of common stock subject to outstanding awards as of June 30, 2017 (3,401,968 shares), plus the proposed shares available for issuance under the 2009 Plan (19,000,000
shares), represent a total fully-diluted overhang of 22,401,968 shares (14.3%) under the 2009 Plan.
Based on the closing price on the New York Stock Exchange for our common stock on September 19, 2017, of $79.45 per share, the aggregate market value as of that date of the 19,000,000 shares of common stock proposed under the 2009 Plan was $1,509.5 million.
In fiscal 2015 through 2017, we granted awards under the 2009 Plan as follows:
| | | | | | | | | | | | | | | | | | | | Equity Compensation Usage | | | | | FY17 | | | FY16 | | | FY15 | | | 3-Year Avg. | | Options Granted | | | 313,256 | | | | 336,176 | | | | 97,209 | | | | 248,880 | | RSUs & Target PSUs Granted | | | 864,562 | | | | 725,145 | | | | 821,714 | | | | 803,807 | | Gross Grants | | | 1,177,818 | | | | 1,061,321 | | | | 918,923 | | | | 1,052,687 | | Gross Usage (% Outstanding) | | | 0.83 | % | | | 0.76 | % | | | 0.65 | % | | | 0.75 | % | Weighted Average Shares Outstanding | | | 141,360,000 | | | | 140,242,000 | | | | 140,468,000 | | | | 140,690,000 | |
In determining the number of shares to request for approval under the Amendment, our management team worked with FW Cook, the compensation committee’s independent compensation consultant, and the compensation committee to evaluate a number of factors including criteria expected to be utilized by proxy advisory firms in evaluating our proposal for the 2009 Plan.
If the Amendment is approved, we intend to utilize the shares authorized under the 2009 Plan to continue our practice of incenting key individuals through annual equity grants. Our compensation committee would retain full discretion to determine the number and amount of awards to be granted under the 2009 Plan, subject to the terms of the 2009 Plan. Future benefits that may be received by participants under the 2009 Plan are not determinable at this time.
We believe that we have demonstrated a commitment to sound equity compensation practices. We recognize that equity compensation awards dilute stockholder equity, so we have carefully managed our equity incentive compensation. Our equity compensation practices are intended to be competitive and consistent with market practices, and we believe our historical share usage has been responsible and mindful of stockholder interests, as described above.
Key compensation governance features
The compensation committee, which administers the 2009 Plan, recognizes its responsibility to strike a balance between stockholder concerns regarding the potential dilutive effect of equity awards and the ability to attract, retain and reward employees and other eligible individuals whose contributions are critical to the long-term success of ResMed. The 2009 Plan reflects a broad range of compensation and governance best practices, including the following key features:
| • | | Limitations on grants. The maximum aggregate number of shares with respect to one or more awards that may be granted to any one person other than anon-employee director during any calendar year is 3,000,000 shares, or $5,000,000 paid with respect to cash-denominated performance awards granted to any Code Section 162(m) “covered employee.” However, the maximum aggregate number of shares may be adjusted to take into account equity restructurings and certain other corporate transactions as described below, the issuance of rights and certain other events described in the 2009 Plan.
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| • | | Limitation onnon-employee director compensation. The Amendment imposes a value cap of $700,000 on the total amount of compensation (including equity and cash) that we may grant and/or pay to ournon-employee directors for services as anon-employee director during a calendar year (or $1,200,000 for anon-employee director who also serves as chairman of our board).
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| • | | No repricing or replacement of options or stock appreciation rights. The 2009 Plan prohibits us from, without stockholder approval: (1) amending options or stock appreciation rights (“SARs”) to reduce the exercise price, (2) cancelling any outstanding option or SAR in exchange for cash or another award at a time when the option or SAR has a per share exercise price that is higher than the fair market value of our common stock (other than in
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connection with a change of control); or (3) taking any other action with respect to an option or SAR that would be treated as a repricing under the rules and regulations of the principal US national securities exchange on which the shares are listed.
| • | | Limited dividends or dividend equivalents. The 2009 Plan requires that dividends and dividend equivalents payable in connection with any award be paid out only to the extent that the vesting conditions of the underlying award are satisfied. The 2009 Plan also prohibits payment of dividends and dividend equivalents in connection with stock options or SARs.
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| • | | Noin-the-money option or stock appreciation right grants. The 2009 Plan prohibits us from granting options or SARs with an exercise or base price less than the fair market value, generally the closing price, of our common stock on the date of grant.
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| • | | No share recycling on options or stock appreciation rights. Shares tendered by a participant or withheld by us to satisfy the exercise price of an option or tax withholding requirements of an option or a SAR cannot be returned to the share pool for future grants under the 2009 Plan and shares that are not issued upon stock settlement of a SAR or that we reacquire in the open market or otherwise using cash proceeds from the exercise of an option are also not added back to the shares available for grant under the 2009 Plan.
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| • | | Section 162(m) qualification. The 2009 Plan is designed to allow for the grant of awards, including equity awards and short-term incentive cash payments that are intended to qualify astax-deductible performance-based compensation under Section 162(m).
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Summary of the 2009 Plan
The principal features of the 2009 Plan, as amended and restated, are summarized below, but the summary is qualified in its entirety by reference to the ResMed Inc. 2009 Incentive Award Plan, as Amended and Restated, which is attached to this proxy statement as Appendix B. We encourage you to read the full 2009 Plan carefully.
Purpose of the 2009 Plan
The purpose of the 2009 Plan is to continue to provide additional incentive for directors, employees and consultants to further our growth, development and financial success by enabling them to personally benefit through the ownership of our common stock, or other rights which recognize their performance. Our board also believes that the 2009 Plan enables us to obtain and retain the services of directors, employees and consultants that are considered essential to our long-term success by offering them an opportunity to own stock and other rights that reflect our financial success. The plan is also designed to permit us to make cash and equity-based awards intended to qualify as “performance-based compensation” under Section 162(m).
The 2009 Plan initially became effective on August 21, 2006.
Securities Subject to the 2009 Plan
If our stockholders approve this proposal, the maximum aggregate number of shares of our common stock that may be granted by awards under the 2009 Plan as of the date of this stockholder approval, will be 19,000,000 shares, less awards granted after June 30, 2017 and before this stockholder approval, counted at the fungible ratio described below, subject to adjustment as provided in Sections 2.1(b) and 11.3 of the 2009 Plan. This share pool represents an increase of 7,392,471 shares to the 11,607,529 shares available for grant as of June 30, 2017. Subject to Section 11.3 of the 2009 Plan, the aggregate number of shares of common stock which may be issued or transferred pursuant to the exercise of incentive stock options under the plan is 19,000,000 shares.
Effective as of June 30, 2013, the number of shares of our common stock available for grant under the 2009 Plan is reduced by (1) 2.8 shares for each one share of our common stock granted subject to any “full value award,” which is any award other than a stock option, SAR or other award for which the holder pays a purchase price, and (2) one share for each share of our common stock granted subject to all other awards granted under the 2009 Plan (generally, an option or SAR).
Shares withheld or surrendered in payment of the exercise price of a stock option or to cover tax withholding obligations of any option or SAR will not be available for grant under the 2009 Plan. In addition, shares of our common stock subject to a SAR that are not issued in connection with the stock settlement of the SAR and shares of our common stock that we reacquire in the open market or otherwise using cash proceeds from the exercise of a stock option will not be added to the shares that are available for grant under the plan.
If any award under the 2009 Plan expires or is cancelled, terminated, forfeited or settled for cash for any reason on or after June 30, 2013, any shares subject to the award at that time will be available for future grants under the plan. In addition, in the event that after June 30, 2013 shares are tendered or withheld to satisfy taxes arising from a full value award (generally, an award other than an option or SAR), the number of shares withheld (based on applicable minimum statutory withholding rates) or tendered will also be available for future grants under the plan.
Any shares that again become available for awards under the 2009 Plan as described above will be added as (i) one share for every one share subject to options or SARs granted under the 2009 Plan (or other award for which the holder pays a purchase price) and (ii) as 2.8 shares for every one share subject to full value awards (generally awards other than options or SARs) granted under the 2009 Plan.
In no event, however, will any shares of common stock again be available for future grants under the plan if that would cause an ISO to fail to qualify as an ISO under section 422 of the Code.
Shares issued in assumption of, or in substitution for, outstanding awards of any entity acquired in any form of combination by us or any of our subsidiaries will not be counted against the shares available for issuance under the 2009 Plan, to the extent permitted by applicable law or any exchange rule. Additionally, available shares under a stockholder-approved plan of an entity acquired by us or any of our subsidiaries (as appropriately adjusted and converted into shares of our common stock to reflect the acquisition transaction) may be used for future awards under the 2009 Plan and will not be counted against the shares of common stock available for grant under the 2009 Plan, subject to applicable laws and exchange rules. The payment of dividend equivalents in cash in conjunction with any outstanding awards will not be counted against the shares available for issuance under the 2009 Plan.
The shares of common stock covered by the 2009 Plan may be treasury shares, authorized but unissued shares, or shares purchased in the open market. For purposes of the 2009 Plan, the fair market value of a share of our common stock as of any given date generally will be the closing sales price for a share of our common stock on that date, as quoted on the NYSE or, if there is no closing sales price for our common stock on that date, the closing sales price for a share of our common stock on the last preceding date for which a quotation exists, as reported in The Wall Street Journal or another source the administrator deems reliable. The closing sales price for a share of our common stock, as quoted on the NYSE on September 19, 2017, was $79.45.
Eligibility
Our employees and consultants (and the employees and consultants of our majority-owned subsidiaries) and ournon-employee directors are eligible to receive awards under the 2009 Plan (other than ISOs which may be granted to employees only). As of June 30, 2017, there were approximately 6,080 eligible employees, nine eligible consultants, and eight eligible directors, six of whom arenon-employee directors. The administrator determines which employees, consultants and directors will be granted awards. No person is entitled to participate in the plan as a matter of right, nor does participation constitute assurance of continued employment or service. Only those employees,non-employee directors and consultants who are selected to receive grants by the administrator may participate in the 2009 Plan.
Awards under the 2009 Plan
The administrator may grant or issue stock options, SARs, restricted stock, RSUs, deferred stock, dividend equivalents, performance awards and stock payments, or any combination. Each award is set forth in a separate agreement with the person receiving the award and will indicate the type, terms and conditions of the award.
Non-qualified stock options.Non-qualified stock options (“NQSOs”) will provide for the right to purchase shares of our common stock at a specified price not less than the fair market value of a share of our common stock on the date of grant (except for awards issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination by us or any of our subsidiaries), and usually will become exercisable (in the discretion of the administrator) in one or more installments after the grant date, subject to completing the applicable vesting service period or attainingpre-established performance goals. NQSOs may be granted for any term specified by the administrator, but may not exceed seven years.
Incentive stock options. ISOs are designed to comply with Code requirements, and will be subject to certain restrictions. For example, ISOs must have an exercise price not less than the fair market value of a share of our common stock on the grant date (except for awards issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination by us or any of our subsidiaries), and may only be granted to employees. ISOs, however, may be subsequently modified to disqualify them from treatment as ISOs. ISO treatment may not be available for options that become first exercisable in any calendar year to the extent the value of the underlying shares that are the subject of the option exceeds $100,000,good faith estimate based on the fair market value of the shares on the option grant date. To the extent this limit is exceeded, the options granted will be NQSOs. If we grant an ISO to an individual who owns (or is deemed to own) more than 10% of the total combined voting power of all classes of our stock, the 2009 Plan requires the ISO’s exercise price to be at least 110% of the fair market value of a share of our common stock on the grant date, and the ISO must not be exercisable for more than five years after the grant date. If a holder’s leave of absence, change in status or other change interrupts employment for purposes of Section 422 of the Code, the ISOs will be treated as NQSOs to the extent required by section 422 of the Code. Like NQSOs, ISOs usually will become exercisable (in the discretion of the administrator) in one or more installments after the grant date, subject to completing applicable vesting service periods or attainingpre-established performance goals. ISOs may be granted for any term specified by the administrator, but may not exceed seven years.data available.
Stock appreciation rights. SARs provide for the payment of an amount to the holder based on increases in the price of our common stock over a set base price (or exercise price). The base price must be at least 100% of the fair market value of a share of our common stock on the grant date for any SAR we grant under the 2009 Plan (except for awards we issue in assumption of, or in substitution for, outstanding awards of any entity acquired in any form or combination by us or our subsidiaries). SARs under the 2009 Plan will be settled in cash or shares of our common stock, or in a combination of both, at the administrator’s election. We may grant SARs granted together with stock options, or separately. SARs may be granted for any term the administrator specifies, but may not exceed seven years.
Restricted stock. The administrator will determine the price (if any) and restrictions (including time vesting or satisfying performance goals) that apply to restricted stock we issue. If vesting conditions or other restrictions are not met, we may repurchase restricted stock at the original purchase price, if any, or restricted stock may be forfeited. In general, restricted stock may not be sold, or otherwise hypothecated or transferred, until the vesting restrictions and other restrictions applicable to the shares are removed or expire. Unless otherwise determined by the administrator, recipients of restricted stock, unlike recipients of options or RSUs, generally will have voting rights before restrictions lapse. Any dividends payable in connection with an award of restricted stock will be subject to the same risk of forfeiture as the underlying award and will not be distributed unless and until the underlying award vests.
Deferred stock awards. Deferred stock may not be sold or otherwise hypothecated or transferred until issued. Deferred stock will not be issued until the deferred stock award has vested, and recipients of deferred stock generally will have no voting or dividend rights before vesting conditions are satisfied and the shares are issued. Deferred stock awards generally will be forfeited, and the underlying shares of deferred stock will not be issued, if the applicable vesting conditions and other restrictions are not met.
Restricted stock units. Restricted stock units (“RSUs”) entitle the holder to receive shares of our common stock or an equivalent cash payment, or a combination of both, subject to the removal of restrictions which may include completing applicable vesting service periods or attainingpre-established performance goals. Shares of our common stock may be issued under RSUs no earlier than the date on which the RSUs vest and distribution of shares may be delayed to a later
date at the discretion of the administrator or by the election of the RSU holder, subject to compliance with section 409A of the Code. RSUs may not be sold, or otherwise hypothecated or transferred, and holders of RSUs do not have voting rights. RSUs generally will be forfeited, and the underlying shares of stock will not be issued, if the applicable vesting conditions and other restrictions are not met.
Dividend equivalents. Dividend equivalents represent the value of the dividends per share paid by us, if any, calculated with reference to a specified number of shares. Dividend equivalent rights may be granted alone or in connection with RSUs, deferred stock or other full value awards granted to a participant under the 2009 Plan, but may not be granted in connection with stock options or SARs. The administrator may elect to pay dividend equivalents in cash, in shares of our common stock, or in a combination of both. Any dividend equivalents payable in connection with any award (whether service or performance-based) will be subject to the same risk of forfeiture as the underlying award and will not be distributed unless and until the underlying award vests.
Performance awards. Performance awards may be granted by the administrator to employees, consultants ornon-employee directors based on, among other things, the contributions, responsibilities and other compensation of the particular recipient. These awards generally will be based on specific performance goals and may be paid in cash or in shares of our common stock, or in a combination of both, at the election of the administrator. Performance awards may include “phantom” stock awards that provide for payments based on the value of our common stock. Performance awards may also include short term incentives granted by the administrator, which we may pay in cash, in shares of our common stock, or in a combination of both.
Stock payments. The administrator may authorize stock payments in the form of our common stock or an option or other right to purchase our common stock and may, without limitation, issue them as part of a deferred compensation arrangement in lieu of all or any part of compensation – including, without limitation, salary, short-term incentives, commissions and directors’ fees – that would otherwise be payable in cash to the employee,non-employee director or consultant.
Section 162(m) “Performance-Based” Awards
The administrator may grant awards under the 2009 Plan that are paid, vest or become exercisable based on the achievement of specified performance goals which are related to one or more of the following performance criteria, as applicable to us or any subsidiary, division, business unit, product or individual:
| | | • net earnings (either before or after interest, taxes, depreciation and/or amortization);
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• gross or net sales or revenue;
| BOARD RECOMMENDATION • net income (either before or after taxes);
• operating income (either before or after taxes);
• cash flow or cash flow per share (including, but not limited to, operating cash flow and free cash flow either before or after dividends);
• cash flow return on investment;
• return on assets or net assets;
• return on capital (including, but not limited to, total return on capital and return on invested capital);
| | • FDA or other regulatory body approval for commercialization of a product;
• implementation or completion of critical projects;
• market share;
• debt;
• cash;
• stockholder equity
• factoring transactions;
• initiating or completing clinical studies or phases of clinical studies;
• initiating enrollment, completing enrollment or enrolling particular numbers of subjects in clinical studies;
• financing and other capital raising transactions (including sales of our equity or debt securities);
| • return on stockholders’ equity;
• total stockholder return;
• economic value added;
• return on sales;
• gross or net profit, cash or operating margin;
• costs;
• funds from operations;
| | • in-licensing andout-licensing of intellectual property;
• third-party validation of any manufacturing process of ours, any subsidiary or any third-party manufacturer;
• sales or licenses of assets (including, but not limited to, intellectual property);
• manufacturing yields;
• productivity;
| | | • expenses;
• working capital;
• earnings per share;
• price per share of our common stock or any other publicly-traded security of ours;
| | • operating efficiency.
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Performance goals established based on the performance criteria may be measured either in absolute terms, or as compared to any incremental increase or decrease, or as compared to one or more other companies’ performance. The administrator may provide for exclusion of the impact of an event or occurrence which the administrator determines should appropriately be excluded, including:
| | | • items related to changes in applicable laws, regulations, accounting principles or business conditions;
• items related to financing activities;
• expenses for restructuring or productivity initiatives;
• othernon-operating items;
• items related to acquisitions;
• items attributable to the business operations of any entity acquired by us during the performance period;
| | • items related to the disposal of a business or segment of a business;
• items related to any unusual or infrequently occurring corporate item, transaction, event, or development; or
• items related to discontinued operations that do not qualify as a segment of a business under United States generally accepted accounting principles, sometimes referred to as GAAP.
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Achievement of performance goals and any adjustments will be determined in accordance with GAAP to the extent it applies, or may be adjusted when established to include or exclude any items otherwise includable or excludable under GAAP.
Award limit
The 2009 Plan provides that the maximum number of shares that may be subject to awards granted under the plan to any individual other than anon-employee director during any calendar year may not exceed 3,000,000 shares, or 4,500,000 shares in a participant’s initial hiring year, subject to certain equitable adjustments as described in the plan. Cash-denominated performance awards granted in any calendar year to any Section 162(m) covered employee may not have an aggregate maximum amount payable in excess of $5,000,000.
Award limit fornon-employee directors
The Amendment introduces a limit on the total amount of compensation that we may pay to ournon-employee directors during a calendar year. Under the limit, the aggregate grant date fair value (determined under Financial Accounting Standards Board Accounting Standards Codification Topic 718) of all equity-based awards granted during any single calendar year plus the aggregate amount of all cash payments made for such calendar year to anon-employee director for services as anon-employee director may not exceed $700,000, except where anon-employee director also serves as chairman of our board, in which case the limit is $1,200,000. For the avoidance of doubt, compensation will count towards this limit for the year in which it was earned, and not later when distributed, in the event it is deferred.
Vesting and exercise of awards; Termination of service
Exercise and vesting terms will be set forth in individual award agreements. At any time after granting an award, the administrator may accelerate the vesting period, subject to certain limitations.
No portion of an option, or a SAR granted in tandem with an option, which is unexercisable at a participant’s termination of service will subsequently become exercisable, except as the administrator may otherwise provide, either in the agreement relating to the award, or by action after granting the award. While continuing service, a participant may exercise any vested portion of an award until the award expires. The grant agreements currently provide that unexercised vested stock options at least 1% in the money will be automatically exercised on the expiration date.
The administrator may generally provide that restricted stock awards will not lapse or that performance awards, dividend equivalent awards, deferred stock awards, stock payment awards, RSUs and/or SARs granted independently of options may be exercised or paid following a participant’s termination of service or following a change in control, or because of the participant’s retirement, death or disability, or otherwise. Only whole shares of our common stock may be purchased or issued under an award. Any required payment for the shares subject to an award will be paid in the form of cash or a check payable to us in the amount of the aggregate purchase price. However, the administrator may, in its discretion and subject to applicable laws, allow payment through one or more of the following:
delivery (actual or constructive through attestation) of certain shares of our common stock owned by the participant;
surrender of shares of our common stock that would otherwise be issuable on exercise or vesting of the award;
delivery of property of any kind which constitutes good and valuable consideration;
with respect to options, a sale and remittance procedure where the optionee places a market sell order with a broker with respect to the shares of our common stock then issuable on exercise of the option, and the broker timely pays a sufficient portion of the net proceeds of the sale to us in satisfaction of the option exercise price for the purchased shares; or
any combination of the methods above.
Transferability of awards
Participants generally may not sell, pledge, assign or transfer awards in any manner other than by will or by the laws of descent and distribution or, subject to the consent of the administrator, under a domestic relations order, unless and until the award has been exercised, or the shares underlying the award have been issued, and all restrictions applicable to shares have lapsed. Notwithstanding the foregoing, a participant may also, with the administrator’s consent, transfer NQSOs to certain family members and trusts. During the holder’s lifetime, only the holder or a permitted transferee may exercise an award.
No repricing
The administrator will not (a) lower the price per share of an option or SAR after it is granted, (b) cancel an option or SAR in exchange for cash or another award at a time when the option or SAR has an exercise price higher than the fair market value of our common stock (other than in connection with a change in control), or (c) take any other action with respect to an option or SAR that would be treated as a repricing under the rules and regulations of the principal US national securities exchange on which the shares are listed, unless (1) our stockholders approve it, or (2) it occurs in connection with certain equitable adjustments as described in the 2009 Plan (to prevent the dilution or enlargement of potential benefits in connection with a corporate transaction).
Plan benefits
No awards have been granted, and no shares have been issued, on the basis of the proposed 7,392,471 share increase under the 2009 Plan. All awards to employees, officer, directors and consultants under the 2009 Plan are made at the discretion of the administrator. Therefore, we cannot currently determine the future benefits that our current directors, executive officers and all eligible employees will receive under the 2009 Plan, if approved.
Equity award grants under the 2009 Plan
The following table sets forth summary information concerning the number of shares of our common stock subject to options, RSUs and PSUs made under the 2009 Plan since the 2009 Plan’s inception on August 21, 2006 through September 19, 2017. No awards have been granted under the 2009 Plan to associates ofnon-employee directors or executive officers, and no person has received 5% of the aggregate awards granted.
| | | | | | | | | | | | | Name and position | | # of shares
underlying
options | | | Weighted
average exercise
price | | | # of shares
underlying RSUs
and PSUs | | Named executive officers | | | | | | | | | | | | | Michael Farrell, Chief executive officer | | | 529,775 | | | | $35.56 | | | | 541,520 | | Brett Sandercock, Chief financial officer | | | 400,736 | | | | $23.30 | | | | 284,184 | | Rob Douglas, President and chief operating officer | | | 446,653 | | | | $35.24 | | | | 438,554 | | Jim Hollingshead, President - sleep business | | | 68,599 | | | | $50.31 | | | | 249,899 | | David Pendarvis, Chief administrative officer, global general counsel & secretary | | | 739,814 | | | | $26.19 | | | | 176,048 | | All current executive officers as a group (7 persons) | | | 3,762,210 | | | | $28.58 | | | | 2,350,246 | | All currentnon-employee directors as a group (6 persons) | | | 1,037,984 | | | | $30.12 | | | | 110,795 | | Nominees for election as a director | | | | | | | | | | | | | Karen Drexler | | | 0 | | | | | | | | | | All employees, including current officers who are not executive officers, as a group | | | 13,518,196 | | | | $21.51 | | | | 4,418,210 | |
Adjustments for stock splits, recapitalizations and mergers
If there is any recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation,split-up, spin off, disposition of all or substantially all of our assets or other similar transaction that affects our common stock, or certain restructurings, the administrator will make proportionate adjustments to any or all of the:
number and kind of shares of our common stock (or other securities or property) with respect to which awards may be granted or awarded under the 2009 Plan;
limitation on the maximum number and kind of shares that may be subject to one or more awards granted to any one individual during any calendar year;
number and kind of shares of our common stock (or other securities or property) subject to outstanding awards under the 2009 Plan;
manner in which full value awards will be counted; and
grant or exercise price with respect to any outstanding award.
The administrator also has discretionary authority in certain circumstances to make adjustments in the number and type of shares (or other securities or property) subject to outstanding awards, in the terms and conditions of awards (including the grant, exercise or purchase price), and/or the criteria included in outstanding awards and awards which may be granted in the future.
Tax withholdings
We (and our applicable subsidiaries) have the authority to deduct or withhold, or require an award holder to remit, an amount sufficient to satisfy federal, state, local and foreign taxes required by law to be withheld with respect to any taxable event concerning a holder arising as a result of the 2009 Plan. The administrator may in its discretion and in satisfaction of the foregoing requirement permit withholding shares of common stock otherwise issuable under an award (or may allow the return of shares) having a fair market value sufficient to satisfy the sums required to be withheld. Any shares withheld to cover taxes in excess of the minimum statutory rate with respect to any full value award will not be returned to the share pool, and any such shares withheld up to the minimum statutory rate will be added back to the share pool in accordance with Section 2.1(b) of the plan.
Change of control
In the event of a “change of control,” as defined in the 2009 Plan, each outstanding award will be assumed, or substituted for an equivalent award, by the successor corporation. If the successor corporation does not provide for the assumption or substitution of the awards, the administrator may cause all awards to become fully exercisable before the transaction is completed and all forfeiture restrictions on any or all awards to lapse. The administrator may also include such further provisions and limitations in any award or agreement as it may deem equitable and in our best interests.
Administration of the 2009 Plan
Our board’s compensation committee administers the 2009 Plan unless our board assumes authority for administration. Our board administers the 2009 Plan as to awards tonon-employee directors. We expect the compensation committee to consist of two or more directors, each of whom is intended to qualify as both a“non-employee director,” as defined in Rule16b-3 of the Exchange Act, an “outside director” for purposes of Section 162(m), and an “independent director” by NYSE listing standards. Our board or the compensation committee may delegate its authority to grant awards under the plan to a committee consisting of one or more members of the board or compensation committee. Our board also may delegate its authority to grant awards under the plan to a committee consisting of one or more of our officers, but that delegation will not include authority to grant awards to individuals who are subject on the date of grant to the reporting requirements of section 16(a) of the Exchange Act, individuals whose compensation in the year of grant is, or in a future calendar year may be, subject to the limitation on deductibility under Section 162(m) or the officers who are delegated authority as a member of that committee.
With respect to the 2009 Plan, the administrator has the power to:
select which directors, employees and consultants are to receive awards and the award’s terms;
determine whether options are to be NQSOs or ISOs, or whether awards are to qualify as “performance-based” compensation under Section 162(m);
construe and interpret the terms of the 2009 Plan and awards granted under the plan;
adopt rules for the administration, interpretation and application of the plan;
interpret, amend or revoke any of the rules adopted for the administration, interpretation and application of the plan; and
amend one or more outstanding awards in a manner that does not adversely affect the rights and obligations of an award’s holder (except in certain limited circumstances); provided that the administrator’s power to amend may not be used to extend a stock option’s term beyond the plan’s seven-year limit.
Because we have operations in Australia and other countries outside the United States, the 2009 Plan also authorizes the administrator to modify the terms and conditions of awards, including adopting one or more subplans, as the administrator deems advisable to ensure compliance with applicable foreign laws and listing standards, provided that the modifications do not violate any other applicable law or require stockholder approval.
Amendment and termination of the 2009 Plan
Our board or the compensation committee may amend the 2009 Plan at any time, but stockholder approval is required to increase the limits on the number of shares that may be issued, to materially change the eligibility requirements, to decrease the exercise price of any outstanding option or SAR granted under the plan, or to replace any outstanding option or SAR with cash, restricted shares, or any other awards in a manner that would violate the plan’s prohibition on repricing (as described above).
Our board or the compensation committee may suspend or terminate the 2009 Plan at any time. In no event may an award be granted under the 2009 Plan after September 11, 2027.
Material US federal income tax consequences associated with the 2009 Plan
The following is a general summary under current law of the material US federal income tax consequences to participants granted an award under the plan. This summary deals with the general US federal income tax principles that apply and is provided only for general information. Some kinds of taxes, such as state, local andnon-US income taxes and employment taxes are not discussed. Tax laws are complex and subject to change and may vary depending on individual circumstances and from locality to locality.
This summary does not discuss all aspects of federal income taxation that may be relevant in light of a holder’s personal circumstances. This summarized tax information is not tax advice and a holder of an award should rely only on the advice of their legal and tax advisors.
Non-qualified stock options. If an optionee is granted anon-qualified stock option under the plan, the optionee should not have taxable income on the grant of the option. The optionee generally should recognize ordinary income at the time of exercise in an amount equal to the fair market value of a share of our common stock at that time, less the exercise price paid. The optionee’s basis in the common stock for purposes of determining gain or loss on a subsequent sale or disposition of the shares generally will be the fair market value of our common stock on the date the optionee exercises the option. Any subsequent gain or loss will be taxable as a capital gain or loss.
Incentive stock options. No taxable income should be recognized by the optionee at the time of the grant of an incentive stock option, and no taxable income should be recognized for regular federal income tax purposes at the time the option is exercised; however, the excess of the fair market value of our common stock received over the option price is an “item of adjustment” for alternative minimum tax purposes. The optionee will recognize taxable income in the year in which the purchased shares are sold or otherwise made the subject of a taxable disposition.
For federal income tax purposes, dispositions are divided into two categories: qualifying and disqualifying.
A qualifying disposition generally occurs if the sale or other disposition is made more than two years after the date the option for the shares involved in the sale or disposition is granted and more than one year after the date the shares are transferred on exercise.
A disqualifying disposition generally occurs if the sale or disposition occurs before these two periods are satisfied.
On a qualifying disposition, the optionee should recognize long-term capital gain in an amount equal to the excess of the amount realized on the sale or other disposition of the purchased shares over the exercise price paid for the shares. If there is a disqualifying disposition of the shares, then the optionee should recognize ordinary income on the smaller of the:
excess of the fair market value of those shares on the exercise date over the exercise price paid for the shares, or
price at which the shares are sold over the exercise price paid for those shares.
Any additional gain or loss recognized on the disposition will be recognized as a capital gain or loss by the optionee.
With respect to our tax obligations, we will not be entitled to any federal income tax deduction if the optionee makes a qualifying disposition of the shares. If the optionee makes a disqualifying disposition of the purchased shares, then generally we or our subsidiary should be entitled to a federal income tax deduction, for the taxable year in which the disposition occurs, equal to the ordinary income recognized by the optionee.
Stock appreciation rights. The recipient of a SAR should generally not recognize taxable income on the grant of the SAR, but, on exercise of the SAR, the cash or the fair market value of the shares received should be taxable as ordinary income.
Restricted stock. In general, a recipient of restricted stock should not be taxed on the grant or purchase of restricted stock that is subject to a “substantial risk of forfeiture” and that isnon-transferable within the meaning of section 83 of the Code. However, when the restricted stock is no longer subject to the substantial risk of forfeiture (for example, when the restrictions lapse on a vesting date) or the shares become transferable, the recipient should recognize ordinary income equal to the fair market value of the common stock on the date the restrictions lapse or become transferable, less the amount paid, if any, for the restricted stock. A recipient of restricted stock may, however, make an election under section 83(b) of the Code to be taxed at the time of the grant or purchase on an amount equal to the fair market value of the common stock on the date of transfer, less the amount paid, if any, for the restricted stock. If a timely section 83(b) election is made, the recipient should not recognize any additional income as and when the restrictions applicable to the restricted stock lapses.
Restricted stock units and deferred stock. A recipient of RSUs or a deferred stock award generally should not have ordinary income on grant of RSUs or deferred stock. When the shares of common stock are delivered under the terms of the award, the recipient should recognize ordinary income equal to the fair market value of the shares delivered, less any amount paid for the shares.
Dividend equivalent awards and performance awards. A recipient of a dividend equivalent award or a performance award generally will not recognize taxable income at the time of grant. However, when an award is paid, whether in cash or in shares of common stock, the recipient will recognize ordinary income equal to the value received.
Stock payments. A recipient of a stock payment generally will recognize taxable ordinary income in an amount equal to the fair market value of the shares of common stock received.
Tax deductions and Section 162(m). We or our subsidiaries generally should be entitled to a federal income tax deduction at the time and for the same amount as the recipient recognizes as ordinary income, except as otherwise described above with respect to ISOs, and subject to the limitations of Section 162(m) with respect to compensation paid to certain “covered employees.” Under Section 162(m), income tax deductions of publicly-held corporations may be limited to the extent total compensation (including base salary, annual short-term incentive, stock option exercises andnon-qualified benefits paid) for certain executive officers exceeds $1,000,000 in any one year. The Section 162(m) deduction limit, however, does not apply to certain “qualified performance-based compensation” as defined by the Code, and established by an independent committee.
In particular, stock options and SARs will satisfy the “qualified performance-based compensation” exception if the awards are made by a qualifying committee, the underlying plan sets the maximum number of shares that can be granted to any person within a specified period and the compensation is based solely on an increase in the stock price after the grant date (that is, the exercise price or base price is not less than the fair market value of the stock subject to the award on the grant date). Other awards granted under the 2009 Plan may be “qualified performance-based compensation” for purposes of Section 162(m), if the awards vest or are paid solely based on the achievement of one or morepre-established, objective performance goals. The 2009 Plan is structured in a manner that is intended to enable the committee to provide awards that satisfy the requirements for “qualified performance-based compensation” under Section 162(m). If the committee determines that it is in our best interest to make use of those awards, the remuneration attributable to those
awards should not be subject to the $1,000,000 limitation. We have not, however, requested a ruling from the US Internal Revenue Service or an opinion of counsel regarding this issue. This discussion will neither bind the US Internal Revenue Service nor preclude the US Internal Revenue Service from adopting a contrary position.
Section 409A of the Code. Certain awards under the 2009 Plan may be considered“non-qualified deferred compensation” for purposes of section 409A of the Code, which imposes additional requirements on the payment of deferred compensation. Generally, if at any time during a taxable year anon-qualified deferred compensation plan fails to meet the requirements of section 409A, or is not operated in accordance with those requirements, all amounts deferred under thenon-qualified deferred compensation plan for the taxable year and all preceding taxable years, by or for any participant with respect to whom the failure relates, are includable in the gross income of the participant for the taxable year to the extent not subject to a substantial risk of forfeiture and not previously included in gross income. If a deferred amount is required to be included in income under section 409A, the amount will be subject to income tax at the regular income tax rates plus an additional 20% tax, as well as a potential interest on the tax.
BOARD RECOMMENDATION
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT AND RESTATEMENT OFAMENDMENTS TO THE RESMED INC. 2009 PLAN ANDRE-APPROVALEMPLOYEE STOCK PURCHASE PLAN. OF THE MATERIAL TERMS FOR CODE SECTION 162(M) PURPOSES |
PROPOSAL 4: ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION | PROPOSAL 4: ADVISORYVOTETOAPPROVENAMEDEXECUTIVEOFFICERCOMPENSATION Background
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We are asking our stockholders to approve, on anon-binding, advisory basis, the compensation of our named executive officers as described in the “Compensation Discussion and Analysis” and “Executive Compensation Tables” sections of this Proxy Statement on pages 40 through 75. This proposal is commonly known as a“say-on-pay” proposal. We currently provide an annualsay-on-pay vote for our stockholders. Because thesay-on-pay vote is advisory, it does not bind us. But the board’s compensation committee, which consists entirely of independent directors, values our stockholders’ opinions, and considers voting results on thesay-on-pay proposal when making its executive compensation decisions. The board has adopted a policy of providing for annualsay-on-pay advisory votes. Unless the board modifies its policy on the frequency of futuresay-on-pay advisory votes, the nextsay-on-pay advisory vote will be held at our 2019 annual meeting of stockholders. The board believes that the information in the “Compensation Discussion and Analysis” and “Executive Compensation Tables” sections of this Proxy Statement demonstrates that our executive compensation programs are designed appropriately, emphasize pay for performance, and are working to ensure that management’s interests are aligned with our stockholders’ interests to support long-term value creation. The board is asking our stockholders to approve the following advisory resolution at the annual meeting: “RESOLVED, that the stockholders of ResMed approve, on an advisory basis, the compensation paid to our named executive officers, as disclosed in the Compensation Discussion and Analysis and Executive Compensation Tables sections of this proxy statement.” | BOARD RECOMMENDATION We are asking our stockholders to approve, on anon-binding, advisory basis, the compensation of our named executive officers as described in the “Compensation Discussion and Analysis” and “Executive Compensation Tables” sections of this Proxy Statement on pages 49 through 85. This proposal is commonly known as a“say-on-pay” proposal. We currently provide an annualsay-on-pay vote for our stockholders. Because thesay-on-pay vote is advisory, it does not bind us. But the board’s compensation committee, which consists entirely of independent directors, values our stockholders’ opinions, and considers voting results on thesay-on-pay proposal when making its executive compensation decisions. The board has adopted a policy of providing for annualsay-on-pay advisory votes. Unless the board modifies its policy on the frequency of futuresay-on-pay advisory votes, the nextsay-on-pay advisory vote will be held at our 2018 annual meeting of stockholders.
The board believes that the information in the “Compensation Discussion and Analysis” and “Executive Compensation Tables” sections of this Proxy Statement demonstrates that our executive compensation programs are designed appropriately, emphasize pay for performance, and are working to ensure that management’s interests are aligned with our stockholders’ interests to support long-term value creation. The board is asking our stockholders to approve the following advisory resolution at the annual meeting:
“RESOLVED, that the stockholders of ResMed approve, on an advisory basis, the compensation paid to our named executive officers, as disclosed in the Compensation Discussion and Analysis and Executive Compensation Tables section of this proxy statement.”
BOARD RECOMMENDATION
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF RESMED’S NAMED EXECUTIVE OFFICERS. PROPOSAL 5: ADVISORYVOTEONTHEFREQUENCYOFFUTURESAY-ON-PAYVOTES
Background
This proposal enables our stockholders to indicate how frequently they believe we should conduct an advisory vote on the compensation of our named executive officers. We are providing stockholders the option of selecting a frequency of one, two, or three years, or abstaining. At our 2011 stockholders meeting, a majority of our stockholders elected to hold thesay-on-pay vote every one year.
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CORPORATEGOVERNANCE | Summary
The board currently plans to seek an advisory vote on executive compensation every year. We believe it is appropriate and important to provide our stockholders with the opportunity to have input in our executive compensation programs on a regular basis. As a result, the board believes that annual voting provides the greatest opportunity for review and accountability for our executive compensation program.
Although this “frequency” vote is advisory and not binding on the board, we appreciate and value the opinions of our stockholders and will evaluate the ultimate outcome of the advisory votes when establishing the actual frequency of future advisory votes by stockholders on executive compensation.
The board recommends that futuresay-on-pay votes occur every year until the next advisory vote on the frequency of futuresay-on-pay votes. Stockholders are not being asked to approve or disapprove the board’s recommendation, but rather to indicate their choice among the following frequency options: one year, two years, or three years, or to abstain from voting. If none of the frequency alternatives – one year, two years, or three years – receives a majority of the votes cast, we will consider the highest number of votes cast by stockholders to be the frequency that has been selected by stockholders.
BOARD RECOMMENDATION
YOUR BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS SELECT “ONE YEAR” AS THE FREQUENCY OF FUTURESAY-ON-PAY VOTES.
COMPANYINFORMATION
CORPORATEGOVERNANCE
Board independence |
Our board has determined that six of our eight current directors, Ms. Burt, and Messrs. Pace, Roberts, Sulpizio, Taylor and Wareham, are independent members of our board under the listing standards of the NYSE, and they and their respective family members have no material relationship with us, commercial or otherwise, that would impair the director’s independence. The board expects that, if elected, Ms. Drexler, and Messrs. Pace, Sulpizio, Taylor and Wareham, are independent members of our board under the listing standards of the NYSE, and they and their respective family members have no material relationship with us, commercial or otherwise, that would impair the director’s independence. The board has also determined that, if elected, Ms.Gill will also be independent. The board also determined that each member of the audit, nominating and governance, and compensation committees is independent as required by the NYSE’s listing standards, and that each member of the audit committee is independent as required by the SEC’s regulations. The board determined that Peter Farrell and Michael Farrell have material relationships with us that prohibit them from being considered independent under applicable standards: Michael Farrell is an executive officer; while Peter Farrell is anon-executive employee, the father of Michael Farrell, and was an executive officer through January 2014. The following specific relationships or transactions were considered by our board in making its independence decisions, and the board concluded none of them impaired independence: Dr. Roberts served as an executive officer from 1992 through 2003. He has not been affiliated with us, other than as a director, during the past approximate fourteen years. Dr. Roberts is not standing forre-election, and expects to complete his board service at the November 2017 meeting.
We hold two equity investments in entities affiliated with Dr. Pace. Our board approved these investments at the time they were made, without Dr. Pace’s participation. | ¡ | | In fiscal years 2011 and 2012, we invested a total of approximately $500,000 in Sova Pharmaceuticals, a pharmaceutical development company targeting central sleep apnea. As of fiscalyear-end 2017,2018, we continued to hold our equity investment, representing an ownership interest of about 6%. Dr. Pace is a founder and director of Sova, and has a nominal equity investment in it. He is not a controlling shareholder of Sova. |
| ¡ | | In fiscal years 2012 and 2013, we invested a total of approximately $1.075 million in Sanitas, Inc., a remote health-management software company. As of fiscalyear-end 2017,2018, we continued to hold our equity investment, representing an ownership investment of about 12.5%. Dr. Pace holds an equity investment of approximately $50,000 in Sanitas. He is not a controlling shareholder of Sanitas. |
We have several long-tenured directors. Dr. Pace, who served as a director for more than 20 years, is not standing forre-election at this annual meeting. Messrs. Sulpizio, Taylor, and Wareham have served for more than 10 years. The board considers that the length of their tenure had not compromised their independence; in fact, in the board’s view, the depth of their knowledge and insight with the company has strengthened their contributions to our board. The nominating and governance committee believes board composition and an appropriate balance of board refreshment and experience is important to effective governance, and follows a process of regularly reviewing board composition and board refreshment, with a long-term perspective. While refreshment is an important consideration in assessing board composition, the board does not make determinations based solely on tenure. Our board determined that these matters did not prevent Dr. Pace or Messrs. Sulpizio, Taylor, or Wareham from being considered independent under applicable standards. | We have several long-tenured directors. Drs. Pace and Roberts have each served as directors for more than 20 years. Messrs. Sulpizio, Taylor, and Wareham have served for more than 10 years. The board considers that the length of their tenure had not compromised their independence; in fact, in the board’s view, the depth of their knowledge and insight with the company has strengthened their contributions to our board. The nominating and governance committee follows a process of regularly reviewing board composition and board refreshment, with a long-term perspective, and maintains a database of desired director skills and experience. As a result of that process, Dr. Roberts is not standing forre-election this year.
Our board determined that these matters did not prevent Dr. Pace, Dr. Roberts, or Messrs. Sulpizio, Taylor, or Wareham from being considered independent under applicable standards.
Meetings and director attendance During fiscal year 2017,
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During fiscal year 2018, each director attended more than 75% of the meetings of our board and of the committees on which the director served. Our board and standing committees met, as follows: Regular board: five meetings; Compensation committee: four meetings; Audit committee: eight meetings; and Nominating and governance committee: four meetings. During each regular meeting, our independent directors met alone, and our lead director chaired those sessions. In addition to meetings, the members of our board and its committees sometimes take action by written consent in lieu of a meeting, as permitted under Delaware corporate law, or discuss company business without calling a formal meeting. All but one of our directors were present for our 2017 (and the lone director’s absence was due to an unexpected family emergency) annual stockholders meeting. We encourage directors to attend our annual meetings and generally schedule board meetings to coincide with the annual meeting to facilitate directors’ attendance. | Regular board: five meetings;
Compensation committee: four meetings;
Audit committee: eight meetings; and
Nominating and governance committee: four meetings.
During each regular meeting, our independent directors met alone, and our lead director chaired those sessions. In addition to meetings, the members of our board and its committees sometimes take action by written consent in lieu of a meeting, as permitted under Delaware corporate law, or discuss company business without calling a formal meeting.
All but one of our directors were present for our 2016 annual stockholders meeting. We encourage directors to attend our annual meetings and generally schedule board meetings to coincide with the annual meeting to facilitate directors’ attendance.
Board oversight of risk |
The general risk oversight function, including cybersecurity, is retained by the full board; the standing committees of the board, comprised and chaired by our independent directors, retain primary responsibility for risk identification and analysis in the key areas further defined below. The committees periodically provide updates to the board regarding significant risk management issues and management’s response. | | | | Committee | | Primary risk oversight function is retained byresponsibility | Audit | | Overseeing financial risk, capital risk, financial compliance risk, code of conduct and ethics compliance, and internal controls over financial reporting. | Compensation | | Overseeing our compensation philosophy and practices and evaluating the full board;balance between risk-taking and rewards to senior officers. | Nominating and governance | | Evaluating each director’s independence, evaluating the standing committeeseffectiveness of the board, comprisedour corporate governance guidelines, and chaired by our independent directors, retain primary responsibility for risk identification and analysis in the key areas further defined below. The committees periodically provide updates to the board regarding significant risk management issues andoverseeing management’s response. | | | Committee
| | Primary risk oversight responsibility
| Audit
| | Overseeing financial risk, capital risk, financial compliance risk and internal controls over financial reporting.
| | | Compensation
| | Overseeing our compensation philosophy and practices and evaluating the balance between risk-taking and rewards to senior officers.
| | | Nominating and governance
| | Evaluating each director’s independence, evaluating the effectiveness of our corporate governance guidelines and code of business conduct, and overseeing management’s succession planning.
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Designated internal management, as well as certified professional accounting firms performing annual internal audits, regularly review and test functions, controls and processes to review, evaluate and recommend mitigation strategies, as may be warranted. Critical areas of focus include financial, operational, regulatory, compliance, economic, compensation, and competition, among others. | Board leadership structure |
We have separated the roles of board chairman and chief executive officer. Peter Farrell has served as our chairman of the board since 1989; he concurrently served as our chief executive officer from shortly after our founding in 1989, through January 2008, and from February 2011 through March 2013. In March 2013, on the appointment of Michael Farrell as our new chief executive officer, Peter Farrell resigned as chief executive officer, and continued in the role of executive chairman. In January 2014, Peter Farrell ceased serving as an executive officer; since then he has served as anon-officer employee and asnon-executive chairman of the board. The board continues to believe that having Peter Farrell serve as the chairman of the board is the most appropriate leadership structure for us and in the best interest of our stockholders. Dr. Farrell is our founder, has been our chairman since our founding in 1989, and previously served as our chief executive officer for over 20 years. Dr. Farrell has deep institutional knowledge about our organization’s history and operations, the industry, the science underlying the medical conditions we address and the technology we develop. Dr. Farrell is widely regarded as a visionary leader in our industry. Under his leadership, the board believes we have achieved remarkable success and delivered substantial long-term rewards for our stockholders. Maintaining him in the role of chairman provides leadership continuity.
The board believes the advantages described above outweigh any theoretical risks or disadvantages arising from Peter Farrell’s role as an employee, or from his serving as chairman while his son, Michael Farrell, serves as chief executive officer.
First, the board believes that Dr. Farrell is uniquely suited to effectively perform the dual roles of providing leadership to the board as chairman, and serving as an employee, in which he provides guidance to management, particularly in the areas of long-term strategy, consulting with key opinion leaders in related fields, and maintaining our unique values and culture.
The board continues to believe that having Peter Farrell serve as the chairman of the board is the most appropriate leadership structure for us and in the best interest of our stockholders. Dr. Farrell is our founder, has been our chairman since our founding in 1989, and previously served as our chief executive officer for over 20 years. Dr. Farrell has deep institutional knowledge about our organization’s history and operations, the industry, the science underlying the medical conditions we address and the technology we develop. Dr. Farrell is widely regarded as a visionary leader in our industry. Under his leadership, the board believes we have achieved remarkable success and delivered substantial long-term rewards for our stockholders. Maintaining him in the role of chairman provides leadership continuity. The board believes the advantages described above outweigh any theoretical risks or disadvantages arising from Peter Farrell’s role as an employee, or from his serving as chairman while his son, Michael Farrell, serves as chief executive officer. First, the board believes that Dr. Farrell is uniquely suited to effectively perform the dual roles of providing leadership to the board as chairman, and serving as an employee, in which he provides guidance to management, particularly in the areas of long-term strategy, consulting with key opinion leaders in related fields, and maintaining our unique values and culture. Second, the board believes our leadership structure mitigates any potential risks from the family relationship between Peter Farrell and Michael Farrell. Six of our eight current directors, as well as our new board nominee, Harjit Gill, are independent, which provides a counterbalance to anon-independent employee chairman. Those independent directors meet in executive session, alone, at each board meeting. The role of Ron Taylor, our lead director, provides an additional structure enabling an effective independent board. The primary responsibilities of the lead director are: to preside over board meetings in the absence of the chairman; call, establish the agenda for, and preside over meetings of the independent directors; act as a liaison between the independent directors and chairman; guide the chairman on board meeting agendas as well as the adequacy of information to be presented; communicate with stockholders as appropriate; and other duties that may be delegated by the board, independent directors, chairman or the nominating and governance committee. Finally, the board’s committees are filled entirely by independent directors, providing an opportunity for the board to fulfill its oversight responsibilities. For the reasons discussed above, our board believes the current leadership structure is in our best interest at this time. However, our corporate governance guidelines give the board the flexibility to change its leadership over time, as needed. The board continues to evaluate whether its leadership structure is appropriate as our business evolves. | | | Committees of our board of directors | | |
The board has three standing committees to assist in the management of our affairs: compensation, nominating and governance, and audit. A copy of the charters for each of these standing committees can be found on our website at www.resmed.com. Below is a summary of our current committee structure and membership information. | | | | | | | Independent The board has three standing committees to assist in the management of our affairs: compensation, nominatingdirector
| | Compensation committee | | Nominating and governance, and audit. A copy of the charters for each of these standing committees can be found on our website at www.resmed.com. Below is a summary of our governance
committee structure and membership information for fiscal year 2017 and currently. | | | | | | | Independent
director
| | Compensation
committee
| | Nominating and
governance
committee
| | Audit
committee
| Carol Burt
| | — | | — | | Audit committee | Carol Burt | | - | | - | | chair | Karen Drexler | | member | | - | | - | Gary Pace | | member | | member | | | Rich Sulpizio | | chair | | - | | - | Ron Taylor | | | | chair | | member | Jack Wareham | | - | | member | | member | Gary Pace
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We anticipate that, after the annual meeting, assuming stockholders elect the director candidates nominated by the board, our committee structure will change to the following: | | | | | | | Independent director | | Compensation committee | | Nominating and governance committee | | Audit committee | Carol Burt | | - | | - | | chair | Karen Drexler | | member | | - | | - | Harjit Gill | | member | | | | | Rich Sulpizio | | chair | | member | | - | Ron Taylor | | | | chair | | member | Jack Wareham | | - | | member | | member | | — | Chris Roberts
| | — | | — | | member | Rich Sulpizio
| | chair | | — | | — | Ron Taylor
| | member | | chair | | — | Jack Wareham
| | — | | member | | chair |
Compensation committee
During fiscal year 2017, and currently, the compensation committee consists of Rich Sulpizio (chair), Gary Pace, and Ron Taylor. Each of the compensation committee members has been determined by our board to meet the independence requirements for compensation committee service under the current listing standards of the NYSE and SEC.
The compensation committee’s primary purposes are to:
establish and review the compensation of our officers and executives;
oversee management’s decisions regarding our compensation philosophies, practices, and procedures; and
advise the board regarding the compensation of directors.
The compensation committee meets in person and by telephone to perform its duties. It works primarily with our chief human resources officer, our chief administrative officer and global general counsel, and their staff to gather internal data and solicit management’s recommendations regarding compensation. The committee also communicates directly with our chief executive officer and our president and chief operating officer, for recommendations and information, particularly with regard to their direct reports’ compensation. In addition, the committee consults with our chief financial officer and his staff regarding the financial impact of certain compensation decisions. However, the committee generally determines the
compensation for each of our individual officers outside the presence of the affected officer. The committee also advises and consults with othernon-executive board members as it determines appropriate regarding compensation issues.
Since 2006 and during fiscal year 2017, the committee has retained a nationally-recognized independent consultant, Frederic W. Cook & Co., Inc. (“FW Cook”). FW Cook is engaged directly by the committee. FW Cook worked with our chief human resources officer, chief administrative officer and global general counsel, and their staff, but also communicated directly with the committee.
The committee engaged FW Cook to render advisory services and to serve as the committee’s independent consultant on compensation-related matters for our executives and board. During fiscal year 2017, these compensation matters included:
our executive compensation program, including salaries, target and actual short-term incentive amounts, and long-term incentive equity grants;
aggregate equity pay practices at our peer group companies, including long-term incentive design features and alternatives;
board compensation, including board fees and equity grants;
industry trends, best practices, and regulatory changes; and
companies included in our peer group for competitive comparisons.
During fiscal year 2017, Aon plc provided the committee with calculations of total shareholder return to evaluate performance metrics under our performance stock units.
The committee has reviewed the independence of FW Cook and Aon, including considering the factors required by NYSE listing standards. After the review, the committee determined that each of FW Cook and Aon is independent and that no conflict of interest exists that would prevent them from providing independent and objective advice to the committee.
During fiscal year 2017, the committee continued its practice of delegating to a subcommittee comprised of our chief executive officer, our chief human resources officer, and our chief administrative officer and global general counsel, authority to approve the annual and promotional and new hire equity award grants to employees who were not officers and whose compensation is not reviewed by the committee, so long as the aggregate total of those equity grants did not exceed committee-established limits for the annual andoff-cycle grants, and were consistent with committee-determined standard terms for grants and other guidelines. During fiscal year 2017, under this authority, this subcommittee granted 408,393 RSUs. The committee believes that this subcommittee is best suited to determine the specific annual awards to be allocated to the individual employees below the officer level given their familiarity with their performances and responsibilities. In addition, theoff-cycle delegation enhances our ability to attract, reward and retain talented employees by allowing management to extend binding employment offers and to act in other special situations quickly and flexibly. All equity grants to our executive officers arepre-approved by the committee.
Nominating and governance committee
During fiscal year 2017, and currently, the nominating and governance committee consists of Ron Taylor (chair), Gary Pace and Jack Wareham.
The nominating and governance committee’s primary purposes are to:
assure that the composition, practices and operation of our board contribute to lasting value creation and effective representation of our stockholders; and
assist the board with selecting board and committee members, committee selection and rotation practices, evaluating the board’s overall effectiveness, and reviewing and considering developments in corporate governance practices.
Our corporate governance guidelines state goals regarding composition of the board and committees, meetings and expectations of directors. A copy of our corporate governance guidelines may be found on our website at www.resmed.com.
The nominating and governance committee is responsible for reviewing with the board, on an annual basis, the appropriate characteristics, skills and experience required for the board as a whole and its individual members. To assist in promoting a diversity of backgrounds and experience on the board, the nominating and governance committee takes reasonable steps to identify and consider board candidates who are drawn from a wide talent pool, representing diversity of thought, culture, gender, ethnicity, race, background and other qualities.
The suitability of individual candidates depends on many factors. Those factors include:
fundamental qualities of intelligence, honesty, good judgment, high ethics and standards of integrity, fairness and responsibility;
practical wisdom and mature business judgment;
ability to make independent analytical inquiries, general understanding of marketing, finance and other elements relevant to the success of a publicly-traded company in today’s business environment;
experience in corporate management, or as a board member of a publicly-held company;
academic experience and technical understanding in the area of our operations;
professional experience in our industry; and
a commitment to representing the long-term interests of our stockholders.
The board evaluates each individual in the context of the board as a whole, with the objective of assembling a group that can best perpetuate the success of the business and represent stockholder interests through the exercise of sound judgment using its diversity of experience in these various areas.
In determining whether to recommend a director forre-election, the nominating and governance committee also considers the director’s past attendance at meetings and participation in and contributions to the board’s activities.
In May 2017, based on the nominating and governance committee’s recommendation, the board appointed an ad hoc committee on new board member selection, chaired by Ron Taylor, with additional members Peter Farrell and Michael Farrell. The ad hoc committee’s primary responsibility was to organize and conduct interviews and otherwise evaluate potential board candidates, and report
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Compensation committee During fiscal year 2018, and currently, the compensation committee has been chaired by Rich Sulpizio, and Gary Pace has been a member. From July through November 2017, Ron Taylor was a member of the committee. Karen Drexler began serving as a member from November 2017 through currently. Each of the compensation committee members has been determined by our board to meet the independence requirements for compensation committee service under the current listing standards of the NYSE and SEC. The compensation committee’s primary purposes are to: establish and review the compensation of our officers and executives; oversee management’s decisions regarding our compensation philosophies, practices, and procedures; and advise the board regarding the compensation of directors. The compensation committee meets in person and by telephone to perform its duties. It works primarily with our chief human resources officer, our chief administrative officer and global general counsel, and their staff to gather internal data and solicit management’s recommendations regarding compensation. The committee also communicates directly with our chief executive officer and our president and chief operating officer, for recommendations and information, particularly with regard to their direct reports’ compensation. In addition, the committee consults with our chief financial officer and his staff regarding the financial impact of certain compensation decisions. However, the committee generally determines the compensation for each of our individual officers outside the presence of the affected officer. The committee also advises and consults with othernon-executive board members as it determines appropriate regarding compensation issues. During fiscal year 2018, the committee has retained a nationally-recognized independent consultant, Frederic W. Cook & Co., Inc. (“FW Cook”). FW Cook is engaged directly by the committee to render advisory services and to serve as the committee’s independent consultant on compensation-related matters for our executives and board. During fiscal year 2018, these compensation matters included: our executive compensation program, including salaries, target and actual short-term incentive amounts, and long-term incentive equity grants; aggregate equity pay practices at our peer group companies, including long-term incentive design features and alternatives; board compensation, including board fees and equity grants; industry trends, best practices, and regulatory changes; and companies included in our peer group for competitive comparisons. During fiscal year 2018, Aon plc provided the committee with calculations of total shareholder return to evaluate performance metrics under our performance stock units. The committee has reviewed the independence of FW Cook and Aon, including considering the factors required by NYSE listing standards. After the review, the committee determined that each of FW Cook and Aon is independent and that no conflict of interest exists that would prevent them from providing independent and objective advice to the committee. During fiscal year 2018, the committee continued its practice of delegating to a subcommittee comprised of our chief executive officer, our chief human resources officer, and our chief administrative officer and global general counsel, authority to approve the annual and promotional and new hire equity award grants to employees who were not officers and whose compensation is not reviewed by the committee, so long as the aggregate total of those equity grants did not exceed committee-established limits for the annual andoff-cycle grants, and were consistent with committee-determined standard terms for grants and other guidelines. During fiscal year 2018, under this authority, this subcommittee granted 566,279 restricted stock units. The committee believes that this subcommittee is best suited to determine the specific annual awards to be allocated to the individual employees below the officer level given their familiarity with their performances and responsibilities. In addition, theoff-cycle delegation enhances our ability to attract, reward and retain talented employees by allowing management to extend binding employment offers and to act in other special situations quickly and flexibly. All equity grants to our executive officers arepre-approved by the committee. Nominating and governance committee During fiscal year 2018, and currently, the nominating and governance committee consists of Ron Taylor (chair), Gary Pace and Jack Wareham. The nominating and governance committee’s primary purposes are to: assure that the composition, practices and operation of our board contribute to lasting value creation and effective representation of our stockholders; and assist the board with selecting board and committee members, committee selection and rotation practices, evaluating the board’s overall effectiveness, and reviewing and considering developments in corporate governance practices. Our corporate governance guidelines state goals regarding composition of the board and committees, meetings and expectations of directors. A copy of our corporate governance guidelines may be found on our website at www.resmed.com. The nominating and governance committee is responsible for reviewing with the board, on an annual basis, the appropriate characteristics, skills and experience required for the board as a whole and its individual members. To assist in promoting a diversity of backgrounds and experience on the board, the nominating and governance committee takes reasonable steps to identify and consider board candidates who are drawn from a wide talent pool, representing diversity of thought, culture, gender, ethnicity, race, background and other qualities. The nominating and governance committee believes board composition and an appropriate balance of board refreshment and experience is important to effective governance, and follows a process of regularly reviewing board composition and board refreshment, with a long-term perspective. The nominating and governance committee maintains a database of desired director skills and experience, and a pipeline of qualified candidates. 2018 will be the second year in a row we have replaced our longest serving independent director with a newly-elected director with a unique set of skills and experience. We expect the average tenure of our independent directors after the November 2018 annual meeting will be approximately seven andone-half years. The suitability of individual candidates depends on many factors. Those factors include: fundamental qualities of intelligence, honesty, good judgment, high ethics and standards of integrity, fairness and responsibility; practical wisdom and mature business judgment; ability to make independent analytical inquiries, general understanding of marketing, finance and other elements relevant to the success of a publicly-traded company in today’s business environment; experience in corporate management, or as a board member of a publicly-held company; academic experience and technical understanding in the area of our operations; professional experience in our industry; and a commitment to representing the long-term interests of our stockholders. The board evaluates each individual in the context of the board as a whole, with the objective of assembling a group that can best perpetuate the success of the business and represent stockholder interests through the exercise of sound judgment using its diversity of experience in these various areas. In determining whether to recommend a director forre-election, the nominating and governance committee also considers the director’s past attendance at meetings and participation in and contributions to the board’s activities. During fiscal year 2018, the nominating and governance committee retained an executive search firm, cStone & Associates, to conduct a search for director candidates, based on criteria approved by the committee. The search firm identified potential candidates, who were reviewed by the committee. The committee agreed on a slate of candidates for further consideration. The nominating and governance committee asked an ad hoc committee on new board member selection to assist in preliminary interviews of candidates. The ad hoc committee was appointed by the board in May 2017; chaired by our lead director, Ron Taylor, with additional members Peter Farrell and Michael Farrell. The ad hoc committee’s primary responsibility was to organize and conduct interviews and otherwise evaluate potential board candidates selected by the nominating and governance committee. The ad hoc committee reported its assessments to the nominating and governance committee, and the nominating and governance committee used that input to aid in its independent decisions on how to further evaluate—and ultimately nominate—appropriate candidates. The ad hoc committee’s activity did not limit the pool of nominees the full nominating and governance committee considers, and all decisions were made by the independent directors who comprise the nominating and governance committee. After review and deliberation of all feedback and data, the nominating and governance committee makes its recommendation to our board. Recommendations we receive from stockholders are subject to the same criteria as are candidates nominated by the nominating and governance committee. The committee will consider stockholder suggestions for nominees for directorship and has a policy to consider any candidate recommended by stockholders who have held a minimum of 1% of our outstanding voting securities for at least one year. A recommending stockholder must submit a detailed resume of the candidate and an explanation of the reasons why the stockholder believes the candidate is qualified for service on our board. The stockholder must also provide any other information about the candidate that would be required by US SEC rules to be included in a proxy statement. In addition, the stockholder must include the consent of the candidate (including the consent to a background check) and describe any relationships, arrangements or undertakings between the stockholder and the candidate regarding the nomination or otherwise. The stockholder must submit proof of ownership of our stock. All communications should be submitted in writing to the chair of the nominating and governance committee, care of Secretary, ResMed Inc., 9001 Spectrum Center Boulevard, San Diego, California 92123 USA. Recommendations received after 70 days before the anniversary of the prior year’s annual meeting will likely not be considered timely for consideration at that year’s annual meeting. The nominating and governance committee will consider stockholder recommendations of candidates on the same basis as it considers all other candidates. For further information, see “Stockholder proposals for 2018 annual meeting.” Audit committee At the beginning of fiscal year 2018, through November 2017, our audit committee consisted of Jack Wareham (chair), Carol Burt, and our former director Chris Roberts. In November 2017, Mr. Roberts did not stand forre-election to the board, and Ron Taylor joined the audit committee. Also in November 2017, Ms. Burt began chairing the committee. From November 2017 through currently, the committee’s membership has not changed. Each of the audit committee members serving during fiscal year 2018 annual meeting.” Audit committee
During fiscal year 2017, and currently, the audit committee consists of Jack Wareham (chair), Carol Burt, and Chris Roberts. Each of the audit committee members serving during fiscal year 2017 has been determined by our board to be financially literate and meet the other requirements for audit committee service under the current listing standards of the NYSE and SEC. In addition, our board has identified all members of the audit committee (during fiscal year 2018 and currently) as financial experts under the SEC’s requirements.
The audit committee’s primary purposes are to assist the board with its oversight responsibilities regarding: management’s conduct of, and the integrity of our financial reporting; our systems of internal control over financial reporting and disclosure controls and procedures; compliance with our code of conduct and ethics; and qualifications, engagement, compensation, independence, and performance of our independent registered public accounting firm. | Communications with our board of directors |
Any interested person, including any stockholder, may communicate with ournon-employee board members by written mail addressed to the chairman of the nominating and governance committee, care of Secretary, ResMed Inc., 9001 Spectrum Center Boulevard, San Diego, California 92123 USA. We encourage stockholders to include proof of ownership of our stock in their communications. The secretary will forward all communications to the chairman of the nominating and governance committee. We have a code of business conduct and ethics for directors, officers and employees, which can be found at investor.resmed.com. The code summarizes the compliance and ethical standards and expectations we have for all of our officers, directors and employees, including our chief executive officer and senior financial officers, with respect to their conduct in connection with our business. Our code of business conduct and ethics constitutes our code of ethics within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the NYSE listing standards. We will disclose future amendments to or waivers of certain provisions of our code of business conduct and ethics applicable to our principal executive officer, principal financial officer, principal accounting officer, controller and individuals performing similar functions on our website at www.resmed.com within five business days or as otherwise required by the SEC or the NYSE. | Pledging and hedging company stock prohibited We have a policy prohibiting our directors, officers, and other employees from hedging or pledging their ResMed stock.
DIRECTORCOMPENSATION — 2017
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We have a policy prohibiting our directors, officers, and other employees from hedging or pledging their ResMed stock. DIRECTORCOMPENSATION — 2018 | Fiscal year 20172018 program – cash Ournon-executive director cash compensation program for fiscal year 2017
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Ournon-executive director cash compensation program for fiscal year 2018 included the following: | | | | | | | | Fee | | Annual retainer | | $ | 65,000 | | Additional retainer to members of standing committees | | | None | | Additional annual retainer to lead director | | $ | 20,000 | | Additional annual retainer to audit committee chair | | $ | 18,000 | | Additional annual retainer to compensation committee chair | | $ | 15,000 | | Additional annual retainer to nominating and governance committee chair | | $ | 10,000 | | Per meeting fee | | | None | | Retirement benefits | | | None | |
| | | | | Fee | Annual retainer | | $65,000 | Additional retainer to members of standing committees | | None | Additional annual retainer to lead director | | $20,000 | Additional annual retainer to audit committee chair | | $18,000 | Additional annual retainer to compensation committee chair | | $15,000 | Additional annual retainer to nominating and governance committee chair | | $10,000 | Per meeting fee | | None | Retirement benefits | | None |
| Fiscal year 20172018 program – equity During fiscal year 2017,
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During fiscal year 2018, as in past years, on our annual stockholders meeting date we awarded equity grants to ournon-executive directors with a grant date fair value of $250,000. Ournon-executive directors had the opportunity to elect to receive their equity grant in the form of: (1) 100% options; (2) 100% restricted stock units, or (3) 50% options and 50% RSUs. Five directors chose 100% RSUs; and two chose 100% options. The number of options and RSUs we granted was based on a relative fair value calculation prepared by an outside third party. Subject to continued service, RSUs and options vest in full on the earlier of: (1) November 11 in the year after the grant date, or (2) the date of the first annual meeting of stockholders following the grant date. The board believes that our equity ownership guidelines are sufficient to promote long-term ownership and align our directors with our stockholders. More information on our director ownership guidelines is in the section below,Equity ownership guidelines.
No changes for fiscal year 2017
The fiscal year 2017 director compensation program had the same structure and value as fiscal years 2014, 2015, and 2016.
Compensation philosophy
The compensation committee reviewsnon-executive director compensation on an annual basis, including reports from FW Cook, the committee’s independent compensation consultant. After its review, the committee makes recommendations onnon-executive director compensation to the board, and the board makes the final determination regardingnon-executive director compensation.
Dual listing; US pay model. The compensation committee and board review data on both US peers and Australian peers, reflecting the company’s dual-listing locations. Australia and the US generally have different pay philosophies for compensatingnon-executive directors. ResMed’s Australian peers generally pay higher cash, award little or no equity, and have overall lower compensation fornon-executive directors than ResMed’s US peers. While the board considers Australian peer data, the board believes the most relevant peers for ResMed director compensation are US peers. ResMed’s primary listing is on the NYSE, it is primarily subject to US corporate governance requirements and risks, and its headquarters and all of its continuing directors and nominee reside in the US. In addition, thisUS-perspective is consistent with our executive compensation philosophy, which gives more weight to ResMed’s US peer’s pay practices, and more directly aligns the interests of our board members with that of our stockholders through ownership of equity. Finally, we do not wish to create internal or cultural divisions by using significantly differentiated pay models between directors based in the US and Australia.
Compensation process – peer group companies
In May 2016, the board and compensation committee reviewed director compensation for fiscal year 2017. They reviewed FW Cook’s report covering cash compensation and equity compensation, compared to a peer group of 17 medical device and medical technology companies. They also considered information from a group of 13 Australian-based peers. The committee confirmed these peer groups in May 2016, and used the same peer groups to benchmark ResMed’s executive compensation for fiscal year 2017, after confirming it remained relevant. More information on the peer groups is included in the section in our Compensation Discussion and Analysis section entitled “Peer group comparison.”
After considering this material and the compensation committee’s recommendation, the board agreed to keepnon-executive director compensation at the same value for fiscal 2017 as was in effect in fiscal year 2016.
The committee also considered the structure of ournon-executive director equity program. Although our Australian peer group companies do not typically make equity grants to theirnon-executive directors, the practice is routine in the US. All but one of our US peers grant equity to thenon-executive directors, and as of May 2016, over half of our US peer group granted both stock options and full value shares. Given this prevalence, and consistent with theUS-based compensation philosophy described above, the board and committee decided to continue the equity structure of ResMed’snon-employee director program.
The compensation committee and board will continue to monitor compensation trends, competitive practices, tax regulations, and other matters related tonon-executive director compensation, and make adjustments as appropriate.
Equity ownership guidelines
Since 2010, we have maintained equity ownership guidelines for ournon-executive directors. Eachnon-executive director is expected to hold ResMed stock with a value of at least five times the annual cash retainer (a total value of $325,000 based on the fiscal year 2017 retainer and guidelines). Existing directors must meet this guideline within five years after their appointment to the board. If the guideline is not met, the director must retain shares equal to 50% of theafter-tax value of shares acquired on any restricted stock vesting or stock option exercise until the director’s guidelines are met. As of June 30, 2017, each of ournon-executive directors met the equity ownership guidelines.
New directors
Wepro-rate value-based equity awards and retainers for all new directors (for the period between their start date and the next annual meeting or service period, respectively). We do not provide new directors with any initial inducement equity awards that are greater than or in addition to thepro-rated annual grant amount.
Executive directors
Our chief executive officer does not receive additional compensation for his service as director.
The number of options and RSUs we granted was based on a relative fair value calculation prepared by an outside consulting firm. Subject to continued service, RSUs and options vest in full on the earlier of: (1) November 11 in the year after the grant date, or (2) the date of the first annual meeting of stockholders following the grant date. The board believes that our equity ownership guidelines are sufficient to promote long-term ownership and align our directors with our stockholders. More information on our director ownership guidelines is in the section below,Equity ownership guidelines. | No changes for fiscal year 2018 |
The fiscal year 2018 director compensation program had the same structure and value as fiscal years 2014, 2015, 2016 and 2017. Fiscal year 2018 marks the fifth consecutive year we have not increased board compensation. The compensation committee reviewsnon-executive director compensation on an annual basis, including reports from FW Cook, the committee’s independent compensation consultant. After its review, the committee makes recommendations onnon-executive director compensation to the board, and the board makes the final determination regardingnon-executive director compensation. Dual listing; US pay model. The compensation committee and board review data on both US peers and Australian peers, reflecting the company’s dual-listing locations. Australia and the US generally have different pay philosophies for compensatingnon-executive directors. ResMed’s Australian peers generally paynon-executive directors higher cash, award little or no equity, and have overall lower compensation than ResMed’s US peers. While the board considers Australian peer data, the board believes the most relevant peers for ResMed director compensation are US peers. ResMed’s primary listing is on the NYSE, we are primarily subject to US corporate governance requirements and risks, and our headquarters and all but one of our continuing directors and nominee reside in the US. In addition, thisUS-perspective is consistent with our executive compensation philosophy (which gives more weight to ResMed’s US peer’s pay practices), and more directly aligns the interests of our board members with that of our stockholders through ownership of equity. Finally, we do not wish to create internal or cultural divisions by using significantly differentiated pay models between directors based in the US and other countries. In February and May 2018, the board and compensation committee reviewed director compensation. As part of this review, they considered FW Cook’s report covering cash and equity compensation, compared to a peer group of 17 medical device and medical technology companies in the US, and a group of 13 Australian-based peers. The report used the same peer groups used to benchmark ResMed’s executive compensation for fiscal year 2018. More information on the peer groups is included in the section in our Compensation Discussion and Analysis section entitled“Peer group comparison.” At our 2017 annual stockholder meeting, as part of approval of the amendment and restatement of our 2009 Incentive Award Plan, our shareholders approved a $700,000 annual limit on combined cash and equity compensation for service as ournon-employee director. In 2017, the cash and equity compensation paid for service asnon-employee directors ranged from $315,017 to $345,017. Peter Farrell’s compensation for service as an employee is not covered by this limitation. After considering the FW Cook report and the compensation committee’s recommendation, in May 2018 the board agreed to keepnon-executive director compensation at the same value as has been in effect since fiscal year 2014. Each year, the committee also considered the structure of ournon-executive director equity program. Although our Australian peer group companies do not typically make equity grants to theirnon-executive directors, the practice is routine in the US. All but one of our US peers grant equity to thenon-executive directors, and as of May 2018, all those granting used full value shares, while 40% of them also granted stock options or stock appreciation rights. Given this prevalence, and consistent with theUS-based compensation philosophy described above, the board and committee decided to continue the equity structure of ResMed’snon-employee director program. The compensation committee and board will continue to monitor compensation trends, competitive practices, tax regulations, and other matters related tonon-executive director compensation, and make adjustments as appropriate. | Equity ownership guidelines |
Eachnon-executive director is expected to hold ResMed stock with a value of at least five times the annual cash retainer (a total value of $325,000 based on the fiscal year 2018 retainer and guidelines). New directors must meet this guideline within five years after their appointment to the board. If the guideline is not met, the director must retain shares equal to 50% of theafter-tax value of shares acquired on any restricted stock vesting or stock option exercise until the director’s guidelines are met. As of the record date, each of ournon-executive directors met the equity ownership guidelines. Wepro-rate value-based equity awards and retainers for all new directors (for the period between their start date and the next annual meeting or service period, respectively). We do not provide new directors with any initial inducement equity awards that are greater than or in addition to thepro-rated annual grant amount. Our chief executive officer does not receive additional compensation for his service as director. | No changes for fiscal year 2019 |
In May 2018, after considering market data prepared by FW Cook, the board decided that thenon-executive directors’ compensation program for fiscal year 2019 will remain the same as has been in effect since fiscal year 2014. The board has maintained that decision to date in fiscal year 2019. | Non-executive chairman’s compensation |
Since January 2014, Dr. Farrell has served as ournon-executive chairman, as well as anon-officer employee of the company. Dr. Farrell receives separate compensation for each of these roles. During fiscal year 2018, as ournon-executive chairman, he was provided the regular board retainer of $65,000, and the regular board equity grant with a value of $250,000, on the same terms as the othernon-executive board members. During fiscal year 2018, in connection with his service as anon-officer employee, Dr. Farrell was also paid an annual salary of $300,000, which was the same as the annualized salary he began receiving in January 2014, when he transitioned into the role ofnon-officer employee. Dr. Farrell is not eligible to participate in the annual short-term incentive program or the long-term incentive equity programs that we provide to our employees. During fiscal year 2018, we provided benefits and perquisites to Dr. Farrell in his role asnon-officer employee, that were broadly consistent with those provided to our executive officers, as described in “Compensation Discussion and Analysis.” The incremental cost to us for these benefits is described in the fiscal year 2018 compensation table below. We continue to have an executive agreement with Dr. Farrell that provides him with benefits in the event of a change of control. The program is described in detail in “Compensation Discussion and Analysis.” Consistent with a policy change adopted during fiscal year 2018 for executive officers, we entered into an amended change of control agreement with Dr. Farrell, so that in the future, all benefits would be on a “double-trigger” basis, that is, benefits would only accrue if we terminated Dr. Farrell’s employment, or if he resigned for good reason, but in either case within a specified period of time before or after a change of control. (Previously, the change of control agreement had provided for unvested equity awards to vest in full on the effective date of a change of control, without a qualifying termination.) If Dr. Farrell’s employment were to terminate under qualifying circumstances in connection with a change of control, then at the time of termination: (1) he would receive a severance payment equal to (a) two times his employee salary, plus (b) two times the amount we would be required to contribute on his behalf under our 401(k) plan based on his termination base salary; (2) he would become fully vested in his accrued retirement plan benefits; (3) all his unvested equity awards would vest in full; and (4) we would provide medical and dental health benefits for two years after the termination. The agreement does not include excise taxgross-ups; instead, it includes a “best pay” provision, reducing severance payments to the extent necessary so that no portion of any payments or benefits payable upon a change of control would be subject to excise tax if the reduction would result in the net amount payable to him being greater than the net amount received without the reduction. For two years after a qualifying termination in connection with a change of control, Dr. Farrell will be prohibited from inducing any person in our employment to terminate employment or accept employment with anyone other than us or, subject to certain limited exceptions, engage in any business or activity or render any services or provide any advice to any person, activity, business or entity that directly or indirectly competes in any material manner with us or meaningfully support any person, business, entity or activity or initiate or further that business or activity. The restriction on post-termination employment may not apply if he resides in California, due to certain provisions of California law. In addition, as a condition to payment and providing any benefits under the agreements, he must deliver a general release of claims in favor of us. In May 2018, our board (without Michael Farrell’s or Dr. Peter Farrell’s participation) agreed that the compensation arrangements for Dr. Farrell, both asnon-executive chairman, and as anon-officer employee, would remain the same for fiscal year 2019 as in fiscal year 2018. | | Fiscal year 2018 director compensation table |
The table below summarizes the compensation received by ournon-employee directors and Dr. Peter Farrell for the fiscal year ended June 30, 2018: | | | | | | | | | | | | Director | | Fees earned or paid in cash(a) | | Option awards(b)(d) | | Restricted stock units(c)(d) | | Other compensation(e) | | Total | Carol Burt | | $73,250 | | | | $250,017 | | | | $323,267 | Karen Drexler | | $40,625 | | | | $250,017 | | | | $290,642 | Peter Farrell | | $65,000 | | | | $250,017 | | $453,905 | | $768,922 | Gary Pace | | $65,000 | | | | $250,017 | | | | $315,017 | Rich Sulpizio | | $80,000 | | | | $250,017 | | | | $330,017 | Ron Taylor | | $95,000 | | | | $250,017 | | | | $345,017 | Jack Wareham | | $71,750 | | $250,002 | | | | | | $321,752 |
| | | | (a) | | Each director was also reimbursed for expenses incurred for attending meetings (although these amounts are not reflected in the table above).
| | | | (b) | | The amounts shown are the grant date fair value of options granted in fiscal year 2018, computed in accordance with FASB ASC Topic 718, based on the Black-Scholes model of option valuation. The following assumptions were used: |
| | | Assumption | | November 16, 2017 | Market price of stock | | $84.98 | Exercise price of option | | $84.98 | Expected stock volatility | | 23.0% | Risk-free interest rate | | 2.08% | Expected life | | 4.9 | Dividend yield | | 1.65% |
| | | | (c) | | The dollar value of the RSUs shown represent the grant date fair value of stock awards granted, computed in accordance with FASB ASC Topic 718, based on the $84.98 closing value on November 16, 2017, the date of the grant, rounded down to the nearest whole share. | | | | (d) | | The following table sets forth the number of options (both exercisable and unexercisable) and RSUs held by each of ournon-employee directors and Dr. Farrell as of the end of fiscal year 2018: |
| | | | | | Director | | Options outstanding at fiscal year end | | Restricted stock units outstanding at fiscal year end | Carol Burt | | 0 | | 2,991 | Karen Drexler | | 0 | | 2,991 | Peter Farrell | | 0 | | 2,991 | Gary Pace | | 67,139 | | 2,991 | Rich Sulpizio | | 0 | | 2,991 | Ron Taylor | | 0 | | 2,991 | Jack Wareham | | 103,226 | | 0 |
| (e) | Other compensation represents Peter Farrell’s total compensation for fiscal year 2018 will remain the same as in fiscal years 2014-2017. Fiscal year 2018 marks the fifth consecutive year we have not increasednon-executive board compensation. Chairman’s compensation
Since January 2014, Dr. Farrell has served as ournon-executive chairman, as well as anon-officer employee of the company. Dr. Farrell receives separate compensation for each of these roles. During fiscal year 2017, as our non-executive chairman, he was provided the regular board retainer of $65,000, and the regular board equity grant with a value of $250,000, on the same terms as the othernon-executive board members.
During fiscal year 2017, in connection with his service as anon-officer employee, as shown in the following table:
|
| | | | | | | | | | | | | | Salary | | Company contribution to 401(k) plan | | Supplemental life and disability insurance premiums | | Personal use of company aircraft(i) | | Sales incentive award(ii) | | Sales incentive award tax gross-up(ii) | | Total | $300,000 | | $10,800 | | $23,399 | | $89,709 | | $27,223 | | $2,774 | | $453,905 |
| | | | i. | | The calculation of the aggregate incremental cost for personal use of company aircraft includes the variable costs incurred as a result of personal flight activity, which includes fuel, trip related maintenance, universal weather monitoring,on-board catering, landing and ramp fees, excise taxes, and all other miscellaneous costs. No incremental cost for personal use of the aircraft is attributed when the aircraft was previously scheduled to the destination for a business purpose. Since the aircraft are primarily used for business purposes, the aggregate incremental cost excludes fixed costs, such as the monthly management fee and amortization, because such costs would have been incurred regardless of the personal use. | | | | ii. | | This sales incentive award program is primarily targeted for sales personnel and other key management who regularly interact with our customers and to recognize their contributions to us. The committee believes that participation by Dr. Farrell was also paidin this program enhances the overall sales incentive program, by providing the sales team with an annual salary of $300,000, which wasopportunity to interact with our founder. We provide these benefits on the same general basis as the annualized salary he began receiving in January 2014, when he transitioned into the role ofwe provide tonon-officernon-executives employee. Dr. Farrell is not eligiblewho qualify to participate in the annual short-term incentive program, or the long-term incentive equity programs that we provide to our employees. During fiscal year 2017, we provided benefits and perquisites to Dr. Farrell in his role asincluding a taxnon-officergross-up. employee, that were broadly consistent with thoseThe taxgross-up is provided to our executive officers, as described in “Compensation Discussionall participants, and Analysis.” The incremental costis provided so that they are not discouraged from participating by tax expenses that would otherwise be a personal expense attributable to us for these benefits is described inthis program. Our policy reflects the fiscal year 2017 compensation table below.We continue to have an executive agreement withcommittee’s belief that Dr. Farrell that provides him with benefits in the event of a change of control. TheFarrell’s attendance at this program is described in detail in “Compensation Discussiona part of his general business duties and Analysis.” In August 2017, we adoptedthat this is not a new policy regarding the change of control agreements for Dr. Farrell and our executive officers, so that in the future, all benefits would be on a “double-trigger” basis, that is, benefits would only accrue if we terminated Dr. Farrell’s employment, or if he resigned for good reason, but in either case within a specified period of time before or after a change of control. (Previously, the change of control agreement had provided for unvested equity awards to vest in full on the effective date of a change of control, without a qualifying termination.) If Dr. Farrell’s employment terminated under qualifying circumstances in connection with a change of control, then at the time of termination: (1) he would receive a severance payment equal to (a) two times his employee salary, plus (b) two times the amount we would be required to contribute on his behalf under our 401(k) plan based on his termination base salary; (2) he would become fully vested in his accrued retirement plan benefits; (3) all his unvested equity awards would vest in full; and (4) we would provide medical and dental health benefits for two years after the termination. The agreement does not include excise taxgross-ups; instead, it includes a “best pay” provision, reducing severance payments to the extent necessary so that no portion of any payments or benefits payable upon a change of control would be subject to excise tax if the reduction would result in the net amount payable to Dr. Farrell being greater than the net amount received without the reduction.
For two years after a qualifying termination in connection with a change of control, Dr. Farrell will be prohibited from inducing any person in our employment to terminate employment or accept employment with anyone other than us or, subject to certain limited exceptions, engage in any business or activity or render any services or provide any advice to any person, activity, business or entity that directly or indirectly competes in any material manner with us or meaningfully support any person, business, entity or activity or initiate or further that business or activity. The restriction on post-termination employment may not apply if he resides in California, due to certain provisions of California law. In addition, as a condition to payment and providing any benefits under the agreements, he must deliver a general release of claims in favor of us.
In May 2017, our board (without Michael Farrell’s or Dr. Peter Farrell’s participation) agreed that the compensation arrangements for Dr. Farrell, both asnon-executive chairman, and as anon-officer employee, would remain the same for fiscal year 2018 as in fiscal year 2017.
Fiscal year 2017 director compensation table
The table below summarizes the compensation received by ournon-employee directors and Dr. Peter Farrell for the fiscal year ended June 30, 2017:perquisite.
|
EXECUTIVEOFFICERS As of the record date, September 17, 2018, our executive officers were: | | | | | | | | | | | | | | | | | | | | | Director | | Fees earned
or paid
in cash(a) | | | Option
awards(b)(d) | | | Restricted
stock
units(c)(d) | | | Other
compensation(e) | | | Total | | Carol Burt | | $ | 65,000 | | | | | | | $ | 249,973 | | | | | | | $ | 314,973 | | Peter Farrell | | $ | 65,000 | | | | | | | $ | 249,973 | | | $ | 596,913 | | | $ | 911,886 | | Gary Pace | | $ | 65,000 | | | | | | | $ | 249,973 | | | | | | | $ | 314,973 | | Chris Roberts | | $ | 65,000 | | | $ | 249,995 | | | | | | | | | | | $ | 314,995 | | Rich Sulpizio | | $ | 80,000 | | | | | | | $ | 249,973 | | | | | | | $ | 329,973 | | Ron Taylor | | $ | 95,000 | | | | | | | $ | 249,973 | | | | | | | $ | 344,973 | | Jack Wareham | | $ | 83,000 | | | $ | 249,995 | | | | | | | | | | | $ | 332,995 | |
| | | | | (a) | Each director was also reimbursed for expenses incurred for attending meetings (although these amounts are not reflected in the table above).
|
(b) | The amounts shown are the grant date fair value of options granted in fiscal year 2017, computed in accordance with FASB ASC Topic 718, based on the Black-Scholes model of option valuation. The following assumptions were used:
|
| | | | | Assumption | | November 16, 2016 | | Market price of stock | | $ | 57.76 | | Exercise price of option | | $ | 57.76 | | Expected stock volatility | | | 25 | % | Risk-free interest rate | | | 1.66 | % | Expected life | | | 4.9 years | | Dividend yield | | | 2.29 | % |
(c) | The dollar value of the RSUs shown represent the grant date fair value of stock awards granted, computed in accordance with FASB ASC Topic 718, based on the $57.76 closing value on November 16, 2016, the date of the grant, rounded down to the nearest whole share.
|
(d) | The following table sets forth the number of options (both exercisable and unexercisable) and RSUs held by each of ournon-employee directors and Dr. Farrell as of the end of fiscal year 2017:
|
| | | | | | | | | Director | | Options outstanding
at fiscal year end | | | Restricted stock units outstanding
at fiscal year end | | Carol Burt | | | — | | | | 4,429 | | Peter Farrell | | | 218,392 | | | | 4,429 | | Gary Pace | | | 95,542 | | | | 4,429 | | Chris Roberts | | | 81,628 | | | | — | | Rich Sulpizio | | | 52,793 | | | | 4,429 | | Ron Taylor | | | — | | | | 4,429 | | Jack Wareham | | | 114,045 | | | | — | |
(e) | Other compensation represents Peter Farrell’s total compensation for fiscal year 2017 for service as anon-officer employee, as shown in the
|
following table:Executive officer
| | | | | | | | | | | | | | | | | | | | | | | | | Salary | | Company
contribution
to 401(k) plan | | | Supplemental life
and disability
insurance
premiums | | | Personal use
of company
aircraft(i) | | | Sales
incentive
award(ii) | | | Sales incentive
award tax
gross-up(ii) | | | Total | | $300,000 | | $ | 10,600 | | | $ | 23,093 | | | $ | 232,137 | | | $ | 22,582 | | | $ | 8,501 | | | $ | 596,913 | |
| | i. | The calculation of the aggregate incremental cost for personal use of company aircraft includes the variable costs incurred as a result of personal flight activity, which includes the occupied hourly rate, fuel, trip related maintenance, universal weather monitoring,on-board catering, landing and ramp fees, excise taxes, and all other miscellaneous costs. No incremental cost for personal use of the aircraft is attributed when the aircraft was previously scheduled to the destination for a business purpose. Since the aircraft are primarily used for business purposes, the aggregate incremental cost excludes fixed costs, such as the monthly management fee and amortization, because such costs would have been incurred regardless of the personal use.
|
ii. | This sales incentive award program is primarily targeted for sales personnel and other key management who regularly interact with our customers and to recognize their contributions to us. The committee believes that participation by Dr. Farrell in this program enhances the overall sales incentive program, by providing the sales team with an opportunity to interact with our founder. We provide these benefits on the same general basis as we provide tonon-executives who qualify to participate in the program, including a taxgross-up. The taxgross-up is provided to all participants, and is provided so that they are not discouraged from participating by tax expenses that would otherwise be a personal expense attributable to this program. Our policy reflects the committee’s belief that Dr. Farrell’s attendance at this program is a part of his general business duties and that this is not a perquisite.
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EXECUTIVEOFFICERSAge
| | As of the record date, September 19, 2017, our executive officers were:Position
| | | | | Executive officer
| | Age
| | Position
| Michael Farrell
| | 45 | | Chief executive officer | Rob Douglas
| | 57 | | President and chief operating officer | Jim Hollingshead
| | 54 | | President – sleep business | Richie McHale
| | 53 | | President – respiratory care | David Pendarvis
| Michael Farrell | | 46 | | Chief executive officer and director | Rob Douglas | | 58 | | Chief administrative officer, global general counsel and secretary | Brett Sandercock
| | 50 | | Chief financial officer | Raj Sodhi
| | 44 | | President – software as a service business (SaaS)
and chief technology officer
|
Executive officer bios
For a description of the business background of Michael Farrell, see “Proposal 1: Election of directors.”
ROB DOUGLAS
President and chief operating officer | Rob Douglas has been ResMed’s president since March 2013,Jim Hollingshead
| | 55 | | President – sleep business | Richie McHale | | 54 | | President – respiratory care business | David Pendarvis | | 59 | | Chief administrative officer, global general counsel and our chief operatingsecretary | Brett Sandercock | | 51 | | Chief financial officer since September 2011. Together with our chief executive | Raj Sodhi | | 45 | | President – software as a service business (SaaS) |
| Executive officer he holds full operational responsibility for ResMed and its subsidiaries. Mr. Douglas has had an extensive career within ResMed. His former roles include president – Asia Pacific and chief, global supply operations from May 2011, responsible for global manufacturing and commercial distribution and sales operations in the Asia Pacific region; chief operating officer – Asia Pacific since 2008; chief operating officer – Sydney from 2005, responsible for our manufacturing and research and development; vice president of operations from 2003 responsible for our manufacturing and vice president of respiratory and cardiac business from 2002. Mr. Douglas first joined ResMed in 2001 in the role of vice president of corporate marketing.biographies Mr. Douglas has a Master of Business Administration from Macquarie University, a bachelor’s degree in electrical engineering with first-class honors and a B.Sc. (Computer Sciences) from the University of New South Wales, Sydney. Mr. Douglas currently serves as vice chairman on the board of directors and executive committee of the San Diego Regional Economic Development Corporation and is also serving as Vice Chairman of Evonexus.
|
For a description of the business background of Michael Farrell, see “Proposal 1: Election of directors.” ROB DOUGLAS President and chief operating officer Rob Douglas has been ResMed’s president since March 2013, and our chief operating officer since September 2011. Together with our chief executive officer, he holds full operational responsibility for ResMed and its subsidiaries. Mr. Douglas has had an extensive career within ResMed. His former roles include president – Asia Pacific and chief, global supply operations from May 2011, responsible for global manufacturing and commercial distribution and sales operations in the Asia Pacific region; chief operating officer – Asia Pacific since 2008; chief operating officer – Sydney from 2005, responsible for our manufacturing and research and development; vice president of operations from 2003 responsible for our manufacturing and vice president of respiratory and cardiac business from 2002. Mr. Douglas first joined ResMed in 2001 in the role of vice president of corporate marketing. Mr. Douglas has a Master of Business Administration from Macquarie University, a bachelor’s degree in electrical engineering with first-class honors and a B.Sc. (Computer Sciences) from the University of New South Wales, Sydney. Mr. Douglas currently serves asco-vice chairman on the board of directors of the San Diego Regional Economic Development Corporation and is also serving as Vice Chairman of EvoNexus. JIM HOLLINGSHEAD President – sleep business Jim Hollingsheadwas appointed president – sleep business in July 2017. Mr. Hollingshead joined ResMed in March 2010 as vice president of strategy and business development. In August 2011, his role was expanded to include the leadership of ResMed ventures and initiatives, the unit responsible for growing early stage businesses. In March 2013, he was appointed president – Americas. Before joining us, Mr. Hollingshead spent 18 years in strategy consulting, where he worked with senior executives across a wide range of industries. From September 2008 to February 2010, he was a senior partner in the strategy and life sciences practices at Deloitte Consulting, based in San Francisco. Before that Mr. Hollingshead was managing partner, west coast for Monitor Group, a global strategy consulting firm. While at Monitor Group, Mr. Hollingshead worked in various offices around the world, and successfully launched and ran three different practices, including apan-European marketing strategy practice based in London. Mr. Hollingshead currently sits on the board of SleepScore Labs, a joint venture between ResMed, Pegasus Capital and Oz Media, aimed at creating a consumer marketplace for scientifically validated sleep solutions like the S+ by ResMed. Mr. Hollingshead holds an A.B. in history and international relations with highest distinction from Stanford University, and an M.A. and Ph.D in political science from the University of California at Berkeley, where he was awarded a graduate student fellowship by the National Science Foundation. RICHIE MCHALE President – respiratory care business Richie McHale was appointed president of ResMed’s respiratory care business in July 2017. He previously served as the company’s chief human resources officer, beginning in November 2013, and joined ResMed in 2011 as director of its United Kingdom business team. Mr. McHale has 25 years’ experience in the life sciences sector, working primarily in commercial roles within pharmaceutical, biotechnology and medical technology companies. Prior to joining ResMed, he was managing director of UCB Pharma’s United Kingdom and Ireland business units. He also served as chair of the European Medicines Group and a member of the Board of Management for the Association of British Pharmaceutical Industry (ABPI). Mr. McHale holds a master’s degree in coaching psychology from the Metanoia Institute in London. DAVID PENDARVIS Chief administrative officer, global general counsel and secretary David Pendarvis has been chief administrative officer and global general counsel since May 2011. He served as interim president for ResMed EMEA and Japan from March to August 2017, in addition to his chief administrative officer and global general counsel roles. Mr. Pendarvis joined ResMed as global general counsel in September 2002, and has been corporate secretary since February 2003. From February 2005 to May 2011, he served as senior vice president of Organizational Development.organizational development. Before joining ResMed, Mr. Pendarvis was a partner in the law firm of Gray Cary Ware & Freidenrich LLP, from September 2000 until September 2002, where he specialized in intellectual property and general business litigation. From 1986 to 2000, he was a partner with Gibson, Dunn & Crutcher LLP. From 1984 to 1986 he was a law clerk to the Hon. J. Lawrence Irving, U.S.US District Judge, Southern District of California. Since 2017, Mr. Pendarvis has served on the board of directors ofWD-40 Company (NASDAQ: WDFC), a global marketing organization dedicated to creating positive lasting memories by developing and selling products that solve problems in workshops, factories and homes around the world. He has also served on the board of directors of the San Diego Regional Chamber of Commerce since 2013 and the Corporate Directors Forum since 2010. From 2009 to 2016, he was a director on the board of Sequenom, Inc., a NASDAQ-listed company providing innovative technologies, products, and diagnostic tests for molecular diagnostic markets. At Sequenom, he chaired the compensation committee and served on the audit committee. Mr. Pendarvis holds a Bachelor of Arts from Rice University; a Juris Doctor (J.D.),cum laude,, from the University of Texas School of Law; and a Master of Science in Executive Leadership from the University of San Diego. BRETT SANDERCOCK Chief financial officer Brett Sandercock has been chief financial officer since January 1, 2006. From November 2004 until December 2005, Mr. Sandercock was vice president, treasury and finance at ResMed. Before that, from 1998 to November 2004, Mr. Sandercock was group accountant and then controller at ResMed. From March 1996 to August 1998 he was manager, financial accounting and group reporting at Norton Abrasives, a division of the French multi-national, Saint Gobain. Mr. Sandercock also held finance and accounting roles from November 1994 to March 1996 at Health Care of Australia, a large private hospital operator in Australia. From 1989 to 1994, Mr. Sandercock worked at PricewaterhouseCoopers in Sydney, specializing in audits of clients predominantly focused on distribution and manufacturing, financial services and technology. Mr. Sandercock holds a B.Ec. from Macquarie University and is a certified chartered accountant. RAJ SODHI President – software as a service (SaaS) business and chief technology officer Raj Sodhi was appointed president of ResMed’s software as a service (SaaS) business in July 2017, adding to his current role as2017. He was previously president of Healthcare Informatics, which he was appointed to in 2014. He was previouslyhealthcare informatics and vice president of the global healthcare informatics team. He joined ResMed in 2012 through the acquisition of Umbian Inc. of which he wasco-founder and president. Before ResMed and Umbian, Mr. Sodhi worked in the financial services industry, designing, developing and managing SaaS solutions. He was senior vice president of business development and chief technology officer for Skipjack Financial Services from 2005 to 2009, andco-founder and chief technology officer of TransActive Ecommerce Solutions from 2000 to 2005. Mr. Sodhi holds a Master of Business Administration and a Bachelor of Science in mathematics and statistics from Dalhousie University in Halifax, Nova Scotia. COMPENSATIONDISCUSSIONANDANALYSIS (CD&A) Introduction
This compensation discussion and analysis section discusses the compensation policies and programs for our named executive officers. Our named executive officers for fiscal year 20172018 were: Michael Farrell, our chief executive officer; Brett Sandercock, our chief financial officer; and our three next most highly paid executive officers: Rob Douglas, our president and chief operating officer; Jim Hollingshead, the president of our president – seepsleep business; and David Pendarvis, our chief administrative officer, global general counsel and secretary. This section also discusses our board compensation committee’s role in designing and administering our compensation programs and policies and in making compensation decisions for our executive officers. OverviewThe goal of our compensation programs and policies is to align compensation delivery with performance for shareholders, measured both internally against budgets and externally through share price. We believe this alignment was achieved in fiscal year 2017 – executive summary2018.
| Overview of fiscal year 2018 – executive summary |
Financial and operating success. During the 20172018 fiscal year, we continued our trend of successful financial performance. We increased net revenue by double-digits, both on a GAAP basis and after adjusting for currency fluctuation. Operating income strongly increased, by 27% on a GAAP basis, and 19% after adjustments. Although operatingnet income and diluted earnings per share and net income declined year-over-year on a GAAP basis, on an adjusted, ornon-GAAP basis, each grew in mid to high single-digits, asstrongly, by at least 25%. These metrics are illustrated in the table below, with GAAP and correspondingnon-GAAP measures. We believe thesenon-GAAP measures provide better insight in evaluating our performance. We employ and report thesenon-GAAP measures in our quarterly financial reports. | Financial measure | | Percentage change | | Fiscal year 2017 performance | | Fiscal year 2016 performance | | Percentage change | | Fiscal year 2018
performance | | Fiscal year 2017
performance | Net revenue | | 12% | | $2.1 billion | | $1.84 billion | | 13% | | $2.3 billion | | $2.1 billion | | | (13% on a constant currency basis) | | | | | | (10% on a constant currency basis) | | | | | Operating income | | -1% | | $425.8 million | | $429 million | | 27% | | $541.8 million | | $425.8 million | | | (9%non-GAAP) | | ($508.4 million non-GAAP) | | ($465 million non-GAAP) | | (19%non-GAAP) | | ($606.6 million non-GAAP) | | ($508.4 million non-GAAP) | Net income | | -3% | | $342.3 million | | $352.4 million | | -8% | | $315.6 million | | $342.3 million | | | (6%non-GAAP) | | ($401.3 millionnon-GAAP) | | ($379 millionnon-GAAP) | | (27%non-GAAP) | | ($507.8 millionnon-GAAP) | | ($401.3 millionnon-GAAP) | Diluted earnings per share | | -4% | | $2.40 | | $2.49 | | -9% | | $2.19 | | $2.40 | | | (5%non-GAAP) | | ($2.82non-GAAP) | | ($2.68non-GAAP) | | (25%non-GAAP) | | ($3.53non-GAAP) | | ($2.82non-GAAP) |
For a reconciliation between GAAP andnon-GAAP measures, see Appendix A to this proxy statement. In fiscal 2017,year 2018, we made good progress with the three following foundations that allow us to drive our ResMed 2020 strategy: (1)
| (1) | global leadership in digital health and connected care. As of fiscal year end, over 5 million patients were monitored at home with our connected care systems, our AirView system had over 8 million patients, and over 1 million patients had signed up for myAir, while our Brightree system had over 64 million patient accounts as part of its post-acute care network. Our connected health strategy is advancing across multiple markets; |
| (2) | expansion in new markets. We ended fiscal year 2018 with sales (adjusted for short-term incentive measurements) in our respiratory care, Asia growth markets,software-as-a-service, and Germany Healthcare, in the aggregate, of approximately $623 million, with constant-currency growth of 5%; and |
| (3) | strong focus on operating excellence: for talent development and to leverage our scale. Each quarter of fiscal year 2018 showed double-digit net operating profit improvement. For the full fiscal year, our adjusted operating profit, net income, and earnings per share all grew faster than our adjusted net revenue. |
Strong absolute and connected care; (2) expansion in high growth markets; and
(3) strong focus on operating excellence: for talent development and to leverage our scale.
Totalrelative total stockholder returns.Our total stockholder returnreturns (TSR) on the NYSE were considerably abovevery strong, outperforming the S&P 500 index whichand our peer group. Ourone-, three-, and five-year annualized TSR were 35%, 25%, and 20%, respectively. In comparison, the S&P 500 index experienced average annualized TSR of 18%14%, 10%12%, and 15%13% over theone-, three-, and five-year periods ended June 30, 2017. Ourone-year TSR was 26%; our three-year annualized TSR was 18%, and our five-year annualized TSR was 22%.2018.
Against our peer group, our annualized NYSE TSR was above the median over five years, and although it was belowabove the median75th percentile over one and three years, in each case it provided very positive shareholder returns.years. The table below shows these comparisons with more precision. | | | | | | | | | | | | | Period | | ResMed’s
annualized total
stockholder return
(NYSE) | | | S&P 500 average
annualized total
stockholder return | | | NYSE peer group
median annualized
total stockholder
return | | One year ended June 30, 2017 | | | 26 | % | | | 18 | % | | | 31 | % | Three years ended June 30, 2017 | | | 18 | % | | | 10 | % | | | 21 | % | Five years ended June 30, 2017 | | | 22 | % | | | 15 | % | | | 21 | % |
| | | | | | | | | | | | | Period | | ResMed’s
annualized total
stockholder return
(NYSE) | | S&P 500 average
annualized total
stockholder return | | NYSE peer group
median annualized
total stockholder
return | One year ended June 30, 2018 | | 35% | | 14% | | 11% | Three years ended June 30, 2018 | | 25% | | 12% | | 17% | Five years ended June 30, 2018 | | 20% | | 13% | | 21% |
Because our primary listing is on the NYSE, our TSR based on performance of our CHESS Units of Foreign Securities trading on the ASX is impacted by currency fluctuations between the US and Australian dollars. Nevertheless, ourone-, three-, and five-year annualized total stockholder returnsTSR on the ASX were very strong at, respectively, 23%43%, 25%27%, and 29%25%. These were significantly above the ASX 100 index, which experienced average annualized total stockholder returns of 10%5%, 2%4%, and 7%5%, over theone-, three-, and five-year time periods. It was also above the median75th percentile of our Australian compensation peers for aone-, three-, and five-year period; and slightly under the 75th percentile for the3-yearperiod. The table below shows these figures. | | | | | | | | | | | | | Period | | ResMed’s
annualized total
stockholder return
(ASX) | | | ASX 100 average
annualized total
stockholder return | | | ASX peer group
median annualized
total stockholder
return | | One year ended June 30, 2017 | | | 23 | % | | | 10 | % | | | 20 | % | Three years ended June 30, 2017 | | | 25 | % | | | 2 | % | | | 9 | % | Five years ended June 30, 2017 | | | 29 | % | | | 7 | % | | | 14 | % |
| | | | | | | | | | | | | Period | | ResMed’s
annualized total
stockholder return
(ASX) | | ASX 100 average
annualized total
stockholder return | | ASX peer group
median annualized
total stockholder
return | One year ended June 30, 2018 | | 43% | | 5% | | 13% | Three years ended June 30, 2018 | | 27% | | 4% | | 8% | Five years ended June 30, 2018 | | 25% | | 5% | | 15% |
CapitalStrong capital management and return to our stockholders. During fiscal year 2017,2018, we increased the dividend paid to stockholders. In July 2016,2017, we increased our quarterly dividend by 10%6%, from $0.30$0.33 to $0.33$0.35 per share; and in July 2017,August 2018, we announced a further 6% increase, to $0.35$0.37 per share. During fiscal year 2017,2018, we paid $186approximately $200 million in dividends, representing a dividend payout ratio of 54%63% of net income, or 39% of adjusted(non-GAAP) net income. Given our significant capital deployment for acquisitions during fiscal year 2016, we believed it was prudent to temporarily suspendWe also resumed our share repurchase program. We have not yet resumed the repurchase program, but we are authorized to do so, and we intend tore-commence the repurchase program in the second quarter of fiscal year 2018, ifand during the balance of fiscal year 2018 we determine conditions warrant.repurchased approximately $54 million of stock.
Compensation at risk and tied to our performance.During fiscal 2017,year 2018, approximately 89% of our chief executive officers’ compensation and 81%82% of our other named executive officers’ compensation was at risk in the form of annual cash incentives and equity awards, which are paid or earned based on our financial and stock price performance. The compensation decisions for fiscal year 20172018 maintained theat-risk weighting for our named executive officers largely consistent with 2016,2017, with most of the increases in compensation in the form ofat-risk equity compensation. Based on this incentive-driven structure, our pay delivery matched both internal operating performance and external share price performance in 2017.2018. | | • | | Annual cash incentive awards were earned at less than target,in a range from approximately 97% to 103%, based on performance in twoour key financial measures. During fiscal year 2017, we slightly missed our two targeted performance goals under our annual cash short-term incentive program, resulting in an earned payout of approximately 90% of incentive opportunity based on2018, thepre-established global formula. The shortfall from target was not adjusted in any way using discretion, and payout below the target was viewed as apay-for-performance outcome, despite relatively strong TSR during the same period. The primary performance measures for 2017, at the global level, continued to beour chief executive officer and our president and chief operating officer were adjusted net sales, which was achieved at approximately 97%99.5% of target, and adjusted netoperating profit (after tax) as a percentage of revenue, which was achieved at approximately 96%102.1% of target, weighted equally. For executive officers with specific unit responsibilities, such as Mr. Hollingshead, 70%Based on these metrics, these two executives earned approximately 102.7% of their payout was determinedtarget short-term cash incentive. These same two components, weighted equally, comprised 80% of the incentive opportunity for our chief financial officer and our global general counsel and chief administrative officer; and 40% of the opportunity for the president of our sleep business. The balance of the opportunity for these three executives were based on these goals at the regional orspecific business unit level, with the remaining 30% at the global level. Mr. Hollingsheadgoals. These three officers earned between approximately 87%96.5% and 97.7% of target opportunity. We believe these measures reflect operating activities that are within the officers’ purview and most important to long-term stockholder value creation, as they focus on top line and bottom line performance. |
We achieved between 93% to 102% of targeted performance under each of our goals, resulting in total payouts ranging from 96% to 102% of target bonus opportunity for each of our named executive officers as illustrated in the tables below. | | | | | | | | | | | Goal | | Target performance | | Actual performance | | % of goal achieved | | % of payout earned (before weighting) | Adjusted net sales | | $2,270,177 | | $2,259,764 | | 99.54% | | 98.47% | Adjusted operating profit as % of sales | | 27.21% | | 27.77% | | 102.08% | | 106.93% | Growth markets adjusted net sales | | $637,017 | | $593,887 | | 93.23% | | 77.43% | Sleep Adjusted Net Sales | | $1,638,327 | | $1,670,934 | | 101.99% | | 106.63% | Sleep Adjusted Operating Profit as % of Net Sales | | 32.39% | | 31.72% | | 97.93% | | 93.10% | | | | | | | | | | | | Executive | | Farrell | | Douglas | | Sandercock | | Pendarvis | | Hollingshead | Corporate adjusted net sales | | 50% weight/
49.24% payout | | 50% weight/
49.24% payout | | 40% weight/
39.39% payout | | 40% weight/
39.39% payout | | 20% weight/
19.69% payout | Adjusted Operating Profit as % of Net Sales | | 50% weight/
53.47% payout | | 50% weight/
53.47% payout | | 40% weight/
42.77% payout | | 40% weight/
42.77% payout | | 20% weight/
21.39% payout | Growth markets adjusted net sales | | | | | | 20% weight/
15.49% payout | | 20% weight/
15.49% payout | | 20% weight/
15.49% payout | Sleep adjusted net sales | | | | | | | | | | 20% weight/
21.33% payout | Sleep adjusted operating profit as % of net sales | | | | | | | | | | 20% weight/
18.62% payout | Total payout as % of target opportunity | | 102.70% | | 102.70% | | 97.65% | | 97.65% | | 96.51% |
| | • | | We set challenging goals for our executives for fiscal year 20172018. Our fiscal year 20172018 adjusted net sales goal required 16%10% constant currency growth over fiscal year 2017. This target was higher than our 13% constant currency growth in fiscal 2016. When the fiscal year 20172018 adjusted net sales goal was set, it was substantially above our peers’ median trailing twelve monthtwelve-month revenue growth rate of 3%8% through June 30, 2016.2017. Our actual fiscal year 2017 adjusted2018 net sales growth (adjusted for short-term incentive plan calculations) was 13%9.3%, which was above the median of our peer group. |
Similarly, our fiscal 2017year 2018 goal for adjusted netoperating profit after tax as a percentage of revenue was set at 21.97%27.21%. This was above the mediana higher percentage of revenue than our peers’ trailing twelve month’s net profit performance through June 30, 2016, according to our compensation consultant. Theactual fiscal 2017 adjusted netoperating profit target was set at a level that,percentage of 26.82%, and when combined with our 20162018 sales target, was projected to deliver increased netoperating profit after tax in fiscal year 2017,2018, compared with fiscal year 2016.2017. Our actual adjusted netoperating profit performance of 21.19%27.77% was slightly belowabove our internal goal, but nevertheless, netand operating profit afterbefore tax, in dollars (adjusted for short-term incentive plan calculations), increased by 7%17%, from $409$554 million in fiscal year 2016, million2017, to $438$649 million in fiscal year 2017. Net operating profit margin was above the median of our peer group’s trailing twelve-month net profit performance through June 30, 2017, reflecting our high margins and challenging goals.2018. Our equity program is tied to stock price performance and provides a direct link with the long-term interests of our stockholders. | | • | | Our fiscal 2017year 2018 equity program design is balanced, with 50% of grant value in long termlong-term performance units, providing a direct link with the long-term interests of our stockholders. Since fiscal year 2013, 50%Fifty percent of our named executiveexecutives’ annual equity award values are in the form of performance-based stock units, or PSUs, that are earned over a four-year performance period beginning on our annual meeting date, with the number of shares to be earned depending on our total stockholder return, or TSR, over the applicable performance period. The outstanding PSU grants made in fiscal 2016 and 2017 require a minimum threshold of 22% cumulative annual TSR performance, before threshold shares are earned, and they require 46% cumulative TSR performance before target shares are earned, each as measured over a four yearfour-year performance period, with opportunity to earn the awardsthreshold number of shares after three years if cumulative TSR performance is at least 16% at the end of three years, and target number of shares if cumulative TSR performance is 22% at the end of three years. |
In addition to the PSUs described above, the other 50% of the grant date value of our annual equity awards are granted in the form of either (1) stock options, or (2) restricted stock unit awards. Before the grant date, the officer can choose to receive the remaining 50% of grant value as 100% options, 100% performance-based RSUs, or 50% of each. Both the options and RSU awards time vest subject to continued service over a three-year period, but the RSU awards, consistent with prior years, are subject to the performance condition that we achieve 50% of our budgeted adjusted netoperating profit in our third and fourth quarters, either individually or combined. Because we exceeded the minimum targeted adjusted net profit for the second half of fiscal year 2017,2018, all RSUs that were granted during the fiscal year were earned, but continue to be subject to a three-year service-based vesting requirement from the grant date. We believe our RSU awards and stock option awards are also performance-based, because the ultimate value an executive will derive depends mostly on our stock performance, which in turn is driven by our financial performance. The fiscal year 20172018 program is illustrated below: 
 | | • | | Balancing Australian and US compensation practices. The committee adopted this long-term equity design to attempt to balance the competing considerations ofpay-for-performance orientation, stockholder alignment, retention, and administrative complexity. In particular, granting 50% of the award in PSUs is intended to balance the current practices amongbetween ourUS-based compensation peers and our Australian peers. According to FW Cook’s August 20162017 report, which the committee reviewed before the fiscal 2017year 2018 compensation decisions were made, our US peers, as a group, granted, on average, 31% of their long-term incentive value in the form of performance awards, 27% in restricted stock or RSUs, and 46% in stock options. FW Cook’s August 2017 report showed a similar split, with our US peers granting, on average, 34% of their long-term incentive value in the form of performance awards, 30%28% in time-vested restricted stock or RSUs, and 42%37% in stock options. Our 50% mix of performance awards exceeds this peer data. In contrast, our Australian peers granted almost 99% of their long-term incentive value in the form of performance-based equity. At the same time, our Australian peers typically provide considerably higher base salaries, and lower long-term incentive opportunities than the US peers. |
Most of our executive officers reside and work in the US, our primary listing is on the NYSE, and most of our competitors areUS-based, so we consider this design a balanced approach, appropriate for our labor and investor markets. Our RSUs and PSUs do not earn any dividends or dividend equivalents, and so are valued less than at our peers who do provide dividend equivalents. | | • | | Despite meaningful actual TSR performance over the three-year performance period of 65%, PSUs based on a performance period ending in fiscal year 20172018 resulted in zero realized compensationpayouts below target. PSU grants that vested in fiscal year 2018 were made in fiscal year 2014 were2015, based on our relative TSR performance, over the three-year performance period, as compared to the US Dow Jones Medical Device Index, a broad-based index of medical device companies. These PSUs required TSR at the median of the index before any portion of the performance-based equity awards are earned; target performance requiresrequired TSR at the 60th percentile. These PSUs ended their three-year performance periodsperiod during fiscal 2017. Despiteyear 2018. ResMed’s TSR of 28%was 64.90% over the three-year performance period ending November 2016,2017, which was above the November 2013 PSUs did not meetrequired threshold performance and noof 56.94%, but below the 60th percentile target level of 69.50%. As a result, shares were earned or paid out. Our executive officers realized substantially less than target value from the equity grants made to them in fiscal year 2014, due to falling shortdelivered at only 57% of the PSU earnout threshold, and despite a materially positive return for ResMed shareholders during the performance period.target number. This outcome speaks to the high goal-setting, with a target at the 60th60th percentile and threshold at the median, and the failure to earn anythingat target, despite 28%approximately 65% absolute TSR during the performance period, is viewed as a pay for performance outcome that did not affect 2017 compensation decisions. |
| • | | PSUs scheduled to end in fiscal 2018 are tracking below threshold, based on interim relative TSR performance.PSU grants made during fiscal year 2015 remain outstanding until November 2017, and can be earned based on the same measures of our relative TSR performance against the US Dow Jones Medical Device Index discussed above. Based on TSR performance through June 30, 2017, interim TSR for these outstanding PSU grants showed interim TSR of 50%, slightly below the threshold (median) performance of 54%, and would not have earned a payout. This result reflects the plan design, and our relative stock price performance during the truncated interim performance periods. These preliminary results could change over the course of the full PSU performance periods.pay-for-performance outcome.
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| | • | | PSUs granted duringsince fiscal yearsyear 2016 and 2017 PSUs can be earned based on absolute TSR growth, with meaningful TSR growth targets set for a four-year performance period. In fiscal year 2017,2018, the committee continued the PSU design begun in fiscal 2016: PSUs are earned for absolute shareholder returnTSR with a target of 10% compounded annual growth.growth, which equates to 46% growth over four years, and 33% cumulative growth over three years. This design is based on the committee’s belief that its executives are responsible for creating value for our stockholders and that the performance of other companies is an external variable that is outside their control and outside their scope of responsibility. TheIn establishing this design, the committee desired to continue to provide strong incentives to management to achieve stock price appreciation and to closely align management’s interests with actual long-term stockholder experience, while rewarding meaningful performance consistent with company goals. |
Thus, for grants madeOur outstanding long-term PSUs granted in fiscal 2016, 2017, and 2017, our long-term PSUs2018 are based on cumulative absolute TSR performance over a four-year performance period, with threshold, target and maximum performance based on achieving four-year cumulative TSR of 22%, 46%, and 75%, respectively. Payouts may range from 50% to 225% of target shares granted, with no shares earned for below-threshold performance.
In addition, given daily stock price volatility and the difficulties ofour outstanding PSUs provide for an earlier earnout opportunity, to recognize that a multi-year TSR programs beingincentive is effectively subject topoint-to-point comparison, the fiscal 2016 and 2017 PSUs provide for an opportunity to earn some shares earlier.comparison. If we achieve the target level for cumulative three-year absolute TSR performance of 33%%16% at the end of the third year of the performance period, that performance accelerates the award with a revised earn out schedule that is still based on the same annualized TSR growth for threshold, target and maximum growth requirements, all as set forth below. | | | | | | | | | Growth requirements | | Cumulative
4-year TSR | | Accelerated
cumulative
3-year TSR | | Payout percentage
of target shares
granted | | | Annual base TSR
growth | | Cumulative 4-year TSR | | Accelerated cumulative
3-year TSR | | Payout percentage of target shares granted | Below threshold | | | Less than 22 | % | | Less than 16 | % | | 0 | | | Below 5% | | Less than 22% | | Less than 16% | | 0 | Threshold | | | 22 | % | | 16 | % | | 50 | % | | 5% | | 22% | | 16% | | 50% | Target | | | 46 | % | | 33 | % | | 100 | % | | 10% | | 46% | | 33% | | 100% | Maximum | | | 75 | % | | 52 | % | | 225 | % | | 15% | | 75% | | 52% | | 225% |
The committeedesign also seeks to minimize the effects of the volatility of the market and the difficulties withpoint-to-point comparisons, sincerecognizes that shareholders may buy and sell on a different schedule than only the three- and four- year anniversaries of grant. Thus,So an additional feature of the fiscal 2016 and 2017our outstanding PSUs is that 25% of the target PSUs may be earned and banked if, at the end of any fiscal quarter, during the first three years, cumulative TSR since grant is equal or greater than 33% (that is, the required minimum performance for payout at target after three years). Banked awards are paid at the end of the third year, count against actual awards earned based on performance at the end of the performance period, and once the banking condition is met, no additional banking may occur. The committee believes this current PSU design more closely aligns with actual stockholder experience, is less subject topoint-to-point stock price volatility, and provides a stronger retention mechanism.mechanism, and rewards long-term value creation for our stockholders. | • | | PSUs scheduled to end after fiscal year 2018 were below target, based on interim relative TSR performance.As of June 30, 2017, the November 2015 PSU grant had absolute TSR of 31%, which would result in 69% of target PSUs earned at the end of the period. The November 2016 PSU grant had absolute TSR of 30% as of June 30, 2017, which would result in 66% of target PSUs being earned. These results reflect the plan design, and our total shareholder return during the truncated interim performance periods. These preliminary results could change over the course of the full PSU performance periods. The performance tracking described above is provided for information only and has no bearing on actual final earnout.
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Market-competitive compensation. Our objective is to provide a target total compensation program that is competitive withsimilarly-sizedUS-based public companies in the medical device and medical technology industries with which we compete for executive talent. One of the three foundations of our ResMed 2020 strategy is to ensurebest-in-class talent, which we believe requires providing total direct compensation for executives that is at least near the median. The committee reviews benchmark data, but does not target a specific benchmark level. At the beginning of fiscal 2017,year 2018, FW Cook’s report to the committee showed that fiscal year 20162017 total direct compensation (measured by base salary, short-term incentive at target, and long-term incentive at grant date value) for our chief executive officer was positioned at approximatelya little below the 50th percentile for US peers and 85th percentile for the secondary Australian peers. This data illustrated that our chief executive officer had a base salary at the 3045th percentile, total target cash compensation at the 4555th percentile and equity values at the 5550th percentile of the U.S peer group, consistent with the philosophy to provide a greater portion of compensation in the form ofat-risk and equity compensation. For fiscal year 2017,2018, the committee increased the chief executive officer’s base salary by 6%4%, to recognize his growthcontinued development and performance. In light of the anticipated compensation practices of peer companies, and consistent with its philosophy of providing a greater percentage of compensation at risk and tied to our performance, the committee increased the chief executive officer’s long-term incentive opportunity by 9%. Based on FW Cook’s August 2017 report, these adjustments resulted in fiscal year 2017 total target compensation (measured by base salary, short-term incentive at target, and long-term incentive at grant date value) and actual compensation (measured by base salary, short-term incentive earned, and long-term incentive at grant date value) slightly below the median of our peer group. Last year’s positivesay-on-pay vote and continued implementation of emerging best practices. At our 20162017 annual meeting, our stockholders voted to approve, on an advisory basis, the compensation paid to our executive officers disclosed in last year’s proxy statement; 83%94% of the shares voted on this proposal voted in favor.favor of our executive compensation. The 83%94% support was a decreasean increase from both the 83% approval in November 2016 and the 87% approval in 2015,November 2015. Based on feedback from our stockholders, we believe this improvement was due primarily to the three compensation program changes we announced in August 2017, that were intended to address stockholder concerns and the 94% approval in 2013to continue to move our program to best practices. These changes included elimination of single trigger equity acceleration, adoption of a clawback policy, and 2012. Despite this decline, theincreased stock ownership guidelines for our chief executive officer. The compensation committee also believes this vote is a signal of support for our programs, which are set based on a US compensation philosophy. We believe that our dual US and Australia shareholder base affects the rate ofsay-on-pay support in a manner that does not apply to many of our US competitors, where the shareholders are US basedmoreUS-based and expect a pay program driven by US labor market norms. Our 20162017 NYSE shareholder support was 89%98%, but ASX support was 55%85%. The committee believes these variations in approval rates primarily reflect the fact that ResMed’s compensation practices are more aligned with US compensation practices than those at ASX companies, combined with an expectation by some Australian shareholders that theUS-based executive team should have compensation that reflects a differentthe local Australian labor market.market, rather than the market where most of the executives are domiciled and where ResMed competes for talent. As discussed above in thesub-section titled “Balancing Australian and US compensation practices,” theUS-based pay philosophy results in executive compensation that is different than the Australian model, with considerably lower base salary, higher short-term cash incentives, and higher target equity value. Further, US norms have a lower percentage of equity value subject to performance conditions than exhibited by Australian companies, which we balance by granting a higher percentage of equity in a performance-based manner than the average company in our US peers. We believe our compensation arrangements balance the competing philosophies and are in the best long-term interests of our stockholders, because most of our executive officers are in the US, and we compete for talent mostly with companies that pay using US compensation structures. We continued informal dialogue with our ASX stockholders during fiscal year 2017;2018; but in light of the approval in thesay-on-pay vote, broadly maintained consistency in our executive compensation program. Best practices. Our compensation committee, assisted by its independent compensation consultants, continuously monitors emerging best executive compensation practices, particularly amongat our peer companies. As part of this review, and also based on communications with our stockholders, in August 2017,during fiscal year 2018, we made three changes to our executive compensation program: | | • | | Clawback policy adopted. The committee adopted a compensation recovery policy, which provides that we may recover annual or long-term incentive compensation from our executive officers if ResMed is required to prepare an accounting restatement due to its material noncompliance with any financial reporting requirement under United States securities laws. The policy allows recoupment from an officer regardless of the particular officer’officer’s role in the transactions or reporting that caused the noncompliance. The policy is effective July 1, 2017, and applies to any amounts of incentive compensation that would not have been awarded, vested, or paid to the officer had the financial results been properly reported. |
| | • | | Required double-trigger equity acceleration in our change of control agreements.We have amended the change of control agreements with our executive officers, so that in the event of a change of control, the agreements will only accelerate vesting of equity on a double-trigger basis, that is, if their employment is terminated under specified circumstances within six months before or one year after a change of control. In addition, equityEquity grants made to our executive officers made after July 1, 2017 willduring fiscal year 2018 include a similar double-trigger acceleration for a change of control. |
| | • | | Increased equity award ownership guidelines. We have increased the stock ownership guidelines for our chief executive officer, from 300% of salary, to 500%. As of 2017 fiscalyear-end, our chief executive officer exceeded this guideline. |
Ownership guidelines for the other named executives remain at 150% of salary. We give our executive officers five years to meet these guidelines. If they do not meet them at that time, then they must retain shares equal toone-half of theafter-tax value of shares acquired on vesting or exercise of options and RSUs until the guidelines are met. As of 2017 fiscalyear-end, of theafter-tax value of shares acquired on vesting or exercise of options and RSUs until the guidelines are met. As of the record date, each of our executive officers exceeded their guideline. |
In addition to these newly-adoptedrecently-adopted policies, we have continued to use compensation practices that we understand to be consistent with best practices, and do not have practices generally viewed as problematic. | | • | | No excise taxgross-ups in change of control agreements. Our change of control agreements do not provide excise taxgross-ups. They include a “best pay” limitation, which reduces the severance payments and benefits payable to the extent necessary so that no portion of any payments or benefits payable upon a change of control would be subject to excise tax if the reduction would result in the net amount payable to the employee being greater than the net amount received without the reduction. |
| | • | | Limited severance. All of our named executive officers are employedat-will, and have no contractual right to cash severance on termination, except for qualifying terminations in the event of a change of control. The cash severance on change of control is limited to a double trigger (requiring both a change of control and a termination) and the highest multiplier is for our chief executive officer, at 200% of salary and short-term incentive. |
| | • | | Limited retirement plans. We do not provide supplemental pension plans for our named executive officers. Our executives in the US and Australia participate in our 401(k) plan and superannuation plan on the same statutory basis as all other employees. During fiscal year 2017,2018, we adopted a policy that providespro-rata equity vesting for officers who retire at or after age 60, with at least 5 years’ service. |
| • | | Limited perquisites. We do not provide substantial value in other perquisites to our executives.
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| | • | | Pledging and hedging prohibited. We have a policy prohibiting our officers and directors from hedging or pledging their ResMed stock, in accordance with emerging best practices among our US peers. |
| | • | | Unvested equity awards do not include dividends.No dividends accrue or are paid on our outstanding equity awards. |
Philosophy and objectives of our executive compensation program
| | | Philosophy and objectives of our executive compensation program | | |
We want to attract, motivate and retain high-quality employees who reflect our values and will enable us to achieve our short-termshort- and long-term strategic goals. We operate in a high-growth environment where substantial competition exists for skilled employees. Our ability to attract, motivate and retain high-caliber individuals depends in large part on the compensation packages we offer. We believe that our executive compensation programs should reflect our financial and operating performance. In addition, individual contribution to our success should be supported and rewarded. In designing and implementing our executive compensation program, the committee is guided by the following principles: Pay-for-performance aligned with stockholder interests and largelyat-risk compensation are the cornerstones of our compensation program. A significant portion of our executives’ compensation isat-risk and tied to the achievement ofpre-established short-term corporate financial objectives through our annual cash incentive programs that are earned solelyour chief executive officer and our president and chief operating officer earn based on achieving our corporate and regional goals ofrelating to adjusted net sales and adjusted netoperating profit (after tax) as a percentage of revenue, weighted equally. These two measures represent fundamental financial metrics:top-line sales, and the portion of thosetop-line sales that fall to the bottom-line. TheseThe chief executive officer and president and chief operating officer are tied to these fundamental annual metrics because they are critical drivers of our stockholder returns. Meanwhile, the remaining named executive officers earn their cash short-term incentive payments based 40% on achieving our corporate and business unit goals related to adjusted net sales and 40% on achieving our corporate and business unit adjusted operating profit as a percentage of revenue, with 20% based on achieving our corporate and business unit goals related to sales in selected growth businesses. We live with the resulting financial results of these programs, and corporate officer payouts were below-targetranged from 96% to 103% of target in fiscal year 2017.2018. Equity is a key component of our executive compensation. We believe our equity-based incentive award program enhances long-term stockholder value and encourages long-term performance, because equity-based incentive awards align our executives’ financial rewards with those of our stockholders through appreciation of our stock price. We grant 50% of the value of our executive officers’ equity grants in the form ofTSR-contingent PSUs, with the number of shares earned determined only after a four-year performance period, with the ability to accelerate after three years, based on our total stockholder return (also, up to 25% of 2016 target PSUs may be earned during the first three years under certain conditions that require excellent TSR performance). Historically, many of our performance-contingent PSUs have been forfeited for falling short of target or threshold, which is apay-for-performance outcome that aligns executive compensation with shareholders. We grant the other 50% of the value of our executive officers’ equity grants in the form of RSUs or stock options, which may be chosen individually by executives. The vesting of RSUs to our executive officers is subject to a specific performance condition related to our adjusted netoperating profit, in addition to our three-year vesting requirement. This condition iswas intended for units to qualify as performance-based compensation under US tax laws and preserve the deductibility of the compensation paid, while providing a tie to our measurable performance. In December 2017, however, US tax laws were changed in a way that eliminated the tax advantage of this performance-based condition. We believe that stock options are inherently performance-based, because they only deliver value if our stock price increases above the closing price on the date the option is granted. In addition, the value our executive officers ultimately receive from either stock options or RSUs depends on our stock performance over the three-year vesting periods of the grants. The vesting periods and the long termlong-term performance periods under our PSUs also encourage retention of top executive talent. The following pie charts illustrate the allocation of all compensation earned for fiscal year 20172018 (as shown in the Summary Compensation Table at page 7564 below), for our chief executive officer and the average the other named executive officers. We maintain thisat-risk philosophy despite market data showing that base salary is emphasized in Australia and Europe, where certain of our executive officers reside. | | | CEO FY18 compensation summary | | Other NEOs FY17 Compensation SummaryFY18 compensation summary | 
| | CEO FY17 Compensation Summary | | |  | | 
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Provide market-competitive cash compensation. Our objective is to provide a target total compensation program that is competitive withsimilarly-sizedUS-based public companies in the medical device and medical technology industries with which we compete for executive talent. The committee reviews benchmark data for the individual and for the group as a whole, but does not target a specific benchmark level. During fiscal year 2017,2018, the committee used a broad guideline for our chief executive officer’sof total target cash compensation (assuming a cash short-term incentive earned for achieving the goals at plan) at approximately the 5060th to 70th percentile of our U.S.US peer group; and that total target cash compensation should reflect a relatively lower emphasis on salary and a higher percentage of pay at risk in the form of an annual cash incentive. This was consistent with the belief that total direct compensation should at least be at median. The guideline is broaderbroad, to recognize individual situations, and also allows us to reflect the fact that we set challenging targets for our short-term incentive programs. Align stockholder interest with long-term equity. Equity is a key component of our executive compensation. We believe our equity-based incentive award program enhances long-term stockholder value and encourages long-term performance, because equity-based incentive awards align our executives’ financial rewards with those of our stockholders, through appreciation of our stock price. During fiscal year 2017,2018, we continued the PSU equity program introduced in fiscal year 2013, and PSUs represented 50% of the equity value in our annual grants. In fiscal year 2017,2018, we also continued our practice of providing executives the choice to select whether the balance of their equity awards would be entirely in the form of stock options, entirely in RSUs or evenly split (in value) between the two. Performance criteria for PSUs granted during fiscal year 20172018 are based on absolute total shareholder return over a four-year measurement period, with an opportunity to accelerate payouts after year three, if TSR performance is high enough. The committee believes this design aligns with actual stockholder experience, is less subject topoint-to-point volatility, rewards performance for which executives are accountable, and provides a stronger retention mechanism. No changes were made to already-granted PSU awards from previous years.mechanism, and promotes long-term value creation. Make informed decisions. The committee annually retains an independent compensation consultant to advise the committee on executive compensation matters for executive officers and to perform a comprehensive market analysis of our executive compensation program, pay levels, and relative operating performance. See the section titled “Peer group comparisons” below. Compensation process
Compensation committee role. The compensation committee establishes our general compensation policies, and reviews and approves salaries, short-term incentives, equity-based compensation, and all other elements of the compensation offered to our executive officers (including our named executive officers), and all other executives that report to the office of the chief executive officer. The board has determined that all members of the compensation committee are independent directors under NYSE standards. On an annual basis, the committee considers each of the three primary elements of compensation (salary, cash incentives and equity) based on market analysis, individual performance, the value of the individual to ResMed, and other factors it deems relevant. The committee also considers regional variation. For example, base salaries for certain positions in countries outside the US, when translated to US dollars, may compare to market differently when compared to US market peers than when compared to peers in their home country. There are similaralso regional variations in market practices for short-term and long-term incentives. The committee attempts to balance the goal of paying consistentconsistently with the local market, with the goal of maintaining internal consistency using a US pay philosophy for executives in different regions, which creates alignment throughout the executive team. From timeThe committee also reviews our peer group, our executive benefits and perquisites, our equity pay practices, and the risks related to time, theour compensation programs, on an annual basis. The committee alsoregularly considers supplemental compensation policies and practices such aschange-in-control, change of control, severance, retirement, and the risks related to our compensation programs.retirement.
Timing of decisions. In fiscal year 2018, we continued the practice established in fiscal year 2017, wetore-set our executive officers’ compensation on December 1, to align with our annual equity grant, which generally occurs on the date of our stockholder meeting in November. This timing is consistent with our practice for all employees. This timing allows us to consider the previous year’s performance, and the new fiscal year’s performance goals, in compensation decisions. The timing of decisions has been broadly consistent in our programs for many years. The timing of compensation decisions does not allow us to consider feedback following a lower-than-expectedsay-on-pay vote, since we would only just have the newsay-on-pay information and no time to consider feedback or reactions. The committee generally makes decisions on the principal components of executive officer compensation – base salary, short-term incentive potential, equity awards, and perquisites – during the first quarter.quarter of the fiscal year. Specific short-term incentive performance targets for executive officers are generally determined before or during the first month of the fiscal year for that year. Determining actual performance versus targets and calculating short-term incentive payouts generally occur in the first two months following the end of our fiscal year. Short-term incentive payments to our executive officers are made after the fiscalyear-end audit is complete. If other executive compensation issues arise during the course of the year, the committee takes those issues up on acase-by-case basis. The impact on compensation of a change of role is generally decided contemporaneous with the role change. Independent compensation consultants. In making its decisions, the committee reviews data obtained from peer group companies and considers the recommendations of management and the analysis and advice of its independent compensation consultants regarding each element of compensation. The committee has independent authority to retain advisors. The committee has retained FW Cook, Inc., an independent compensation consultant, to advise the committee with respect to executive compensation matters for executive officers. FW Cook performs no work for us other than its work providing executive compensation consulting services to the committee. During fiscal year 2017,2018, the committee reviewed market practices and benchmark data from FW Cook, and considered ResMed’s and our executives’ relative performance and the recommendations of the consultants. FW Cook also advised the committee regarding the Australian company benchmarks for the positions of our chief executive officer, as well as executive officers who reside there. FW Cook further advised the committee regarding long-term incentive design practices and alternatives as well as peer group equity practices. In addition to FW Cook, management retained Aon plc to provide performance results of our PSUs. The committee also considered the experience and knowledge of committee members regarding compensation practices for comparable positions at other companies. Although the committee considers various sources of information and recommendations, ultimately, of course, the committee relies on its own independent judgment. Management’s role. Our chief executive officer, president and chief operating officer, chief human resources officer, chief administrative officer and global general counsel, chief financial officer, and members of their teams, provide input and recommendations to the committee regarding pay to the executive officers and other members of management for theirthe committee’s review and approval. While the committee gives consideration to these recommendations, it exercises independent judgment. Management provides to the compensation consultants and to the committee historical and prospective breakdowns of total compensation components for each executive officer and financial data in support of the various compensation components. Management also provides recommendations that include financial goals and criteria for our annual and long-term incentive plans. Management gathers the information it provides from consultants, the market, and internal resources, allowing designs and strategies to be tied directly to our business needs. While management members typically attend committee meetings, the committee chair excuses individual management members as appropriate for independent review and decision-making. Peer group comparisons. In making its decisions on executive compensation, the committee generally uses industry compensation surveys prepared by outside consultants, which review each position against comparable positions within a peer group. The US peer companies are generally withinone-quarter and four times the size of our revenue and market capitalization, with ResMed in the middle to avoid bias from too many large or small peer companies. We select peer companies that are medical device or medical technology companies with a market capitalization, profitability, revenue, and employee population roughly comparable to ours. The committee periodically reviews the composition of the peer group and the criteria and data used in compiling the list, and considers modifications to the group. In May 2016,2017, before making fiscal year 20172018 decisions, the committee reviewed the peer group, and considered other companies for inclusion. The committee removed Carefusioninclusion, and Sirona from the peer group, because they had been acquired, and added Nuvasive, because it represented a San Diego-based medical device company with which we compete for talent.made no changes. The 17 companies comprising the US peer group for fiscal year 2018 decisions were: | | | | | Alere Inc. | | Illumina Inc. | | | Bio-Rad Laboratories, Inc. | | Intuitive Surgical, Inc. | | | C.R. Bard, Inc. | | Mettler-Toledo International Inc. | | | Charles River Laboratories International, Inc. | | Mettler-Toledo International Inc.
| | | C.R. Bard, Inc.
| | NuVasive, Inc. | | | The Cooper Companies Inc. | | PerkinElmer Inc.
| | | DENTSPLY International Inc.
| | STERIS Corporation
PerkinElmer Inc. | | | Dentsply Sirona Inc. | | STERIS plc | | | Edwards Lifesciences Corp. | | Varian Medical Systems Inc. | | | Haemonetics Corp. | | Waters Corporation | | | Hologic Inc. | | |
As of June 30, 2017, compared to our US peer group, ResMed was at the 48th percentile for market capitalization, the 22nd percentile for revenue, the 45th percentile in operating income, and the 22nd percentile for employee population. The committee believes that this peer group reflected a reasonable cross-section of our labor market for talent and included companies that our investors might consider in determining the reasonableness of our pay and alignment of our pay with our performance. In May 2018, the committee approved a new peer group to be used for fiscal year 2019 compensation decisions. The committee periodically reviews the composition of the peer groupremoved Alere and the criteriaC.R. Bard, which had been acquired, and data used in compiling the list,replaced them with two medical device companies: Teleflex Incorporated and considers modifications to the group. As of June 30, 2016, compared to our US peer group, ResMed was at the 53rd percentile for market capitalization, the 19th percentile for revenue, the 49th percentile inAlign Technology, Inc. which each have less revenues, operating income and the 18th percentile for employee population.market capitalization than ResMed. The committee also considers compensation survey data from FW Cook regardingsimilarly-sized Australia-based publicly listed companies for our Australia-based chief financial officer, and for other executive officers based in Australia, as well as for our chief executive officer. Our chief executive officer is based in the US, so the Australian data are viewed as supplemental and secondary to the US data, and reviewed to understand the differences between the potential expectations of our NYSE and ASX stockholders. The committee generally gives less weight to the Australian peer group, because the ASX peer group is less comparable to ResMed, and because ResMed compensates senior executives and directors on aUS-style pay model, which is structurally and quantitatively different from the typical practices of companies in the ASX peer group. In May 2016,2017, the committee reviewed the existing Australian peer group, considered other Australian companies for inclusion, and decided to add Fisher & Paykel Healthcare Limited to the fiscal year 2017 Australian peer group because it is anASX-listed direct competitor.no changes were needed. The thirteen Australian peer group companies reviewed for 20172018 compensation decisions were: | | | | | Adelaide Brighton Limited | | Healthscope Limited | | | Ansell Limited | | Incitec Pivot Limited | | | Boral Limited | | James Hardie Industries PLC | | | Cochlear Limited | | Primary Health Care Limited | | | Computershare Limited | | Ramsay Healthcare | | | CSL Limited | | Sonic Healthcare | | | Fisher & Paykel Healthcare Limited | | |
As compared to our Australian peer group, ResMed was atabove the 8875th percentile for market capitalization, and between the 77median and the 75th percentile for revenue. Elements ofIn May 2018, the committee reviewed the Australian peer group to be used for fiscal year 2019 compensation decisions, and made no changes.
Base salary. Base salaries provide our executives with a degree of financial certainty and stability. In order toTo attract and retain highly qualified executives, we pay within salary ranges that are generally based on similar positions in companies of comparable size and complexity.complexity in the US. Using the peer group data, the committee assesses market base salaries at the median, 60th and 75th percentiles. Our executive compensation philosophy is to pay at least near the median for high performing and experienced officers when targets are achieved. Adjustments are made based on the committee’s assessment of position, performance, experience, and role. In fiscal 2017, the committee applied a guideline that our chief executive officer’s total cash compensation assuming target performance, should be roughly at the 50th percentile, but more heavily weighted to theat-risk element of a short-term cash incentive. At the time of this review, the chief executive officer’s target total cash was at the 45th percentile. Annual salary adjustments for fiscal year 20172018 were effective December 1. Based in part on the US peer data, the committee positioned our chief executive officer’s fiscal 2017year 2018 target total cash compensation slightly belowat the median60th percentile of our US peers. The committee thought it appropriate to continue to structure our chief executive officer’s cash compensation with a greater portion, compared to market, ofat-risk short term incentive compensation. Thus, our chief executive officer’s base salary was increased by 6%4%, resulting in base salary belowat about the median, while his short-term incentive target was maintained at 130% of salary.salary, a 75th percentile percentage; resulting in total target cash compensation at the 60th percentile. Our executive compensation philosophy is to pay at least near the median for high performing and experienced officers when targets are achieved. For fiscal 2017,year 2018, the committee increased the salaries of each of our other named executive officers by amounts ranging from 2% to 14%2.5% in constant currency.currency, slightly less than our company budgeted increase, while increasing the amount for a recently-promoted officer by approximately 24%, reflecting his increased responsibilities.
The table below shows the base salaries for our named executive officers. For Mr. Sandercock, the amounts shown in the table below represent the US dollar equivalent of hisnon-US dollar-denominated salaries, which is impacted by currency fluctuations. We believe thatyear-to-year currency fluctuations make the constant currency increases most meaningful for officers residing outside the US. | Named executive officer | | 2017
base salary | | 2016
base salary | | | Constant currency
percentage
increase
from 2016 to 2017 | | | 2018 base salary | | 2017 base salary | | Constant currency percentage increase from 2017 to 2018 | | | | | | Michael Farrell Chief executive officer | | $ | 912,000 | | | $ | 860,000 | | | | 6 | % | | $950,000 | | $912,000 | | 4.2% | | | | | | Rob Douglas President and chief operating officer | | $ | 801,700 | (a) | | $ | 702,975 | | | | 14 | % | | $821,743 | | $801,700 | | 2.5% | | | | | | Jim Hollingshead President - sleep business | | $ | 501,005 | | | $ | 459,638 | | | | 9 | % | | $620,000 (a) | | $501,005 | | 23.8% | | | | | | David Pendarvis Chief administrative officer, global general counseland secretary | | $ | 526,042 | | | $ | 513,713 | | | | 2 | % | | $539,193 | | $526,042 | | 2.5% | Brett Sandercock | | $ | 460,406 | (b) | | $ | 445,024 | | | | | Chief financial officer | | AUD | 597,930 | | | AUD | 570,544 | | | | 5 | % | | | | | | | Brett Sandercock Chief financial officer | | | $459,659 (b)
AUD 612,878 | | $460,406 (b)
AUD 597,930 | | 2.5% |
(a) | | | (a) | | Mr. Douglas’ assignment to the U.S. was localized on JanuaryHollingshead received his annual increase effective July 1, 2017, andat the time of his compensation was adjusted topromotion. | | | (b) | | These amounts reflect local market benchmark for the position. |
(b) | This amount was approved based on an exchange rate we used in setting our budget for the respective fiscal year 2017.year. The exchange rate used for 2018 was approximately AUD:USD 1 to 0.75, and the exchange rate for 2017 was approximately AUD:USD to 0.77.
The committee approved base salary in local currency. |
Annual performance-based short-term incentives. The second direct compensation component is the opportunity to earn cash amounts under our annual short-term incentive program. The primary purpose of our annual short-term cash incentive program is to motivate our executives to meet or exceed our company-wide regional, and business unit short-term operating performance objectives. The program is intended to motivate our management team to execute on our business goals, to realize our budgeted growth, to share our success with eligible executives to the extent warranted by our performance, and to provide competitive compensation to eligible executives in a manner consistent with our philosophy of paying for performance. The short-term incentive program is intended to qualify as a performance-based award under our incentive plan as well as performance-based compensation for purposes of section 162(m) of the US Internal Revenue Code. Amounts earned are based on a targeted percentage of actual salary paid for the year and not the base salary in effect at the end of the year. In setting appropriate short-term incentive target opportunities for fiscal year 2017,2018, the committee reviewed the 50th, 60th, and 75th percentiles of peer comparables (both in terms of target amounts and amounts actually earned). The committee also considered the potential effect of short-term incentive targets on total cash compensation and reviewed total cash compensation at peer comparables at those same percentiles. For fiscal year 2017,2018, the committee made no change to the target short-term incentive opportunity for our chief executive officer keeping it atand other named executive officers, which range from 75% to 130%, consistent with its philosophy to have more cash compensation at risk and tied to our performance. This incentive level, as a percentage of base salary, positioned our chief executive officer slightly belowbetween the median60th and 65th percentiles for total target cash compensation among US peers for fiscal year 2017 when applied to his below-median salary. For fiscal year 2017, the committee also maintained target short-term incentive opportunities for our other named executive officers at the same levels, as a percentage of base salary, as in fiscal 2016.2018.
The committee believes it best to tie each executive’s incentive pay to the areas over which the executive can assert the most influence and to vary the weighting to reflect the relative focus desired by the executive for each metric. The committee’s view forFor fiscal year 2017 was2018, the committee decided to revise the short-term incentive metrics to align with revisions in ResMed’s operating model, which transitioned from a regionally-based model to a model primarily based on specific businesses that operate globally. The committee determined that adjusted net sales and adjusted netoperating profit as a percentage of revenue wereremained important performance metrics on a global and regional basis, because these goals focus on profitably increasing our revenue. We have consistently usedrevenue, as well astop- and bottom-line growth. The committee, however, determined that the operating profit metric, which in prior years was measured after tax, should be measured before tax. The committee felt this change would reduce either the positive or negative impact of external events outside of executive control, such as legislative tax rates. As a result of these samedecisions, the committee approved a short-term incentive metricsprogram for several years, as they focus on the core goals oftop-line growth and bottom-line improvement. For fiscal year 2017, our2018 with the following elements:
The chief executive officers with primarily global responsibilities had short-termofficer and the president and chief operating officer continued to have their incentives basedweighted 50% onpre-established performance measures of our adjusted global net sales and adjusted net operating profit after tax as a percentage of sales (“profit measure”), weighted equally. This applied to Messrs. Farrell, Douglas, Pendarvis, and Sandercock for the entire fiscal year. Executives with primarily regional responsibilities, including Mr. Hollingshead, had 70% of their target short-term incentive based on regional performance measures (with 50% based on regional adjusted net sales and 20% based50% on regionalprofitability, with the adjusted operating profit measure); whilemetric measured before tax, rather thanafter-tax. Other officers with functional responsibilities (our chief financial officer and our global general counsel and chief administrative officer) had the remaining 30% wasfollowing three metrics and weights: | ¡ | | 40%: adjusted net revenue; |
| ¡ | | 40%: adjusted operating profit as a percentage of sales; and |
| ¡ | | 20%: adjusted net revenues from respiratory care,software-as-a-service, Asia growth markets, and Germany Healthcare (“growth businesses”), in the aggregate. The committee added this new metric to increase our executive’s focus on these smaller growth businesses. |
Officers with specific business responsibilities (our president—sleep business) had five metrics, equally weighted as follows: | ¡ | | 20% based on adjusted total company net revenues; |
| ¡ | | 20% based on adjusted total company operating profit before tax as a percentage of sales; |
| ¡ | | 20% based on the specific business’ adjusted operating profit as a percentage of sales; |
| ¡ | | 20% based on the specific business’ adjusted net revenues; and |
| ¡ | | 20% based on growth businesses’ adjusted net revenue. |
Other features of the fiscal year 2018 short-term incentive program continued unchanged in fiscal year 2018, such as measuring revenues on global performance measures (allocated equally between 15% global adjusted net sales, and 15% global profit measure),a constant currency basis to remove the same measures used for executives with primarily global responsibilities. effect of factors outside management’s control. The committee believesbelieved these weightings appropriately balance the need to focus on regionaloverall enterprise financial performance for executives with regional responsibilities,and specific areas of individual responsibility, while aligning incentives to promote cooperation between regions.the sleep and growth businesses. The performance measures and their weighting by named executive officer for fiscal year 2017 were as follows:2018 were: | Named executive officer | | Global
adjusted
net sales | | Global
adjusted net
profit after tax
as a percentage
of revenue | | Regional
adjusted
net sales | | Regional
adjusted operating
profit
as a percentage
of revenue | | | Adjusted net sales | | Adjusted operating profit before tax as a percentage of revenue | | Specific business adjusted operating profit | | Specific business adjusted operating profit | | Growth businesses adjusted net sales | Michael Farrell | | | 50 | % | | 50 | % | | | — | | | | — | | | 50% | | 50% | | - | | | | - | Rob Douglas | | | 50 | % | | 50 | % | | | — | | | | — | | | 50% | | 50% | | - | | | | - | Jim Hollingshead | | | 15 | % | | 15 | % | | 50 | % | | 20 | % | | 20% | | 20% | | 20% | | 20% | | 20% | David Pendarvis | | | 50 | % | | 50 | % | | | — | | | | — | | | 40% | | 40% | | - | | | | 20% | Brett Sandercock | | | 50 | % | | 50 | % | | | — | | | | — | | | 40% | | 40% | | - | | | | 20% |
The payout structure for our short-term incentive program has remained the same for several years. It is based on achievingpre-established targeted milestones for each performance metric, and applies to each metric individually. It is described in the following table. Payouts are expressed as a percentage of short-term incentive opportunity for that performance metric. Performance between the achievement levels is paid based on linear interpolation. The committee has established a cap on the maximum short-term incentive total payout per executive officer at 200% of the officer’s target short-term incentive opportunity. | | | | | | | | | No payout | | 50% payout | | 100% payout | | 150% payout | | 200% payout | <85% of goal | | 85% of goal | | 100% of goal | | 115% of goal | | >130% of goal |
The committee approves the actual short-term incentive amounts for executive officers under thisthese criteria after the end of the fiscal year, after reviewing our financial data and performance. To promote the retention value of our incentive programs, the committee has adopted a policy that if an executive officer separates employment before the date of payment, we will not be obligated to pay any cash or other short-term incentive awards. This policy does not impact options, RSUs, or other long-term incentives that have vested at the time of separation. The fiscal year 20172018 targets and actual performance for each of the metrics are listed below, with all performance coming in below targets, and all bonus payouts consistent with the original bonus funding formula and below target.below. | | | | | | | | | | | | | | | | | Short-term incentive component | | Targeted
performance
($ in thousands) | | | Actual
performance
($ in thousands) | | | Percentage
achieved | | | Short-term
incentive
percentage
payout
based on
percentage
achieved | | Global adjusted net sales | | $ | 2,138,198 | | | $ | 2,083,038 | | | | 97.42 | % | | | 91.40 | % | Global adjusted net profit after tax as a percentage of revenue | | | 21.97 | % | | | 21.19 | % | | | 96.45 | % | | | 88.15 | % | | | | | | | | | | | | | | | | | | Total global achieved after weighting 50% | | | | | | | | | | | | | | | 89.78 | % | | | | | | | | | | | | | | | | | | Regional (Americas) adjusted net sales | | $ | 1,224,811 | | | $ | 1,169,744 | | | | 95.50 | % | | | 85.00 | % | Regional (Americas) adjusted net operating profit as a percentage of revenue | | | 40.50 | % | | | 38.96 | % | | | 96.20 | % | | | 87.33 | % | | | | | | | | | | | | | | | | | | Total regional (Americas) achieved after weighting 50% | | | | | | | | | | | | | | | 86.90 | % | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Short-term incentive component | | Threshold performance- 50% payout ($ in thousands) | | Targeted performance- 100% payout ($ in thousands) | | Maximum performance- 200% payout ($ in thousands) | | Actual performance ($ in thousands) | | Percentage achieved | | Short-term incentive percentage payout based on percentage achieved | Adjusted net sales | | $1,929,651 | | $2,270,177 | | $2,951,230 | | $2,259,764 | | 99.54% | | 98.47% | Adjusted operating profit as a
percentage of revenue | | 23.13% | | 27.21% | | 35.37% | | 27.77% | | 102.08% | | 106.93% | Total achieved after weighting | | | | | | | | | | | | 102.70% | (50% each) | | | | | | | | | | Farrell and Douglas | Growth businesses adjusted
net sales (20% weighting) | | $541,465 | | $637,017 | | $828,122 | | $593,887 | | 93.23% | | 77.43% | Total achieved after weighting | | | | | | | | | | | | 97.65% | (40%-40%-20%) | | | | | | | | | | Pendarvis and Sandercock | Sleep business adjusted net sales | | $1,392,578 | | $1,638,327 | | $2,129,825 | | $1,670,934 | | 101.99% | | 106.63% | Sleep business adjusted
operating profit as a percentage of revenue | | 27.53% | | 32.39% | | 42.11% | | 31.72% | | 97.93% | | 93.10% | Total achieved after weighting | | | | | | | | | | | | 96.51% | (all components 20%) | | | | | | | | | | | | Hollingshead |
We set challenging goals for our executives for fiscal year 2017.2018.Our fiscal year 20172018 adjusted net sales goal required 16%10% constant currency growth over fiscal year 2017. This target was higher than our 13% constant currency growth in fiscal 2016. When the fiscal year 20172018 adjusted net sales goal was set, it was substantially above our peers’ median trailing twelve monthtwelve-month revenue growth rate of 3%8% through June 30, 20162017 (based on our compensation consultant’s August 2017 report). Our actual fiscal year 2017 adjusted2018 net sales growth (adjusted for incentive plan calculations) was 13%9.3%, which was above the median of our peer group. Similarly, our fiscal 2017year 2018 goal for adjusted netoperating profit after tax as a percentage of revenue was set at 21.97%27.21%. This was above the median of our peers’ trailing twelve month’s net profit performance through June 30, 2016, according to our compensation consultant. The 2017 adjusted net profit target was set at a level that, when combined with our 2016 sales target, was projected to deliver increased net profit after tax inan increase over fiscal year 2017, compared with fiscal year 2016.2017’s adjusted operating profit of 26.82%. Our actual adjusted netoperating profit performance of 21.19%27.77% was slightly belowabove our internal goal, but nevertheless, net profit after tax, in dollars (adjusted for short-term incentive plan calculations), increased by 7%, from $409 million in fiscal year 2016, to $438 million in fiscal year 2017. Netgoal. Adjusted operating profit margin was above the median of our peer group’s trailing twelve-month netoperating profit performance through June 30, 2017,2018, reflecting our high margins. We believe that our goals are challenging, in thatbecause they were above our peer group medianrequire strongtop- and bottom-line growth, and we believe that it is apay-for-performance outcome that is consistent with our philosophy that we paidpay below-target bonuses when we fellfall short of such goals. In calculating short-term incentive global metrics achievement, the committee made the following adjustments from our GAAP financial statement revenue and netoperating profit calculations to eliminate the impact of certainnon-operating revenue and expenses: Adjusted global net sales is anon-GAAP measure. GAAP net sales wereof approximately $2.07$2.34 billion and were adjusted by using budgeted exchange rates that increased performance by approximately $16 million.as follows:
| ¡ | | using budgeted exchange rates reduced performance by approximately $75 million; and |
| ¡ | | excluding sales contributed by unbudgeted acquisitions increased performance by approximately $5 million. |
Adjusted global net profit after tax is anon-GAAP measure. GAAP global netoperating profit afterbefore tax was approximately $342$542 million, and was adjusted as follows:
excluding stock-based compensation expenses increased performance by approximately $37 million, net of tax;
| ¡ | | excluding stock-based compensation expenses increased performance by approximately $48 million; |
excluding amortization of acquired intangibles increased performance by approximately $32 million, net of tax;
excluding expenses related to a ventilator field safety notification increased performance by approximately $4 million, net of tax;
| ¡ | | excluding amortization of acquired intangibles increased performance by approximately $46 million; |
excluding expenses related to a settlement of litigation with a competitor increased performance by approximately $5 million, net of tax.
| ¡ | | excluding restructuring expenses increased performance by approximately $18 million; |
excluding final contingent consideration paid related to an acquisition increased performance by approximately $10 million, net of tax; and
| ¡ | | excluding profits and losses from unbudgeted acquisitions increased performance by approximately $1 million; and |
excluding restructuring expenses increased performance by approximately $8 million.
| ¡ | | including ResMed’s share of losses from SleepScore Labs, a joint venture, reduced performance by approximately $2 million. |
The short-term incentive metrics for regionalbusiness unit achievement usenon-GAAP measures that ResMed uses internally in planning, forecasting, and evaluating the results of operations. The primary difference from GAAP is they use selected accounts and entities that align with the regional officer’sleader of the unit’s responsibilities and control. These measures are consistently applied by the committee in setting targets at the beginning of the fiscal year and in assessing performance against the targets. In measuring achievement in fiscal year 2017,2018, the committee made the following adjustments to eliminate the impact of certainnon-operating revenue and expenses: Adjusted Americassleep business net sales is anon-GAAP measure from our internal reporting. Our internal reporting for net revenue in North and Latin America,the sleep business, excluding Brightree, was $1,171 million$1.7 billion in fiscal year 2017.2018. This net revenue was adjusted by using budgeted exchange rates, which reduced performance by approximately $1$46 million. Adjusted Americas netsleep business operating profit is anon-GAAP measure from our internal reporting. Our internal reporting for Americas netsleep business operating profit was $456approximately $549 million. This was adjusted as follows: | ¡ | | including ResMed’s share of losses from SleepScore Labs, a joint venture, reduced performance by approximately $5 million; |
| ¡ | | including working capital charges for inventory and accounts receivable decreased performance by $40 million; |
| ¡ | | excluding stock-based compensation expenses increased performance by $26 million; and |
| ¡ | | excluding litigation expenses increased performance by $15 million. |
Adjusted growth business net sales is anon-GAAP measure from our internal reporting. Our internal reporting for net revenue in the respiratory care,software-as-a-service, German Healthcare, and Asia growth markets, in the aggregate, was approximately $623 million This net revenue was adjusted by excluding certain litigation expenses,using budgeted exchange rates, which increasedreduced performance by $4.4approximately $29 million. Revenue from acquisitions was included in both the target and actual performance. The following table shows the 20172018 incentives at target and actual short-term incentive payments.as earned. All actual short-term incentive payments were funded in accordance withpre-established formulas; there was no discretionary or individual adjustment by the compensation committee. | Named executive officer | | Annual
short-term
incentive target
percentage | | Annual
short-term
incentive
target | | Annual
short-term
incentive
earned | | Actual
short-term
incentive as
a percentage
of target | | | Annual short-term incentive target percentage | | Annual short-term incentive target | | Annual short-term incentive earned | | Actual short-term incentive as a percentage of target | Michael Farrell | | | 130 | % | | $ | 1,157,208 | | | $ | 1,038,941 | | | 89.78 | % | | 130% | | $1,214,400 | | $1,247,188 | | 102.70% | Rob Douglas | | | 100 | % | | $ | 746,346 | | | $ | 670,069 | | | 89.78 | % | | 100% | | $813,385 | | $835,346 | | 102.70% | Jim Hollingshead | | | 75 | % | | $ | 362,723 | | | $ | 315,206 | | | 86.90 | % | | 80% | | $496,000 | | $478,707 | | 96.51% | David Pendarvis | | | 75 | % | | $ | 390,648 | | | $ | 350,724 | | | 89.78 | % | | 75% | | $400,283 | | $390,861 | | 97.65% | Brett Sandercock | | | 80 | % | | $ | 344,632 | (a) | | $ | 309,411 | (a) | | 89.78 | % | | 80% | | $363,882 (a) | | $355,317 (a) | | 97.65% |
(a) | | | (a) | | These amounts were approved in local currency by the committee. The foreign currency is converted to USD based on the fiscal year 20172018 average annual exchange rate of approximately AUD:USD 1 to 0.7539.0.75. |
The committee has approved a short-term incentive program for fiscal year 20182019 that reflects changesminor adjustments to ResMed’s operating model, withthe metrics. The 2019 program has the following elements: The chief executive officer and the president and chief operating officer will continue to have the same metrics and weightings as fiscal year 2017,2018, except that the adjusted netoperating profit metric will be measured before tax,as a constant currency dollar amount, rather than after tax.as a percentage of revenue. The committee felt this change would reduce eithermake our profitability metric more transparent, directly related to the positive or negative impact of external events outside of executive control, such as legislative tax rate changes.bottom line, and consistent with metrics used by our peers. Other officers with globalfunctional responsibilities will have the following threesame metrics and weights: 40%: global adjusted net revenue;
40%: global adjusted net profit before taxweights as a percentage of sales;our chief executive officer and
20%: adjusted net revenues from respiratory care,software-as-a-service, Asia growth markets, the president and Germany Healthcare (“growth businesses”), in the aggregate.chief operating officer. The committee added this neweliminated the 2018 metric on growth businesses’ revenue, to increase our executive’s focus on these smaller businesses.emphasize the revenue and profitability metrics, and align with the metrics for the chief executive officer.
Officers with specific business unit responsibilities will have fivefour metrics, weighted as follows: 20% based on adjusted global net revenues;
| ¡ | | 20% based on adjusted global net revenues; |
| ¡ | | 20% based on adjusted global operating profit measured as a constant currency dollar amount; |
20% based on adjusted global net profit before tax as a percentage
| ¡ | | 30% based on the specific business’ adjusted operating profit measured as a constant currency dollar amount; and |
| ¡ | | 30% based on the specific business’ adjusted net revenues/ |
The committee made these changes to align all executives to an overall 50% profitability / 50% revenue split, increase the weight of sales; 20% based onbusiness unit achievement, and align the specific business’ net operating profit as a percentage of sales;profitability metric across all plans.
20% based on the specific business’ adjusted net revenues; and
20% based on growth businesses adjusted net revenue.
Other features of the fiscal year 20172018 short-term incentive program will continue unchanged in fiscal year 2018.2019. Long-term equity award program. The third major component of our named executive officers’ direct compensation provides a long-term incentive and alignment with stockholders through equity participation. The primary purpose of granting equity awards is to link our officers’ financial success to that of our stockholders, with the value of the equity awards increasing only as our stock price increases. We useincreases, and to promote long-term value creation. Our equity mix is comprised of 50% long-term performance-based PSUs, and the remaining 50% in performance-based RSUs and stock options in the equity award program to provide aoptions. This mix of awards that increases the capability of the committee to effectively manage more effectively our use of shares under our stock plan, balancebalances the performance leverage and performance risk provided by various equity vehicles, more closely conformconforms with practices at our peer companies, and provide moretax-effective equity awards.promotes long-term stock appreciation and value creation. During fiscal year 2017,2018, we continued our practice to havegrant PSUs representfor 50% of the annual equity value in our annual grants. In fiscal year 2017, we also continued our practice of providingfor executive officers, and to provide named executive officers the choice to select whether the balance of their equity awards would be entirely in the form of stock options, entirely in RSUs or evenly split (in value) between the two. In addition, the committee continued its practice of granting RSU awards to our executive officers and certain other officers conditioned on achieving certain performance targets, in addition to having a time-based vesting period. This condition iswas originally intended for units to qualify as performance-based compensation under US tax laws and preserve the deductibility of the compensation paid, andbefore November 2017, but also provides a tie to our performance. The combined availability of options and RSUs gives our executives the opportunity to balance the incentive award in a manner that suits their particular risk profile and their own preferences in financial or tax planning in the US andnon-US jurisdictions. We do not pay any dividends or dividend equivalents on any of our equity awards. No changes to PSU program for fiscal year 2017.2018.For fiscal 2017year 2018 awards, the committee did not make any changes to the PSU program from fiscal year 2016.2017. Fiscal 2017year 2018 grant values. Grant values were established byEach year, the committee establishes grant values, and the relative ratios of PSUs, RSUs, or stock options wereare determined by the relative values computed under Financial Accounting Standards Board Accounting Standards Codification Topic 718. In determining the value of awards granted to specific named executive officers, the committee reviewed our performance, the number of outstanding awards available, the percentage of the pool represented by the proposed grant, the present value of the proposed grant, existing unvested option and RSU ownership, the awards granted in prior years, and the grant practices of our peer group companies. For fiscal year 2017,2018, the committee reviewed peer company data to determine competitive equity award values, at the median, 60th and 75th percentiles, for each officer’s position. The committee also considered internal equity relationships, to promote a team-based approach by our senior management team, and ensure equitable internal relationships.team. In arriving at the specific grant size, the committee considered the peer group benchmarks at an individual level, as well as aggregate equity compensation for similar groups at our peers. The committee also considered our officer’s individual performances during fiscal 2016,2017, as well as their experience in their role, and expected future contributions. Taking all those factors into account, for fiscal 2017year 2018 the committee increased our annual equity program grant values from fiscal 20162017 by approximately 9%13% for each of our chief executive officer, and our president and chief operating officer, and president, and in a range from 2%5% to 9%15% for our other named executive officers. Based on both the FW Cook report at the beginning of fiscal year 2017,2018, as well as their updated August 2018 review of executive compensation, the fiscal year 20162018 equity grant for our chief executive officer was at aboutnear the 5560th percentile for long-term equity incentives as well as for his resulting total direct compensation. His 2017 equity award was at the median in the updated 2017 review of executive compensation andincentives. This resulted in total target compensation slightly belownear the median, at the 4860th percentile.percentile of the updated peer group for fiscal year 2019 decisions. The committee believed this positioning appropriate given our chief executive officer’s strong performance and ResMed’s resulting strong business and financial results. The other named executive officers were positioned consistent with the committee’s decision to emphasizeat-risk compensation elements and align with stockholders’ interests. During fiscal year 2017, in addition to the annual program grants made in November 2016, we made special grants to two of our named executive officers. In February 2017, we made a special award to our President – Americas, in recognition of his sustained performance. In June 2017, we made a special award to our chief administrative officer, in connection with his service as interim president – Europe, Middle East, Africa and Japan. In determining the value and timing of these awards, the committee considered the individuals’ performance, special circumstances, and the increased retention value from the awards. The grants were made consistent with our equity program, with half the value based in PSUs, and half based on the officer’s election between RSUs and stock options. The performance criteria, vesting and other features were consistent with our fiscal year 2017 equity program.
The following table sets forth equity grant values provided to our named executive officers in fiscal year 2017,2018, as well as the elections made by our named executive officers regarding the form of award to receive. When it approved the 20172018 equity grants in August 2016,2017, the committee approved specific dollar values, and a valuation firm used those values and estimated inputs to calculate the specific number of stock options, RSUs, or PSUs to be granted based on its estimate of the value of the awards on the grant date. The intended values approved by the committee and the actual grant date values were the same. The table below sets forth the grant values, based on the NYSE closing stock price on the applicable date of the grants;grants, a Black-Scholes formula for the options;options, the probable outcome of the performance conditions for the RSUs;RSUs, and a Monte-Carlo simulation for the PSUs, each consistent with the accounting standards of FASB 718. | Named executive officer | | Grant value | | | Percentage
of grant
value in
performance-
based stock
units | | Percentage
of grant
value in stock
options | | Percentage
of grant
value in
restricted
stock units | | | Grant value | | Percentage of grant value in performance- based stock units | | Percentage of grant value in stock options | | Percentage of grant value in restricted stock units | Michael Farrell | | $ | 6,000,000 | | | | 50 | % | | 25 | % | | 25 | % | | $6,800,000 | | 50% | | 25% | | 25% | Rob Douglas | | $ | 4,000,000 | | | | 50 | % | | 0 | % | | 50 | % | | $4,500,000 | | 50% | | 25% | | 25% | Jim Hollingshead (annual grant) | | $ | 1,600,000 | | | | 50 | % | | 0 | % | | 50 | % | | Jim Hollingshead (special grant) | | $ | 1,000,000 | | | | 50 | % | | 0 | % | | 50 | % | | David Pendarvis (annual grant) | | $ | 1,600,000 | | | | 50 | % | | 25 | % | | 25 | % | | David Pendarvis (special grant) | | $ | 400,000 | | | | 50 | % | | 25 | % | | 25 | % | | Jim Hollingshead | | | $2,000,000 | | 50% | | 0% | | 50% | David Pendarvis | | | $1,700,000 | | 50% | | 25% | | 25% | Brett Sandercock | | $ | 1,750,000 | | | | 50 | % | | 25 | % | | 25 | % | | $2,000,000 | | 50% | | 0% | | 50% |
Terms of performance stock units
| Terms of performance stock units |
Program Design.design. Equity grants to named executive officers during fiscal year 2018 were made under our 2009 Incentive Award Plan, as amended and restated during fiscal year 2018. Since fiscal year 2013 we have granted long-term performance stock units, or PSUs, under our 2009 Plan.PSUs. As described above, we revised the program design for the 2016 fiscal year 2016 year PSUs granted(granted in November 2015,2015), and continued this revised design in fiscal year 2017.years 2017 and 2018. PSUs issued in fiscal year 20142015 completed their performance period in fiscal year 2017, with none of the PSU grants earned. PSUs issued in fiscal years 2015, 2016, and 2017 remain outstanding.2018. The fiscal 2014 and 2015 PSUs arewere earned and cliff vestcliff-vested after the third anniversary of the grant, but only toafter the committee certified the extent the committee certifies theto which TSR performance criteria hashad been met. The PSUs are measured and earned after a three-year periodmet, based on our TSR performance relative to the TSR performance of companies included in the US Dow Jones Medical Device Index. This was viewed as an objective and relevant list of other companies a typical ResMed investor might choose. New entrants to the index during the performance period are not added to the peer group and companies that fall out of the indexmid-cycle, but continue trading, are not removed from the group. Companies that stop tradingmid-cycle due to going private, acquisition or similar events are excluded from the final TSR calculation and companies that go bankrupt remain in the peer group and are assigned a TSR of-100%. The share price at the grant date (our stockholder meeting date) was used as the starting point for the TSR calculation, and a trailing30 trading-day average share price iswas used to calculate the share price at the end of the performance period.
The fiscal year 2014 and 2015 PSUs havehad a performance-based funding schedule that requiresrequired us to perform at the median of the index before any portion of the performance-based equity awards iscould be earned, and requiresrequired performance at the 60th percentile to earn the target number of shares. Shares earned maycould range from a minimum of 0% of target shares, to a maximum of 200% of target shares, based on the following schedule: | | | ResMed’s relative TSR | | Payout as a percentage of target | Below 50th percentile | | 0% | 50th percentile | | 40% | 60th percentile | | 100% | 80th percentile and above | | 200% |
Shares earned between these percentiles would be based on linear interpolation. If our absolute TSR is negative for a performance period, the shares that can be earned are limited to 100% of target, even if our relative TSR would have resulted in a percentageearn-out above 100%. PSUs issued during fiscal years 2016, 2017, and 2017 remain outstanding. They2018 are earned and cliff vest after the fourth anniversary of the grant but only to the extent the committee certifies the TSR performance criteria has been met. The PSUs are measured and earned after a four-year period based on our absolute TSR performance, with an opportunity to accelerate payouts after year three, if TSR performance is high enough. The share price at the grant date (our stockholder meeting date) is used as the starting point for the TSR calculation, and a trailing30 trading-day average share price is used to calculate the share price at the end of the performance period. Payouts range from 0% to 225% of target, based on the schedule below: | Growth requirements | | Cumulative 4-year TSR | | Accelerated cumulative 3-year TSR | | Payout percentage of target shares granted | | Annual base TSR
growth | | Cumulative 4-year TSR | | Accelerated cumulative 3-year TSR | | Payout percentage of target shares granted | Below threshold | | Less than 22% | | Less than 16% | | 0 | | Below 5% | | Less than 22% | | Less than 16% | | 0 | Threshold | | 22% | | 16% | | 50% | | 5% | | 22% | | 16% | | 50% | Target | | 46% | | 33% | | 100% | | 10% | | 46% | | 33% | | 100% | Maximum | | 75% | | 52% | | 225% | | 15% | | 75% | | 52% | | 225% |
Shares earned between these achievement levels would be based on linear interpolation. These PSUs are earned based on four-year cumulative TSR. The program has several features to minimize the impact of daily volatility andpoint-to-point variation. A 30 trading daytrading-day average price is used to measure performance at the end of the period. In addition, if cumulative TSR is 33%16% after three years, then target is earned, with interpolation for three-year cumulative TSR between 16% and 52%. Finally, if cumulative TSR after grant is greater than 33% at the end of any fiscal quarter in the first three years, then 25% of the target award would be deemed earned, banked and paid out at the end of year three, even if performance at the end of year three is below the year-three threshold. The banking can only occur once, and any final payouts at the end of year four would be net of the banked amount. The rationale for banking this relatively small payout that remains unvested is to retain award holders for at least three years if shareholders had the opportunity to realize a minimum level of 33% TSR in a short time. PSUs with performance periods that ended in fiscal year 20172018 resulted in zero realized compensation.a payout of less than target shares and less than grant value. The PSUs granted to all our executive officers in November 20132014 (fiscal 2014)year 2015), ended their three-year performance period during fiscal 2017.year 2018. ResMed’s TSR of 28%64.90% over the three-year performance period from November 20132014 through November 2016,2017 reflected the fiscal 2014 PSUs did not meet threshold performance,53rd percentile of the comparison group, and noas a result, 57% of the target shares were earned orand paid out.out under thepre-existing formula. This result reflects rigorous goals setting; absolute TSR performance for the three-year period reflected strong price appreciation and added long-term value for our stockholders. The payout amount was certified by the committee, after reviewing third-party calculations of the total shareholder returns for ResMed and the index peers, as well as the percentile distributions. The payout was formulaic and based on the plan’s design, aligning pay delivery with performance, with no discretionary adjustments by the committee. Because of this result, and the increase in share value during the performance period, our executive officers realized no valuethe values from the PSU grants made to them in fiscal year 2014,2015 PSU grants, as shown in the table below. | Named executive officer | | Target number of
shares at grant | | | Value at grant(a) | | | Number of
shares acquired
on vesting | | | Value realized
on vesting | | | Target number of shares at grant | | Value at grant(a) | | Number of shares acquired on vesting | | Value realized on vesting | Michael Farrell | | | 36,270 | | | $ | 1,813,500 | | | | 0 | | | $ | 0 | | | 48,905 | | $2,500,000 | | 27,876 | | $2,359,146 | Rob Douglas | | | 27,900 | | | $ | 1,395,000 | | | | 0 | | | $ | 0 | | | 31,984 | | $1,635,000 | | 18,231 | | $1,542,890 | Jim Hollingshead | | | 11,700 | | | $ | 585,000 | | | | 0 | | | $ | 0 | | | 13,987 | | $715,000 | | 7,973 | | $674,755 | David Pendarvis | | | 11,700 | | | $ | 585,000 | | | | 0 | | | $ | 0 | | | 13,449 | | $688,000 | | 7,666 | | $648,774 | Brett Sandercock | | | 13,700 | | | $ | 685,000 | | | | 0 | | | $ | 0 | | | 15,649 | | $800,000 | | 8,920 | | $754,900 |
(a) | | | PSUs are shown at the(a)
| | The grant date fair value aswas computed under FASB ASC Topic 718. |
| Terms of stock options and restricted stock units |
Outstanding PSUs scheduled to vest inStock options. During fiscal year 2018, would not have paid out any shares. PSU grants made to our named executive officers during fiscal year 2015 remain outstanding. Based on stock price performance through June 30, 2017, when our stock price was $77.87, these outstanding PSU grants would not have earned a payout, had the performance period ended on June 30, 2017. For this period, ResMed’s TSR was 50%, compared to the index’s median TSR of 54%.
These results reflect the plan design, and our stock’s performance during the relevant timeframes. Because the outstanding PSUs had 5 months remaining in their performance periods, anymid-period payout calculation is hypothetical. Nevertheless, as of the end of our 2017 fiscal year, the outstanding performance-based units awarded were tracking to deliver zero value to our named executive officers.
Outstanding PSUs scheduled to vest after fiscal year 2018 were tracking above threshold, but below target.PSU grants made to our named executive officers during fiscal years 2016 and 2017 also remain outstanding. Based on stock price performance through June 30, 2017, when our stock price was $77.87, each of these outstanding PSU grants was tracking below target, although above threshold, as shown in the table below.
| | | | | | | | | PSU grant date | | ResMed total
stockholder return
through June 30, 2017 | | | Hypothetical
payout as a
percentage of target | | November 2015 | | | 31 | % | | | 69 | % | November 2016 | | | 30 | % | | | 66 | % |
These results reflect the plan design, and our stock’s performance during the relevant timeframes. Because the outstanding PSUs had from 29 to 41 months remaining in their performance periods, anymid-period payout calculation is hypothetical. Nevertheless, as of the end of our 2017 fiscal year, the outstanding performance-based units awarded were tracking to deliver less than targeted value to our named executive officers.
Terms of stock options and restricted stock units
Stock Options. Stock options were issued under our 2009 Plan to some of our named executive officers, during fiscal year 2017 under our 2009 Plan, because they have a choice of options or RSUs for the 50% of their award that is not contingent on TSR performance. The plan requires that the exercise price of options equal the fair market value on the day of the grant date, as
measured by the closing price of our common stock on the NYSE on the grantthat date. Stock options granted to named executive officers and certain other senior executives during the November annual grant process vest and arebecome exercisable 33%one-third per year on November 11th of each year after the grant date, subject to the executive’s continued service with us. TheyOn a qualifying retirement, options become exercisable on apro-rata basis based on the service period. Executives may exercise their vested options for a maximum period ofuntil the earlier of: (1) expiration of the grant (generally seven years after the date of grant), or (2) one year after separation for any reason (except six months after death in the case ofnon-US participants, and, for grants made in fiscal year 2018, three years after a qualifying retirement). The committee considers stock options performance-based compensation. The ultimate economic value received by an option recipient depends on our future stock price performance, and could be zero, if the stock price does not increase above the strike price. These features of stock options align our executive’sexecutives’ interests with stockholderstockholders’ interests. Restricted stock units. During fiscal year 2018, RSUs were granted under our 2009 Plan to mostall of our named executive officers and certain other senior executives are earned based on performance targets as shown in the table below.officers. The performance conditions require that RSUs are only earned when we meet threshold levels of profitability. After grant, RSUs granted may be earnedprofitability described in the table below, based on our actual adjusted performance compared to targeted levels of earnings for each of the three performance periods: (1) third fiscal quarter; (2) fourth fiscal quarter; and (3) the third and fourth fiscal quarters combined. One half of the RSUs granted may be earned based on the earnings for each of the third and fourth fiscal quarters. No more than 100% of the RSUs granted may be earned, and once the target is met for a performance period, all RSUs associated with that period are earned. If the target for a performance period is not met, none of the RSUs for that period are earned. However, if the cumulative target for both periods is achieved in either period or in the combined period, 100% of the RSUs granted are earned. Once earned, the RSUs vest inone-third annual increments from the date of the grant, based on continued service with us, such that all earned awards will be vested three years after grant, which facilitates retention. On a qualifying retirement, RSUs vest on apro-rata basis based on the service period. We do not pay any dividends or dividend equivalents on any of our equity awards. In August 2017,2018, the committee determined that the performance condition on the November 20162017 RSU grants to executive officers had been met, and 100% of the RSUs granted were earned, as shown in the table below. The earned RSUs remain subject to one thirdone-third annual vesting increments from the date of grant, based on continued service. | | | | | | | | | | | | | Performance component | | Threshold | | | Approximate actual
performance | | | Percentage payout
of RSU award
for the metric | | Fiscal year 2017 third quarter adjusted earnings | | $ | 59,511,000 | | | $ | 108,187,000 | | | | 100 | % | Fiscal year 2017 fourth quarter adjusted earnings | | $ | 71,376,000 | | | $ | 122,710,000 | | | | 100 | % | 2017 third and fourth quarter adjusted earnings | | $ | 130,886,000 | | | $ | 230,897,000 | | | | 100 | % |
| | | | | | | | Performance component | | Threshold | | Approximate actual performance | | Percentage payout of RSU award for the metric | Fiscal year 2018 third quarter adjusted earnings | | $75,000,177 | | $168,884,097 | | 100% | Fiscal year 2018 fourth quarter adjusted earnings | | $83,547,963 | | $176,320,168 | | 100% | 2018 third and fourth quarter adjusted earnings | | $158,548,140 | | $345,204,265 | | 100% |
| Equity compensation award policies |
The committee’s policy is to generally havemake its annual incentive award grants to named executive officers andnon-executive management effective on or about the annual stockholders meeting date. However, it reserves the right to make exceptions and change the policy. In setting this policy the committee considered many factors, including the alignment of this date with the election ofdate equity grants are made to directors and our expectedofficers’ December 1 salary adjustment date. This enables management and the committee to combine the salary review process with the equity grant process for consistency and administrative convenience and to make awards only after performance in the previous year is known and current year budgets and goals are set. Also, the exercise price for options included in the equity grants equals the closing price of our common stock on the actual grant date, and the price on that date is an important input into the valuation of RSUs and PSUs. Given our traditional earnings release date in late October or early November, the stockholders meeting is likely to occur in an open window period, so that the stock price on the grant date is more likely to reflect more recent performance data. Finally, the stockholders meeting date is set and announced several months in advance, providing transparency to the process. Based on these reasons, the committee has set the annual stockholders meeting date as the target for our annual equity grants, although the actual grant date (i.e.,(that is, the date when the committee takes formal action to make the grants) may vary by a few days from the annual meeting date due to administrative or other factors. The committee’s policy on granting incentive awards for promotions, new hire and other special situations is that the grants must be properly approved in advance of,before, or on the grant date, and the grant date is to occur on the first business day of the month followingafter the promotion, new hire or other special situation; unless the event occurs on the first business day of the month, in which case the grant may be made as of that day. During fiscal year 2017,2018, the committee continued its practice of delegating to a subcommittee comprised of our chief executive officer, our chief human resources officer, and our chief administrative officer and global general counsel, authority to approve the annual, and promotional, and new hire equity award grants to employees who were not officers, so long as the aggregate total of those equity grants did not exceed committee-established limits, and were consistent with committee-determined standard terms for grants and other guidelines. During fiscal year 2017,2018, under this authority, this subcommittee granted a total of 408,393267,929 RSUs. The committee believes that this subcommittee is best suited to determine the specific annual awards to be allocated to the individual employees below the officer level, given their familiarity with their performances and responsibilities. In addition, the delegation enhances our ability to attract, reward and retain talented employees by allowing management to extend binding employment offers and to act in other special situations quickly and flexibly. All equity grants to our executive officers arepre-approved by the committee. Equity ownership guidelines
| Equity ownership guidelines |
We have equity share ownership guidelines for our executive officers to improve long-term alignment of stockholder and management interest, and to conform to prevalent peer practices.interests. These guidelines were increased in August 2017, and currently requirefor our chief executive officer during fiscal year 2018, requiring him to achieve stock ownership levels in ResMed common stock, including unvested RSUs, of at least five times his annual base salary within five years. (During fiscal year 2017, the target was three times annual base salary.) All other named executive officers are required to own at least one andone-half times their respective annual salaries within five years. If these guidelines are not met, then on vesting of RSUs or option exercise, the officer must retain shares equal to 50% of theafter-tax value of shares acquired on the vesting or exercise until the officer’s guidelines are met. As of fiscalyear-end 2017,the record date, each of our named executive officers met thetheir ownership guideline. Our chief executive officer met both the fiscal year 2017 and the August 2017 guidelines. Change of control, termination, and retirement arrangements
| Change of control, termination, and retirement arrangements |
Our named executive officers have limited contractual rights to receive severance payments if employment is terminated, as described below. StockDouble-trigger vesting acceleration of stock options and RSUs.RSUs in connection with a change of control.In August 2017, the compensation committee adopted a new policy, providing that RSUs and stock options granted in and after fiscal year 2018 to executive officers will only accelerate on a double-trigger basis, that is, if their employment is terminated under specified circumstances within six months before or one year after a change of control. This change was made after reviewing emerging best executive compensation practices, particularly among our peer companies, and was also based on discussions with our stockholders. Previously,Earlier grants made to our executive officers made in and before fiscal year 2017 providedprovide for accelerated vesting of RSUs and stock options on a change of control on a single-trigger basis. These legacy agreements have not been modified, and will continue to apply until the grants fully vest or terminate. Our grant agreements also provide for accelerated vesting of RSUs or stock options on an officer’s death, or permanent disability. Our change in control agreements with our executive officers were revised effective January 1, 2018 to eliminate single-trigger acceleration rights and to provide double-trigger acceleration for our stock options and RSUs.
Our form option agreement for named executive officers provides that if they terminate service with us for any reason, they forfeit options that were unvested at the time of termination. However, a terminated officer has until one year after the termination to exercise options that vested before the termination.options. These post-termination exercise provisions are intended to facilitate financial planning after employment terminates and to ensure that the executive would be able to exercise options and sell the underlying shares when not in possession of materialnon-public information about us.information. Performance-based stock units. Our form PSU agreement for executive officers provides that if we terminate the officer for “cause” or the officer terminates employment without “good reason” (as those terms are defined in our change of control agreements and summarized below in “Change“Change of control agreements”), the PSUs are cancelled. If we terminate the officer other than for cause, or the officer terminates for good reason or—as to grants made in or after November 2017—for retirement, then the PSUs become earned and vested, on a prorated basis based on the truncated service period, ending at the termination, and based on the TSR performance measured over that truncated performance period. Similarly, in the event ofif a change of control occurs, the performance-based stock units are earned and vested as of the date of the change of control, with the number of units earned based on performance through the date of the change of control. In the event of death or permanent disability, 100% of the target units vest and are immediately distributed. The committee believes these provisions preserve the value of the award without unduly benefiting the executive, and are consistent with the philosophy of paying for actual service and actual performance. Change of control agreements. We have change of control agreements with each of our named executive officers and certain other members of our senior management team. Our agreements do not contain excise taxgross-up benefits, reflecting the committee’s view of best practice, particularly among peer companies, and in response to views expressed by our stockholders. The agreements include instead a “best pay” limitation, which reduces the severance payments and benefits payable to the extent necessary so that no portion of any payments or benefits payable upon a change of control of our company would be subject to the excise tax under Section 280G of the US Internal Revenue Code if the reduction would result in the net amount payable to the employee being greater than the net amount received without the reduction. OurDuring fiscal year 2018, the committee reviewed our change of control agreements, and revised them, effective as of January 1, 2018, to eliminate single trigger and to instead provide for double-trigger accelerated vesting for generally all outstanding equity awardsstock options and restricted stock units on a change of control. These agreements also provide for double-trigger severance payments with a multiplier (based on position, which for our chief executive officer is 2 times, and for other named executive officers is 1.5 times) of salary, short-term incentive and other benefits, to be made to our named executive officers if their employment is terminated under specified circumstances within six months before or one year after a change of control. A description of the material terms of our change of control agreements can be found in “Potential payments on termination or change of control.” These agreements are maintained in order to recruit and retain new executives, as well as to foster the best efforts of management in the deliberation of a potential transaction. The committee believes that these agreements continue to be needed to attract and retain senior level candidates in light of the relatively specialized nature of our product offerings and the continued potential for merger and acquisition activity in the medical technology market sector. Also, the committee believes that the agreements assure appropriate motivation by senior management to evaluate potential transactions that may involve us.
Treatment of long-term incentives on retirement. In May 2017,fiscal year 2018, the compensation committee adopted a retirement policy on treating long-term incentives on an executive’s retirement.for equity grants made in or after November 2017. Under this policy, if an executive retires on or after age 60, with at least five years of continuous service with ResMed, then on retirement, the unvested portion of all equity grants will vest, on apro-rata basis reflecting the portion of service periods completed. On a qualifying retirement the exercise period for vested stock options will be extended to the earlier of (1) 36 months, or (2) the original term. The committee believes these retirement provisions are fair and equitable, avoid different results for the amount earned by retiring and ongoing award holders, and are consistent with market practices. This treatment of equity on a qualifying retirement applies on the same basis to all similarly-situated employees. TheseThis new provisions will apply toretirement policy does not change the term ofpre-existing equity grants made on or after November 2017.grants. Earlier equity grants treated retirement as a voluntary termination, and generally, unvested grants would be forfeited. These legacy grants have not been modified, and will continue to apply until they are fully vested or terminate.
Insurance benefits. We provide our named executive officers with supplemental life and disability insurance benefits not generally available to all employees, although they are available to certainnon-officers. The third-party insurance companies that underwrite these policies would be obligated to make payments to an executive if the executive terminated employment with us as a result of death or disability. | Perquisites and other benefits |
During fiscal year 2017,2018, we made available the limited benefits described below to our named executive officers. The incremental cost to us for these benefits is described in the summary compensation table. We provided comprehensive medical examinations to promote personal health and work/life balance. We believe this benefits us as well as the individuals through improved health, productivity, and longevity, and is consistent with ResMed’s mission as a health and wellness productsolutions innovator. We participate in an aircraft travel program to provide for more efficient use of time and to provide a more confidential and secure travel environment in which to conduct company business. This program is used primarily for business purposes, but is available to our chief executive officer and our president and chief operating officer for personal use. Personal use by other named executive officers is on an exception basis, and requires our chief executive officer’s approval. The aggregate incremental cost to us for any personal use is reviewed at least annually by the compensation committee, and the committee has a guideline limiting the value of an individual’s annual personal use to $100,000. During fiscal year 2017, our chief executive officer andnon-officer chairman both2018, no individual exceeded this limit, primarily because of a change in valuation methodology adopted during the fiscal year.limit. Aircraft use by an employee, spouse or guest that does not constitute business use based on IRS guidance is treated as imputed income to the employee, based on the IRS standard industry fare level. We do not reimburse for taxes on the imputed income. Because of the increased productivity and security, we believe that these policies are appropriate to provide a comprehensive and competitive compensation package, particularly for our chief executive officer and our president and chief operating officer. We provided benefits in connection with sales incentive award travel programs, including include travel, hotel, meals, entertainment and other expenses of the executive officer and the officer’s spouse or guest. This programOur policy reflects the committee’s belief that our named executive officers’ attendance at these programs is a part of their general business duties and that this is not a perquisite. The programs are primarily targeted for sales personnel and other key management who regularly interact with our customers and to recognize their contributions to us. The committee believes that participation by executive officers in this programthese programs enhances the overall sales incentive programprograms and requires their attendance, to the extent determined by the appropriate operating officer. We provide these benefits on the same general basis as we provide tonon-executives who qualify to participate in the program,programs, including a taxgross-up. The taxgross-up is provided to all participants, not only to executive officers, and is provided so that they are not discouraged from participating by tax expenses that would otherwise be a personal expense attributable to thisthe program. Our policy reflects the committee’s belief that our named executive officers’ attendance at this program is a part of their general business duties and that this is not a perquisite. We have provided certain of our named executive officers with relocation benefits in connection with their relocation for company purposes, consistent with our mobility policy. These benefits were specifically approved by the compensation committee and included reimbursement of certain expenses, and payments to offset retirement plan contributions foregone as a result of the relocation. These benefits did not include any extraordinary items such as home purchases, reimbursement for losses on the sale of real estate, or taxgross-ups. Continuing relocation benefits are periodically reviewed and approved by the compensation committee. We also provided paidtime-off, medical plans, dental plans, vision plans,tax-qualified defined contribution retirement plans (including matching contributions and government-mandated contributions), and disability and life insurance plans. Named executive officers are eligible to participate in these benefit programs on the same basis as other similarly-situated employees in their respective locations. | Deferred compensation plan |
We maintain the ResMed Inc. Deferred Compensation Plan, under which eligible US employees (including but not limited to executive officers) selected to participate in the deferred compensation plan may elect to defer a portion of their base salary, short-term incentive, commissions, and other specified compensation. The amounts deferred under the plan represent an unsecured general obligation to make payments to the participant in the future. Amounts deferred under the plan are credited to accounts maintained under the plan for each participant and are credited with earnings, gains, or losses based on investment options chosen by the participant. These investment options are used for measurement purposes only and amounts deferred under the plan will not represent any actual investment made on the participant’s behalf. The amount that we are required to pay under the plan is equal to the elective deferrals made by the participant, as adjusted for these hypothetical gains or losses. The plan allows us to make discretionary contributions to participant accounts in amounts and at times that we determine from time to time in our discretion, including restoration matching contributions intended to restore the matching contributions lost under our 401(k) plan as a result of deferrals under the deferred compensation plan. The committee believes that the deferred compensation plan represents an additional retention tool for executive management, as well as an attractive vehicle in recruiting talent to our executive team. Section 162(m) of the US Internal Revenue Code limits the US federal income tax deductions of publicly-traded companies to the extent total compensation for certain named executive officersto its “covered employees” exceeds $1 million in any one year. Under Section 162(m)Before the Tax Cuts and Jobs Act of 2017, covered employees included the chief executive officer and the next three most highly compensated executive officers serving at the end of the fiscal year (other than the chief financial officer), and performance-based compensation arrangements could qualify for an exemption from the deduction limit does not apply to payments that constitute “qualified performance-based compensation.” Generally, objectively determinable performance short-term incentive payments, option grants, and performance-based equity grants to our named executive officers are intended to constitute “qualified performance-based compensation”if they satisfied various requirements under Section 162(m) and not be subject to the Section 162(m) limit. However, in certain circumstances, the committee may provide short-term incentive payments, option grants, and other payments and awards that do not constitute “qualified performance-based compensation” if the committee determines that payments and awards would be in the best interest of ResMed. If compensation to certain named executive officers does not constitute “qualified performance-based compensation,” our deduction for US federal income tax purposes for that compensation may be wholly or partially disallowed under Section 162(m). Our 2009 Plan is designed to permit the grant of awards that are intended to qualify as performance-based compensation for purposes of section 162(m) of the US Internal Revenue Code. As part of the Tax Cuts and Jobs Act of 2017, effective for tax years beginning after December 31, 2017 (ResMed’s fiscal year 2019), the ability to rely on this “qualified performance-based compensation” exception was eliminated, and the definition of covered employees was expanded to generally include all named executive officers. Although we maintain compensation plans that were intended to permit the award of deductible compensation as qualified performance-based compensation under section 162(m) before the Tax Cuts and Jobs Act of 2017, subject to the Act’s transition relief rules, we may no longer take a deduction for any compensation paid to our covered employees in excess of $1 million. Sections 280G and 4999 of the US Internal Revenue Code impose certain adverse tax consequences on excess parachute payments, which are compensatory payments or benefits that are contingent on a change of control and exceed in the aggregate three times the executive’s average taxable compensation paid by ResMed over the five years before the change in control (the “base amount”). If this “three times base amount” threshold is exceeded, then tax penalties apply to the total payments in excess of one times the base amount. Excess parachute payments are subject to a 20% excise tax that must be withheld from the payment, and our compensation deduction in respect of the excess parachute payments is disallowed. If we were to be subject to a change of control, certain amounts received by our executives (for example, amounts attributable to accelerated vesting of equity grants and certain severance payments) could be excess parachute payments. Our change of control agreements do not obligate us to provide taxgross-ups to an affected individual for any excise taxes due under the agreement. The agreements include instead a “best pay” limitation, which reduces the severance payments and benefits payable to the extent necessary so that no portion of any payments or benefits payable on a change of control would be subject to excise tax if the reduction would result in the net amount payable to the employee being greater than the net amount received without the reduction..reduction. Section 409A of the US Internal Revenue Code requires programs that allow executives to defer a portion of their current income to meet certain requirements regarding risk of forfeiture and election and distribution timing (among other considerations). Section 409A of the US Internal Revenue Code requires that “nonqualified deferred compensation” be deferred and paid under plans or arrangements that satisfy the requirements of the statute with respect to the timing of deferral elections, timing of payments and certain other matters. Failure to satisfy these requirements can expose employees and other service providers to accelerated income tax liabilities and penalty taxes and interest on their vested compensation under the plans. Accordingly, as a general matter, we intend to design and administer our compensation and benefit plans and arrangements for all of our employees and other service providers, including our named executive officers, so that they are either exempt from, or satisfy the requirements of, Section 409A of the US Internal Revenue Code. EXECUTIVECOMPENSATIONTABLES Summary compensation table
| Summary compensation table |
The following table sets forth summary information concerning the compensation awarded, paid to, or earned by each of our named executive officers for all services rendered in all capacities to us for the fiscal years ended June 30, 2018, 2017, June 30, 2016, and June 30, 2015 (to the extent they were a named executive officer in the relevant year).2016. We compensate our executive officers in their residences’ local currency. The compensation amounts for named executive officers based outside of the US are presented in US dollars based on an average annual conversion rate for the relevant fiscal years. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name and principal position | | Year | | | Salary(a) | | | Option
awards(c) | | | Stock
awards(d) | | | Non-equity
incentive plan
compensation(e) | | | All other
compensation(f) | | | Total | | Michael Farrell Chief executive officer | | | 2017 | | | $ | 890,160 | | | $ | 1,500,000 | | | $ | 4,500,000 | | | $ | 1,038,941 | | | $ | 204,295 | | | $ | 8,133,396 | | | | | 2016 | | | $ | 845,000 | | | | — | | | $ | 5,500,000 | | | $ | 1,079,716 | | | $ | 73,646 | | | $ | 7,498,362 | | | | | 2015 | | | $ | 800,000 | | | | — | | | $ | 5,000,019 | | | $ | 861,360 | | | $ | 52,160 | | | $ | 6,713,539 | | Rob Douglas President and chief operating officer | | | 2017 | | | $ | 746,345 | | | | | | | $ | 4,000,000 | | | $ | 670,069 | | | $ | 357,286 | | | $ | 5,773,700 | | | | | 2016 | | | $ | 694,606 | | | $ | 1,831,200 | | | $ | 1,831,200 | | | $ | 682,728 | | | $ | 164,947 | | | $ | 5,204,681 | | | | | 2015 | | | $ | 669,500 | | | | — | | | $ | 3,270,008 | | | $ | 648,766 | | | $ | 122,006 | | | $ | 4,710,280 | | Jim Hollingshead President – sleep business | | | 2017 | | | $ | 483,631 | | | | — | | | $ | 2,600,000 | | | $ | 315,206 | | | $ | 70,274 | | | $ | 3,469,111 | | | | | 2016 | | | $ | 454,167 | | | $ | 382,525 | | | $ | 1,147,575 | | | $ | 360,212 | | | $ | 69,753 | | | $ | 2,414,232 | | | | | 2015 | | | $ | 437,750 | | | | — | | | $ | 1,430,015 | | | $ | 368,236 | | | $ | 43,435 | | | $ | 2,279,436 | | David Pendarvis Chief administrative officer, global general counsel and secretary | | | 2017 | | | $ | 520,864 | | | $ | 408,047 | | | $ | 1,591,953 | | | $ | 350,724 | | | $ | 63,299 | | | $ | 2,934,887 | | | | | 2016 | | | $ | 507,598 | | | $ | 367,813 | | | $ | 1,103,437 | | | $ | 374,189 | | | $ | 58,640 | | | $ | 2,411,677 | | | | | 2015 | | | $ | 489,250 | | | $ | 343,755 | | | $ | 1,031,243 | | | $ | 395,082 | | | $ | 53,533 | | | $ | 2,312,863 | | Brett Sandercock Chief financial officer | | | 2017 | | | $ | 442,081 | (b) | | $ | 437,500 | | | $ | 1,312,500 | | | $ | 309,411 | | | $ | 46,502 | | | $ | 2,547,994 | | | | | 2016 | | | $ | 410,640 | | | | — | | | $ | 1,712,000 | | | $ | 302,713 | | | $ | 43,490 | | | $ | 2,468,843 | | | | | 2015 | | | $ | 395,797 | | | | — | | | $ | 1,599,995 | | | $ | 319,616 | | | $ | 41,697 | | | $ | 2,357,105 | |
| | | | | | | | | | | | | | | Name and principal position | | Year | | Salary(a) | | Option awards(c) | | Stock awards(d) | | Non-equity incentive plan compensation(e) | | All other compensation(f) | | Total | Michael Farrell Chief executive officer | | 2018 | | $934,154 | | $1,700,000 | | $5,100,000 | | $1,247,188 | | $100,862 | | $9,082,204 | | | 2017 | | $890,160 | | $1,500,000 | | $4,500,000 | | $1,038,941 | | $204,295 | | $8,133,396 | | | 2016 | | $845,000 | | | | $5,500,000 | | $1,079,716 | | $73,646 | | $7,498,362 | Rob Douglas President and chief operating officer | | 2018 | | $813,385 | | $1,125,000 | | $3,375,000 | | $835,346 | | $98,824 | | $6,247,555 | | | 2017 | | $746,345 | | | | $4,000,000 | | $670,069 | | $357,286 | | $5,773,700 | | | 2016 | | $694,606 | | $1,831,200 | | $1,831,200 | | $682,728 | | $164,947 | | $5,204,681 | Jim Hollingshead President – sleep business | | 2018 | | $620,000 | | | | $2,000,000 | | $478,707 | | $73,805 | | $3,172,512 | | | 2017 | | $483,631 | | | | $2,600,000 | | $315,206 | | $70,274 | | $3,469,111 | | | 2016 | | $454,167 | | $382,525 | | $1,147,575 | | $360,212 | | $69,753 | | $2,414,232 | David Pendarvis | | 2018 | | $533,710 | | $425,000 | | $1,275,000 | | $390,861 | | $96,194 | | $2,720,765 | | Chief administrative | | 2017 | | $520,864 | | $408,047 | | $1,591,953 | | $350,724 | | $63,299 | | $2,934,887 | officer, global general counsel and secretary | | 2016 | | $507,598 | | $367,813 | | $1,103,437 | | $374,189 | | $58,640 | | $2,411,677 | Brett Sandercock Chief financial officer | | 2018 | | $454,853(b) | | | | $2,000,000 | | $355,317 | | $51,220 | | $2,861,390 | | | 2017 | | $442,081 | | $437,500 | | $1,312,500 | | $309,411 | | $46,502 | | $2,547,994 | | | 2016 | | $410,640 | | | | $1,712,000 | | $302,713 | | $43,490 | | $2,468,843 |
| | | (a) | | Includes salary deferred under defined contribution retirement plans such as our US 401(k) plan, US deferred compensation plan, and Australia superannuation plan. Had these amounts not been deferred, they would have been payable to the officer in cash during the year. |
| | (b) | | We pay Mr. Sandercock’s base salary in Australian dollars. It is reported here in US dollars based on the fiscal year average annual exchange rates. The average annual exchange rate for fiscal year 20172018 was approximately AUD:USD of 1 to 0.7539.0.75. Earlier years are reported using the rates disclosed in prior years’ proxy statements. |
| | (c) | | Option awards represent stock options issued under our 2009 Plan, valued at the grant date computed under FASB ASC Topic 718, as described in more detail in the footnotes to the “Grants of plan-based awards” table. The assumptions used in calculating the grant date fair value are also set forth in Note 16 to the audited consolidated financial statements included in our Annual Report on Form10-K for fiscal 2017. |
| | (d) | | Stock awards include RSUs and PSUs issued under our 2009 Plan, and are shown at the grant date fair value, as computed under FASB ASC Topic 718. See the footnotes to the “Grants of plan-based awards” table for further information on the valuation of stock awards. The grant date fair value of the RSUs reflects the probable outcome as of the applicable performance conditions as of the grant date. Since the PSUs are earned based solely on our TSR, they do not have performance conditions as defined under ASC 718, and have no maximum grant date fair values that differ from the grant date fair values presented in the table above. The assumptions used in calculating theRSU maximum grant date fair value are also set forth in Note 16is equal to the audited consolidated financial statements included in our Annual Report on Form10-K for fiscal 2017.target value. |
| | (e) | | Represents actual payouts under our performance-based cash short-term incentive programs. |
(f) | | | (f) | | The amounts shown consist of our incremental cost for certain specified perquisites for our named executive officers, as follows: |
| Named executive officer | | Medical
exams | | | Personal use
of company
aircraft(i) | | | Sales
incentive
award(ii) | | | Sales
incentive
award tax
gross-up(ii) | | | Relocation
compensation(iii) | | | Other
compensation(iv) | | | Medical exams | | Personal use of company aircraft(i) | | Sales incentive award(ii) | | Sales incentive award tax gross-up(ii) | | Relocation compensation(iii) | | Other compensation(iv) | Michael Farrell | | $ | 2,700 | | | $ | 133,655 | | | $ | 25,318 | | | $ | 8,501 | | | $ | 0 | | | $ | 34,121 | | | $0 | | $31,889 | | $25,153 | | $8,474 | | $0 | | $35,346 | Rob Douglas | | $ | 2,207 | | | $ | 0 | | | $ | 23,130 | | | $ | 8,800 | | | $ | 291,077 | | | $ | 32,072 | | | $0 | | $5,569 | | $22,485 | | $8,474 | | $35,796 | | $26,500 | Jim Hollingshead | | $ | 2,700 | | | $ | 0 | | | $ | 23,685 | | | $ | 8,501 | | | $ | 0 | | | $ | 35,388 | | | $0 | | $5,569 | | $21,794 | | $8,474 | | $0 | | $37,968 | David Pendarvis | | $ | 2,700 | | | $ | 0 | | | $ | 23,266 | | | $ | 9,248 | | | $ | 0 | | | $ | 28,085 | | | $2,700 | | $5,569 | | $38,583 | | $11,194 | | $8,640 | | $29,508 | Brett Sandercock | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 46,502 | | | $800 | | $0 | | $0 | | $0 | | $0 | | $50,420 |
| | | | (i) | | The calculation of the aggregate incremental cost for personal use of company aircraft includes the variable costs incurred as a result of personal flight activity, which includes the occupied hourly rate, fuel, trip related maintenance, universal weather monitoring,on-board catering, landing and ramp fees, excise taxes, and all other miscellaneous costs. No incremental cost for personal use of the aircraft is attributed to a named executive officer when the aircraft was previously scheduled to the destination for a business purpose. Since our aircraft are primarily used for business purposes, the aggregate incremental cost excludes fixed costs, such as the monthly management fee and amortization, because such costs would have been incurred regardless of the personal use. |
| | | (ii) | | We provided certain of our named executive officers with benefits in connection with a sales incentive award travel program which is available to sales, marketing, and othernon-executive employees. Amounts represent the cost of participation by executive officers in that program. The cost includes the incremental cost to us of travel, hotel, meals, entertainment and other expenses of the executive officer and the officer’s spouse or guest. The cost shown as“gross-up”gross-up represents the amounts we reimburse the officer for the tax associated with income imputed to the officer in connection with the program. We provide taxgross-ups gross ups to all employees who participate in this program. Attendance is part of our officer’sofficers’ management duty and enhances the effectiveness of the sales incentive program. |
| | | (iii) | | Consists of the followingThese relocation compensation amounts represent tax advisory consulting fees we paid in connection with Mr. Douglas’ continuing mobility assignment to the US from Australia: $51,008 for tax advisory and preparation services, and $240,068 in Australian leave entitlements paid to Mr. Douglas once he localized his employment in the United States on January 1, 2017.assignments.
|
| | | (iv) | | These amounts include matching contributions we made under our US 401(k) plan and deferred compensation plan, government-mandated contributions we made under the ResMed Limited superannuation plan (a defined contribution retirement program for our Australia-based employees), and executive long-term disability and insurance premiums paid by us on behalf of our named executive officers. Those amounts for fiscal year 20172018 were: |
| Named executive officer | | Company contributions to
deferred compensation plan | | Company contributions to US
401(k) and AU superannuation(b) | | | Insurance premiums(c) | | | Company contributions to deferred compensation plan(a) | | Company contributions to US 401(k) and AU superannuation(b) | | Insurance premiums(c) | Michael Farrell | | $ | 0 | | | $ | 10,600 | | | $ | 23,521 | | | $0 | | $9,931 | | $25,415 | Rob Douglas | | $ | 0 | | | $ | 7,394 | | | $ | 24,678 | | | $0 | | $0 | | $26,500 | Jim Hollingshead | | $ | 0 | | | $ | 11,138 | | | $ | 24,250 | | | $0 | | $11,727 | | $26,241 | David Pendarvis | | $ | 1,508 | (a) | | $ | 9,153 | | | $ | 17,424 | | | $2,010 | | $8,856 | | $18,642 | Brett Sandercock | | $ | 0 | | | $ | 42,004 | | | $ | 4,498 | | | $0 | | $43,211 | | $7,209 |
(a) | | | (a) | | Represents contributions intended to restore the matching contributions lost under our 401(k) plan as a result of deferrals under the deferred compensation plan. For a description of the company contributions made to the Amended and Restated ResMed Inc. Deferred Compensation Plan, see “Deferred Compensation Plan.” | | | (b) |
(b) | We contribute to the US 401(k) plan for each of our participating named executive officers on the same terms that apply to all other eligible employees. For fiscal year 2017,2018, we made a discretionary matching contribution to the plan in an amount up to 4% of eligible participants’ base salary, normal short-term incentive and commissions subject to US Internal Revenue Code limits on the maximum amount of eligible compensation. In fiscal year 2018, we made minor corrective 401(k) matching contributions. We also contributed to the ResMed Limited superannuation plan in Australia at the government-mandated rate of 9.5%, based on total base salary, on the same terms that apply to all other eligible employees. |
(c) | | (c) | | We pay the cost of an executive long-term disability policy that provides additional benefits forUS-based executives (includingUS-based named executive officers) not generally available to other employees. Amounts shown represent premiums paid for both generally-available and additional insurance. |
| Grants of plan-based awards |
Grants of plan-based awards
The following table summarizes all grants of plan-based awards made to our named executive officers for the fiscal year ended June 30, 2017.2018. In the following table, PSU refers to our long-term performance-based stock units, RSU refers to restricted stock units, and STI refers to performance-based short-term cash incentives. 50% of annual equity award grant value is in the form of PSUs, with the remaining 50% of grant value as 100% options, 100% performance-based RSUs, or 50% of each, aspre-elected by the officer. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Estimated future payouts
undernon-equity incentive plan
awards(a) | | | Estimated future payouts
under equity incentive
plan awards (b)(c)(d) | | Named executive officer | | Grant
date | | Grant
type | | Threshold | | | Target | | | Max | | | Threshold | | | Target | | | Max | | | All other
option
awards:
number of
securities
underlying
options(e) | | | Exercise
price of
option
awards
($/
share) | | | Grant
date fair
value of
stock and
option
awards(f)(g) | | Michael Farrell | | 11/16/2016 | | PSU | | | | | | | | | | | | | | | 29,493 | | | | 58,985 | | | | 132,716 | | | | | | | | | | | $ | 3,000,000 | | | | 11/16/2016 | | RSU | | | | | | | | | | | | | | | 13,600 | | | | 27,199 | | | | 27,199 | | | | | | | | | | | $ | 1,500,000 | | | | 11/16/2016 | | Options | | | | | | | | | | | | | | | | | | | | | | | | | | | 139,665 | | | $ | 57.76 | | | $ | 1,500,000 | | | | 8/16/2016 | | STI | | $ | 578,604 | | | $ | 1,157,208 | | | $ | 2,314,416 | | | | | | | | | | | | | | | | | | | | | | | | | | Robert Douglas | | 11/16/2016 | | PSU | | | | | | | | | | | | | | | 19,662 | | | | 39,324 | | | | 88,479 | | | | | | | | | | | $ | 2,000,000 | | | | 11/16/2016 | | RSU | | | | | | | | | | | | | | | 18,133 | | | | 36,265 | | | | 36,265 | | | | | | | | | | | $ | 2,000,000 | | | | 8/16/2016 | | STI | | $ | 373,173 | | | $ | 746,346 | | | $ | 1,492,692 | | | | | | | | | | | | | | | | | | | | | | | | | | Jim Hollingshead | | 2/16/2017 | | PSU | | | | | | | | | | | | | | | 3,843 | | | | 7,685 | | | | 17,291 | | | | | | | | | | | $ | 500,000 | | | | 2/16/2017 | | RSU | | | | | | | | | | | | | | | 3,607 | | | | 7,213 | | | | 7,213 | | | | | | | | | | | $ | 500,000 | | | | 11/16/2016 | | PSU | | | | | | | | | | | | | | | 7,865 | | | | 15,729 | | | | 35,390 | | | | | | | | | | | $ | 800,000 | | | | 11/16/2016 | | RSU | | | | | | | | | | | | | | | 7,253 | | | | 14,506 | | | | 14,506 | | | | | | | | | | | $ | 800,000 | | | | 8/16/2016 | | STI | | $ | 181,362 | | | $ | 362,723 | | | $ | 725,446 | | | | | | | | | | | | | | | | | | | | | | | | | | David Pendarvis | | 6/1/2017 | | PSU | | | | | | | | | | | | | | | 1,561 | | | | 3,121 | | | | 7,022 | | | | | | | | | | | $ | 200,000 | | | | 6/1/2017 | | RSU | | | | | | | | | | | | | | | 722 | | | | 1,443 | | | | 1,443 | | | | | | | | | | | $ | 100,000 | | | | 6/1/2017 | | Options | | | | | | | | | | | | | | | | | | | | | | | | | | | 6,982 | | | $ | 71.89 | | | $ | 100,000 | | | | 11/16/2016 | | PSU | | | | | | | | | | | | | | | 7,865 | | | | 15,729 | | | | 35,390 | | | | | | | | | | | $ | 800,000 | | | | 11/16/2016 | | RSU | | | | | | | | | | | | | | | 3,627 | | | | 7,253 | | | | 7,253 | | | | | | | | | | | $ | 400,000 | | | | 11/16/2016 | | Options | | | | | | | | | | | | | | | | | | | | | | | | | | | 37,244 | | | $ | 57.76 | | | $ | 400,000 | | | | 8/16/2016 | | STI | | $ | 195,324 | | | $ | 390,648 | | | $ | 781,296 | | | | | | | | | | | | | | | | | | | | | | | | | | Brett Sandercock | | 11/16/2016 | | PSU | | | | | | | | | | | | | | | 8,602 | | | | 17,204 | | | | 38,709 | | | | | | | | | | | $ | 875,000 | | | | 11/16/2016 | | RSU | | | | | | | | | | | | | | | 3,967 | | | | 7,933 | | | | 7,933 | | | | | | | | | | | $ | 437,500 | | | | 11/16/2016 | | Options | | | | | | | | | | | | | | | | | | | | | | | | | | | 40,736 | | | $ | 57.76 | | | $ | 437,500 | | | | 8/16/2016 | | STI | | $ | 172,316 | | | $ | 344,632 | | | $ | 689,265 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Estimated future payouts under non-equity incentive plan awards(a) | | Estimated future payouts under equity incentive plan awards (b)(c)(d) | Named executive officer | | Grant date | | Grant type | | Threshold | | Target | | Max | | Threshold | | Target | | Max | | All other option awards: number of securities underlying options(e) | | Exercise price of option awards ($/share) | | Grant date fair value of stock and option awards(f)(g) | Michael Farrell | | 11/16/2017 | | PSU | | | | | | | | 22,310 | | 44,619 | | 100,393 | | | | | | $3,400,000 | | | 11/16/2017 | | RSU | | | | | | | | 10,336 | | 20,671 | | 20,671 | | | | | | $1,700,000 | | | 11/16/2017 | | Options | | | | | | | | | | | | | | 102,781 | | $84.98 | | $1,700,000 | | | 8/16/2017 | | STI | | $607,200 | | $1,214,400 | | $2,428,800 | | | | | | | | | | | | | Rob Douglas | | 11/16/2017 | | PSU | | | | | | | | 14,764 | | 29,528 | | 66,438 | | | | | | $2,250,000 | | | 11/16/2017 | | RSU | | | | | | | | 6,840 | | 13,679 | | 13,679 | | | | | | $1,125,000 | | | 11/16/2017 | | Options | | | | | | | | | | | | | | 68,017 | | $84.98 | | $1,125,000 | | | 8/16/2017 | | STI | | $406,693 | | $813,385 | | $1,626,770 | | | | | | | | | | | | | Jim Hollingshead | | 11/16/2017 | | PSU | | | | | | | | 6,562 | | 13,123 | | 29,527 | | | | | | $1,000,000 | | | 11/16/2017 | | RSU | | | | | | | | 6,080 | | 12,160 | | 12,160 | | | | | | $1,000,000 | | | 8/16/2017 | | STI | | $248,000 | | $496,000 | | $992,000 | | | | | | | | | | | | | David Pendarvis | | 11/16/2017 | | PSU | | | | | | | | 5,578 | | 11,155 | | 25,099 | | | | | | $850,000 | | | 11/16/2017 | | RSU | | | | | | | | 2,584 | | 5,168 | | 5,168 | | | | | | $425,000 | | | 11/16/2017 | | Options | | | | | | | | | | | | | | 25,695 | | $84.98 | | $425,000 | | | 8/16/2017 | | STI | | $200,142 | | $400,283 | | $800,566 | | | | | | | | | | | | | Brett Sandercock | | 11/16/2017 | | PSU | | | | | | | | 6,562 | | 13,123 | | 29,527 | | | | | | $1,000,000 | | | 11/16/2017 | | RSU | | | | | | | | 6,080 | | 12,160 | | 12,160 | | | | | | $1,000,000 | | | 8/16/2017 | | STI | | $181,941 | | $363,882 | | $727,764 | | | | | | | | | | | | |
(a) | | | (a) | | Represents potential payouts under our annual performance-based cash short-term incentive program for fiscal year 2017.2018. Short-term incentive amounts actually earned for fiscal year 20172018 are reflected in the Summary Compensation Table. | | | (b) |
(b) | Our named executive officers may choose to receive half the value of their annual equity award as 100% options, 100% performance-based RSUs, or 50% of each; with the final number of options or RSUs based on their value determined under FASB ASC Topic 718. | | | (c) |
(c) | Restricted stock unit awards were granted in fiscal year 2017 under our 2009 Plan, to be2018 are earned based on performance targets for the third and fourth fiscal quarters of fiscal year 2017.2018. Threshold amounts shown are 50% of the RSUs granted, assuming that eitheronly one of the 20172018 third quarter or fourth quarter earningsoperating profit target is achieved. The target and maximum amounts shown are 100% of the RSUs granted assuming that both the third quarter and fourth quarter earnings targets or the combinedaggregate third and fourth quarter targets are achieved. Based on actual fiscal year 2018 performance, 100% of the units were earned for fiscal 2017 performance.earned. The earned units will vest annually over three years fromfollowing the date of grant, date, subject to the executive’s continued service. |
| | (d) | | Performance stock unit awards were granted in fiscal year 2017 under our 2009 Plan, to be2018 are earned based on our absolute TSR performance over a four-year period starting on the grant date (with an opportunity for an early payout after three years). Threshold amounts shown are 50% of the PSUs granted, target amounts are 100% of the PSUs granted, and maximum amounts are 225% of the PSUs granted. No PSUs are earned for performance below threshold. |
| | (e) | | Stock options granted in fiscal year 2017 were issued under our 2009 Plan, and2018 have an exercise price equal to the NYSE closing price of our common stock on the NYSE on the grant date;one-third are exercisable on November 11th of each of the three years following the grant date, subject to the executive’s continued service. |
| | | | | (f) | | The dollar value of options represents the grant date fair value based on the Black-Scholes model of option valuation, computed in accordance with FASB ASC Topic 718. The actual value, if any, an executive may realize depends on the excess of the stock price over the exercise price on the date the option is exercised. There is no assurance that an executive will realize a value at or near the value the Black-Scholes model estimates. The Black-Scholes model uses the following assumptions: |
| | | | | | | | | | | | November 16, 2016 | | | June 1, 2017 | | Market price of stock | | $ | 57.76 | | | $ | 71.89 | | Exercise price of option | | $ | 57.76 | | | $ | 71.89 | | Expected stock volatility | | | 25 | % | | | 25.15 | % | Risk-free interest rate | | | 1.66 | % | | | 1.76 | % | Expected life | | | 4.9 | | | | 4.9 | | Dividend yield | | | 2.29 | % | | | 1.84 | % |
| | | | | November 16, 2017 | | | Market price of stock | | $84.98 | | | Exercise price of option | | $84.98 | | | Expected stock volatility | | 23.0% | | | Risk-free interest rate | | 2.08% | | | Expected life | | 4.9 | | | Dividend yield | | 1.65% |
| | | (g) | | The dollar value of RSUs represents the grant date fair value, based on the probable outcome of the performance conditions and the closing value of $57.76$84.98 for RSUs granted on November 16, 2016, $71.922017. The probable outcome of the performance condition was 100% and the maximum payout is equal to the target payout. The dollar value for RSUsPSUs represents the grant date fair value computed under FASB ASC Topic 718, determined as of the grant date using the Monte-Carlo simulation method, which uses multiple input variables to estimate the probability of meeting the TSR objectives, which is a market condition under FASB ASC Topic 718. For PSUs granted on FebruaryNovember 16, 2017, assumes $84.98 share price and $71.89 for RSUs granted on June 1, 2017.estimated Monte Carlo valuation of 89.67% ($76.20 per PSU), rounded to the nearest share. |
The dollar value for PSUs represents the grant date fair value computed under FASB ASC Topic 718, determined as of the grant date using the Monte-Carlo simulation method, which uses multiple input variables to estimate the probability of meeting the TSR objectives, which is a market condition under FASB ASC Topic 718. For PSUs granted on November 16, 2016, assumes $57.76 share price and estimated Monte Carlo valuation of 88.05% ($50.86 per PSU), rounded to the nearest share. For PSUs granted on February 16, 2017, assumes $71.92 share price and estimated Monte Carlo valuation of 90.45% ($65.06 per PSU), rounded to the nearest share. For PSUs granted on June 1, 2017, assumes $71.89 share price and estimated Monte Carlo valuation of 89.11% ($64.07 per PSU), rounded to the nearest share.
| Outstanding equity awards at fiscal year end |
The following table summarizes outstanding equity awards held by our named executive officers at June 30, 2017.2018. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Option awards | | | Stock awards | | Named executive officer | | Number of
securities
underlying
unexercised
options
exercisable | | | Number of
securities
underlying
unexercised
options
unexercisable(a) | | | Option
exercise
price | | | Option
expiration
date | | | Number of
shares or
units of
stock that
have not
vested(b) | | | Market value
of shares or
units of
stock that
have not
vested(c) | | | Equity
incentive plan
awards: number
of unearned
shares or units
of stock that
have not vested | | | Equity
incentive plan
awards:
market value
of unearned
shares or
units of stock
that have not
vested(c) | | Michael Farrell | | | | | | | 139,665 | | | $ | 57.76 | | | | 11/16/2023 | | | | 49,286 | | | $ | 3,837,901 | | | | 27,199 | (d) | | $ | 2,117,986 | | | | | 93,110 | | | | | | | $ | 43.63 | | | | 03/01/2020 | | | | | | | | | | | | 58,985 | (e) | | $ | 4,593,162 | | | | | 3,300 | | | | | | | $ | 33.70 | | | | 11/11/2017 | | | | | | | | | | | | 51,779 | (f) | | $ | 4,032,031 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 19,562 | (g) | | $ | 1,523,293 | | Robert Douglas | | | 50,032 | | | | 100,066 | | | $ | 58.24 | | | | 11/19/2022 | | | | 10,884 | | | $ | 847,537 | | | | 36,265 | (d) | | $ | 2,823,956 | | | | | 46,555 | | | | | | | $ | 43.63 | | | | 03/01/2020 | | | | | | | | | | | | 39,324 | (e) | | $ | 3,062,160 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 34,479 | (f) | | $ | 2,684,880 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 12,794 | (g) | | $ | 996,269 | | Jim Hollingshead | | | 10,451 | | | | 20,904 | | | $ | 58.24 | | | | 11/19/2022 | | | | 13,516 | | | $ | 1,052,491 | | | | 7,213 | (d) | | $ | 561,676 | | | | | 21,452 | | | | | | | $ | 43.63 | | | | 03/01/2020 | | | | | | | | | | | | 14,506 | (d) | | $ | 1,129,582 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,843 | (e) | | $ | 299,254 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 15,729 | (e) | | $ | 1,224,817 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 14,405 | (f) | | $ | 1,121,717 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 5,595 | (g) | | $ | 435,683 | | David Pendarvis | | | | | | | 6,982 | | | $ | 71.89 | | | | 06/01/2024 | | | | 6,653 | | | $ | 518,069 | | | | 1,443 | (d) | | $ | 112,366 | | | | | | | | | 37,244 | | | $ | 57.76 | | | | 11/16/2023 | | | | | | | | | | | | 7,253 | (d) | | $ | 564,791 | | | | | 10,049 | | | | 20,100 | | | $ | 58.24 | | | | 11/19/2022 | | | | | | | | | | | | 1,561 | (e) | | $ | 121,555 | | | | | 21,660 | | | | 10,831 | | | $ | 52.02 | | | | 11/19/2021 | | | | | | | | | | | | 15,729 | (e) | | $ | 1,224,817 | | | | | 24,234 | | | | | | | $ | 51.25 | | | | 11/13/2020 | | | | | | | | | | | | 13,851 | (f) | | $ | 1,078,577 | | | | | 33,714 | | | | | | | $ | 38.98 | | | | 11/15/2019 | | | | | | | | | | | | 5,380 | (g) | | $ | 418,941 | | | | | 31,820 | | | | | | | $ | 27.58 | | | | 11/16/2018 | | | | | | | | | | | | | | | | | | Brett Sandercock | | | | | | | 40,736 | | | | 57.76 | | | | 11/16/2023 | | | | 15,485 | | | $ | 1,205,817 | | | | 7,933 | (d) | | $ | 617,743 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 17,204 | (e) | | $ | 1,339,675 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 16,117 | (f) | | $ | 1,255,031 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 6,260 | (g) | | $ | 487,466 | |
| | | | | | | | | | | | | | | | | | | | Option awards | | Stock awards | Named executive officer | | Number of securities underlying unexercised options exercisable | | Number of securities underlying unexercised options unexercisable(a) | | Option exercise price | | Option expiration date | | Number of shares or units of stock that have not vested(b) | | Market value of shares or units of stock that have not vested(c) | | Equity incentive plan awards: number of unearned shares or units of stock that have not vested | | Equity incentive plan awards: market value of unearned shares or units of stock that have not vested(c) | Michael Farrell | | | | 102,781 | | $84.98 | | 11/16/2024 | | 34,453 | | $3,568,642 | | 20,671(d) | | $2,141,102 | | | 46,555 | | 93,110 | | $57.76 | | 11/16/2023 | | | | | | 44,619(e) | | $4,621,636 | | | 93,110 | | | | $43.63 | | 03/01/2020 | | 14,746 | | $1,527,391 | | 117,970(f) | | $12,219,333 | | | | | | | | | | | 12,945 | | $1,340,843 | | 103,558(g) | | $10,726,538 | Rob Douglas | | | | 68,017 | | $84.98 | | 11/16/2024 | | 24,176 | | $2,504,150 | | 13,679(d) | | $1,416,871 | | | 100,065 | | 50,033 | | $58.24 | | 11/19/2022 | | | | | | 29,528(e) | | $3,058,510 | | | 46,555 | | | | $43.63 | | 03/01/2020 | | 9,831 | | $1,018,295 | | 78,648(f) | | $8,146,360 | | | | | | | | | | | 8,620 | | $892,860 | | 68,958(i) | | $7,142,670 | Jim Hollingshead | | 20,903 | | 10,452 | | $58.24 | | 11/19/2022 | | 16,749 | | $1,734,861 | | 12,160(d) | | $1,259,533 | | | 9,168 | | | | $43.63 | | 03/01/2020 | | | | | | 13,123(e) | | $1,359,280 | | | | | | | | | | | 3,932 | | | | 31,458(f) | | $3,258,420 | | | | | | | | | | | 3,602 | | | | 28,809(g) | | $2,984,036 | | | | | | | | | | | 1,921 | | | | 15,370(h) | | $1,592,025 | David Pendarvis | | | | 25,695 | | $84.98 | | 11/16/2024 | | 7,980 | | $826,568 | | 5,168(d) | | $535,301 | | | 2,327 | | 4,655 | | $71.89 | | 06/01/2024 | | | | | | 11,155(e) | | $1,155,435 | | | 12,414 | | 24,830 | | $57.76 | | 11/16/2023 | | 3,932 | | $407,277 | | 31,458(f) | | $3,258,420 | | | 20,099 | | 10,050 | | $58.24 | | 11/19/2022 | | 3,463 | | $358,698 | | 27,702(g) | | $2,869,373 | | | 30,569 | | | | $52.02 | | 11/19/2021 | | 780 | | $80,792 | | 6,242(i) | | $646,546 | | | 22,283 | | | | $51.25 | | 11/13/2020 | | | | | | | | | | | 14,050 | | | | $38.98 | | 11/15/2019 | | | | | | | | | Brett Sandercock | | 13,578 | | 27,158 | | $57.76 | | 11/16/2023 | | 10,369 | | $1,074,021 | | 12,160(d) | | $1,259,533 | | | | | | | | | | | | | | | 13,123(e) | | $1,359,280 | | | | | | | | | | | 4,301 | | $445,498 | | 34,408(f) | | $3,563,981 | | | | | | | | | | | 4,030 | | $417,427 | | 32,233(g) | | $3,338,694 |
| | | | (a) | | The table below shows the vesting schedule for the listed unexercisable options awards, by their expiration dates. |
| | | | | Expiration date | | Grant date | | Remaining vesting schedule | November 16, 2024 | | Remaining vesting schedule
| June 1, 2024
November 16, 2017 | | June 1, 2017
| | Three equal installments on June 1 of 2018, 2019 and 2020
| November 16, 2023
| | November 16, 2016
| | Three equal installments on November 11 of 2017, 2018, 2019 and 2019 2020 | November 19, 2022
June 1, 2024 | | June 1, 2017 | | Two equal installments on June 1 of 2019 and 2020 | November 19, 201516, 2023 | | November 16, 2016 | | Two equal installments on November 11 of 20172018 and 20182019 | November 19, 20212022 | | November 19, 2014 2015 | | One installment on November 11 2017 of 2018 |
(b) | | | (b) | | The number shows outstanding unvested, but earned, RSUs.RSUs and PSUs. Earned RSUs vest in three annual equal increments on November 11 of each year following the grant date. Banked PSUs based on certified total shareholder return achievement are considered earned and vest on the third anniversary of the November grant date. The table below shows the remaining vesting schedules for these RSUs:the remaining RSUs and PSUs: |
| Named executive officer | | RSUs vesting
during fiscal year 2018 | | | RSUs vesting
during fiscal year 2019 | | | RSUs vesting during fiscal year 2019 | | RSUs vesting during fiscal year 2020 | | PSU vesting of banked
TSR performance units during fiscal year 2019 | | PSU vesting of banked
TSR performance units during fiscal year 2020 | Michael Farrell | | | 25,387 | | | | 9,066 | | | 25,387 | | 9,066 | | 12,945 | | 14,746 | Rob Douglas | | | 12,088 | | | | 12,088 | | | 12,088 | | 12,088 | | 8,620 | | 9,831 | Jim Hollingshead (i) | | | 9,508 | | | | 9,645 | | | 9,508 | | 7,241 | | 3,602 | | 5,853 | David Pendarvis (ii) | | | 5,082 | | | | 3,379 | | | 5,082 | | 2,898 | | 3,463 | | 4,712 | Brett Sandercock | | | 7,724 | | | | 2,645 | | | 7,724 | | 2,645 | | 4,030 | | 4,301 |
| | (i) | Includes special grant issued February 16, 2017, which vestswith RSUs that vest in threetwo equal installments on February 16 of 2018,2019 and 2020, and certified banked PSUs to vest in 2019 and 2020. |
| (ii) | Includes special grant issued June 1, 2017, which vestswith RSUs that vest in threetwo equal installments on June 1 of 2018,2019 and 2020, and certified banked PSUs to vest in 2019 and 2020. |
(c) | | | (c) | | The market value is calculated by multiplying the number of RSUs and PSUs by the closing price of our common stock ($77.87)103.58) on the NYSE at June 30, 2017.2018. | | | (d) |
(d) | Represents RSUs that were granted to our executive officers in November 20162017 under our 2009 Planincentive plan and are earned based on earnings performance targets for the third and fourth fiscal quarters of fiscal year 2017.2018. On June 30, 2017,2018, these shares were unearned because the committee had not yet determined whether any target had been achieved. The number of RSUs and market values shown in these columns represent 100% of the RSUs granted, based on the assumption that the targets would be achieved. The committee determined in August 20172018 that the targets were achieved. In future years these units will be shown as earned, but unvested, until they vest or are forfeited. |
| | (e) | | Represents fiscal year 2018 performance-based stock units granted in November 2016, February 2017, and June 2017, that are eligible for vesting following the end of a four-year performance period (beginning on the grant date), subject to acceleration, depending on our absolute TSR performance for the four-year period. In accordance with SEC rules, PSUs granted November 20162017 are listed at 100% of the target stock units granted, representing the number of stock units that would be earned with target performance. However, our absolute TSR performance over the interim performance period from November 20162017 through June 30, 2017,2018, would have beenbe between threshold and target, and 66%70% of target units would be earned. | | | (f) | | Represents fiscal year 2017 unearned PSUs granted in November 2016 that are eligible for vesting November 17, 2020, subject to possible acceleration, depending on our absolute TSR performance for the period. In accordance with SEC guidance, PSUs granted November 2016 are listed at 225% of the target stock units granted, representing the number of stock units that would be earned with maximum performance, as our absolute TSR performance over the interim performance period from November 2016 through June 30, 2018, was in excess of maximum performance. | | | (g) | | Represents PSUs granted November 2015 that are eligible for vesting November 18, 2019, subject to acceleration, depending on our absolute TSR performance over the period. In accordance with SEC guidance, amounts are listed at 225% of the target stock units granted, representing the number of stock units that would be earned with maximum performance, as our absolute TSR performance over the interim performance period from November 2015 through June 30, 2018, was in excess of maximum performance. | | | (h) | | Represents PSUs granted February 2017 and June 2017that are eligible for vesting February 15, 2021, subject to acceleration, depending on our absolute TSR performance for the period. In accordance with SEC guidance, amounts are listed at 50%225% of the target stock units granted, representing the number of stock units that would be earned at threshold performance. However,maximum performance, as our absolute TSR performance over the interim performance periodsperiod from February 2017 or June 2017, as applicable, through June 30, 2017, would have been below threshold,2018, was between target and none of target units would be earned.maximum performance. |
(f) | | (i) | | Represents performance-based stock unitsPSUs granted in November 2015June 2017 that are eligible for vesting following the end of a four-year performance period (beginning November 19, 2015, and ending November 18, 2019),May 31, 2021, subject to acceleration, depending on our absolute TSR performance for the four-year period. In accordance with SEC rules,guidance, amounts are listed at 100%225% of the target stock units granted, representing the number of stock units that would be earned with target performance. However,at maximum performance, as our absolute TSR performance over the interim performance period from November 2015June 2017 through June 30, 2017, would be2018, was between threshold and target and 69% of units would be earned.maximum performance. |
(g) | Represents performance-basedOption exercises and stock units granted in November 2014 that are eligible for vesting following the end of a three-year performance period (beginning November 13, 2014, and ending November 12, 2017) depending on our TSR performance for the three-year period relative to companies in the US Dow Jones Medical Device Index. In accordance with SEC rules, amounts are listed at 40% of the target stock units granted, representing the stock units that would be earned with threshold performance. However, our relative TSR performance over the interim performance period from November 2014, through June 30, 2017, would be below threshold, and no units would be earned.vested
|
Option exercises and stock vested
The following table summarizes the shares each of our named executive officers acquired during the fiscal year ended June 30, 2017,2018, by exercising options or by vesting in restricted stock units. Information on RSUs earned based on fiscal year 20172018 performance, but not vested as of June 30, 2017,2018, is in the outstanding equity awards table above (see footnote (d) to the “Outstanding equity awards at fiscal year end” table, above). | Named executive officer | | Option Awards | | | Stock Awards | | | | | Option Awards | | Stock Awards | Named executive officer | | Number of
securities
acquired on
exercise | | | Market value on
exercise(a) | | | Number of
shares acquired
upon vesting | | | Value realized
upon vesting(b) | | | Number of shares acquired on exercise | | Market value on exercise(a) | | Number of shares acquired upon vesting | | Value realized upon vesting(b) | | | | 23,900 | | | $ | 775,112 | | | | 45,363 | | | $ | 2,714,976 | | | 3,300 | | td65,693 | | 69,908 | | $5,850,324 | Rob Douglas | | | 0 | | | $ | 0 | | | | 20,420 | | | $ | 1,222,137 | | | 0 | | $0 | | 41,204 | | $3,451,027 | Jim Hollingshead | | | 15,792 | | | $ | 349,266 | | | | 11,029 | | | $ | 660,086 | | | 12,284 | | $462,465 | | 22,241 | | $1,885,698 | David Pendarvis | | | 74,588 | | | $ | 2,710,976 | | | | 6,469 | | | $ | 387,170 | | | 55,357 | | $2,826,193 | | 15,035 | | $1,270,703 | Brett Sandercock | | | 0 | | | $ | 0 | | | | 15,089 | | | $ | 903,077 | | | 0 | | $0 | | 21,969 | | $1,838,750 |
(a) | | | (a) | | Represents the aggregate of the market price at exercise, less the exercise price, for each share exercised. | | | (b) |
(b) | Represents the value deemed realized based on the closing price of our common stock on the date of vesting multiplied by the number of shares vested. |
| Nonqualified deferred compensation |
Nonqualified deferred compensation
We maintain the ResMed Inc. Deferred Compensation Plan. Our deferred compensation plan allows participants to defer receiving some of their eligible compensation to a future date, with an opportunity to earntax-deferred returns on the deferrals. The following table sets forth summary information regarding aggregate contributions to, and account balances under, our deferred compensation plan by our named executive officers for and as of the fiscal year ended June 30, 2017.2018. | Named executive officer | | Executive
contributions
in fiscal
year 2017(a) | | | Company
contributions
in fiscal
year 2017(b) | | | Aggregate
earnings
in fiscal
year 2017(c) | | | Aggregate
withdrawals/
distributions | | | Aggregate
balance at
end of fiscal
year 2017(d) | | | Executive contributions in fiscal year 2018(a) | | | Company contributions in fiscal year 2018(b) | | | Aggregate earnings in fiscal year 2018(c) | | | Aggregate withdrawals/ distributions | | Aggregate balance at end of fiscal year 2018(d) | | | | | Michael Farrell | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | | $0 | | | | $0 | | | | $0 | | | $0 | | | $0 | | | | | Rob Douglas | | $ | 335,035 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 335,035 | | | | $417,673 | | | | $0 | | | | $20,405 | | | $0 | | | $773,113 | | | | | Jim Hollingshead | | $ | 405,074 | | | $ | 0 | | | $ | 123,124 | | | $ | 0 | | | $ | 1,478,365 | | | | $589,928 | | | | $0 | | | | $99,789 | | | $0 | | | $1,999,412 | | | | | David Pendarvis | | $ | 652,955 | | | $ | 1,508 | | | $ | 499,796 | | | $ | 0 | | | $ | 4,624,842 | | | | $693,216 | | | | $2,010 | | | | $335,833 | | | $0 | | | $5,262,470 | | | | | Brett Sandercock | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | | $0 | | | | $0 | | | | $0 | | | $0 | | | $0 | | | | |
(a) | | | (a) | | Represents amounts that the named executive officers elected to defer in fiscal 2017.2018. These amounts represent compensation earned by the named executive officers in fiscal 2017,2018, and are also reported in the appropriate columns in the “Summary Compensation Table” above. | | | (b) |
(b) | Represents amounts credited in fiscal 20172018 as company contributions to the accounts of the named executive officer. These amounts are also reported in the “Summary Compensation Table” above under the “All Other Compensation” column. | | | (c) |
(c) | Represents net amounts credited to the named executive officers’ accounts as a result of performance of the investment vehicles in which their accounts were deemed invested, as more fully described in the narrative disclosure below. These amounts do not represent above-market earnings, and thus are not reported in the “Summary Compensation Table.” | | | (d) |
(d) | Aggregate balance as of June 30, 20172018 includes all contributions from earned income through fiscal 20172018 and investment income reported by June 30, 2017. Past years’ summary compensation tables2018. The amounts that were previously reported the following amounts as compensation for participating named executive officers:officers in the Summary Compensation Table in the previous year should have been reported as follows: Mr. Douglas: $0;Douglas $335,035; Mr. Hollingshead: $929,162,Hollingshead $1,309,695; and Mr. Pendarvis: $3,458,849. Pendarvis $4,233,421. |
General. We designed our deferred compensation plan to attract and retain key employees by providing participants an opportunity to defer receipt of a portion of their salary, short-term incentive cash payments, and commissions. The plan is an unfunded plan for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974. Deferred amounts under the plan are our general unsecured obligations and are subject to our ongoing financial solvency. Employees who are part of a select group of management or highly compensated employees are eligible to participate in the deferred compensation plan. Contributions. Participants may elect to defer up to 75% of each of base salary, short-term incentive cash payments, and commissions for the plan year. The plan permits us to make discretionary contributions from time to time, including restoration matching contributions intended to restore any matching contributions lost under our 401(k) plan as a result of deferrals under the deferred compensation plan. Distributions. Participants may elect to take distributions on: (1) participant’s separation from service with us; (2) a specified date; (3) participant’s permanent disability; (4) participant’s death; (5) change of control of ResMed; or (6) unforeseeable emergency. Participants will receive a lump sum payment of those benefits, or if elected by the participant, in installments. Notwithstanding other elections, all distributions due to death or permanent disability will be payable in a single lump sum. Vesting. Participants are at all times 100% vested in amounts they defer. Participants are vested in discretionary contributions according to vesting schedules established by the plan’s administrative committee; however, discretionary contributions will become 100% vested on the earliest to occur of: (1) the participant’s death; (2) the participant’s permanent disability; or (3) a change of control of ResMed. Investment options. Earnings on amounts contributed to our deferred compensation plan are based on participant selections among the investment options determined by the plan’s administrative committee. This committee has the sole discretion to discontinue, substitute, or add investment options at any time. Participants can select from among these investment options for purposes of determining the earnings or losses that we will credit to their plan accounts, but they do not have an ownership interest in the investment options they select. No “above market” crediting rates are offered under the deferred compensation plan. Invested amounts may be transferred among available plan investment options. The investment options under the deferred compensation plan and their annual rates of return for fiscal year 20172018 are in the table below: | | | | | Name of investment option | | Rate of return through June 30, 2017 | 2018 | MFS VIT Total Return Bond | | | 1.48 | % -0.56% | DFA VIT Inflation-Protection Securities Instl (a) | | | -1.01 | % 1.72% | MFS VIT Value Svc | | | 16.61 | % 3.76% | American Funds IS Growth 2 | | | 24.74 | % 22.51% | Great West T. Rowe Price Mid Cap Growth | | | 19.72 | % | Putnam VT Small Cap Value IA
| | | 27.75 | % 14.05% | Vanguard VIF Small Company Growth Inv | | | 26.33 | % 21.46% | American Funds IS International 2 | | | 24.20 | % 11.30% | Dreyfus Stock Index Initial | | | 17.63 | % 14.08% | American Century VP Mid Cap Value I | | | 15.56 | % 6.47% | Great West MFS International Value Initial | | 3.69% | Delaware VIP Small Cap Value Series Svc(a) | 15.28 | % 10.36% |
(a) | | | | | | | (a) | | Fund replaced PIMCO VIT Real ReturnPutnam VT Small Cap Value effective September 1, 2016.October 31, 2017. |
| Potential payments on termination or change of control |
Potential payments on termination or change of control
Change of control agreements. We have entered into agreements with each of our named executive officers and certain other members of senior management (a total of 21 currently employed persons as of September 19, 2017)17, 2018), that provide certain change of control payments and benefits. Under the change of control agreements in existence on June 30, 2017, on the effective date of a “change of control” as defined in the agreement and summarized below, all Each of the executive’s unvested stock options, restricted stock, RSUs, performance shares, or performance units will vest in full. Under a new policy adopted in August 2017, change of control agreements with our executive officers will no longer provide this accelerated vesting. Instead, all benefits will requirewas reviewed and updated effective as of January 1, 2018, to eliminate single-trigger equity acceleration and replace it with double-trigger equity acceleration in the event of a qualifying terminationchange of control. In addition, the definition of good reason was revised and the term of the agreement was recommenced for three years, with automatic three-year renewal terms, as described below. We expect to enter into revised agreements with each of our named executive officers, with revised terms consistent with this policy.January 1, 2018.
If at any time during the period that starts six months before and ends one year after the effective date of a “change of control,” an executive terminates employment under certain conditions described below, then the executive will be entitled to receive certain compensation and benefits from us. The conditions that entitle an executive to additional compensation are: the executive voluntarily terminates his employment for “good reason” (as defined in the agreement and summarized below); or we terminate the executive’s employment other than for “cause” (as defined in the agreement and summarized below); or we terminate the executive’s employment other than for “cause” before the change of control, and the termination is at the request of the successor entity or is otherwise in anticipation of the change of control. In the event of a qualifying termination, the executive will be entitled to compensation and benefits, including the following: thepro-rata portion of short-term incentive amounts earned through the date of termination; a severance payment equal to two times (in the case of our chief executive officer), or one andone-half times (in the cases of the other named executive officers), the sum of the executive’s: (a) highest annual rate of base salary paid to the executive during the three-year period ending on the date the executive is terminated (the “termination base salary”); plus (b) the higher of (1) the highest actual short-term incentive amounts received by the executive during the past three years before the year of termination; or (2) a specified percentage of the termination base salary (130% in the case of our chief executive officer, and from 75% to 100% in the case of our other named executive officers); plus (c) the annual amount we would be required to contribute on the executive’s behalf under any pension, 401(k), deferred compensation, and other retirement plans based on the executive’s termination base salary; | ¡ | | highest annual rate of base salary paid to the executive during the three-year period ending on the date the executive is terminated (the “termination base salary”); plus |
| ¡ | | the higher of (1) the highest actual short-term incentive amounts received by the executive during the past three years before the year of termination; or (2) a specified percentage of the termination base salary (130% in the case of our chief executive officer, and from 80% to 100% in the case of our other named executive officers); plus |
| ¡ | | the annual amount we would be required to contribute on the executive’s behalf under any pension, 401(k), deferred compensation, and other retirement plans based on the executive’s termination base salary. |
the executive will become fully vested in accrued benefits under all pension, 401(k), deferred compensation, and any other retirement plans maintained by us; all of the executive’s unvested stock options, and shares of restricted stock, RSUs, or performance shares or performance units will vest in full;full, except that performance units earned based on our TSR are earned based on actual performance based on a truncated performance period as of the termination date, as described below; we will provide medical and dental health benefits for two years (for our chief executive officer) or one andone-half years (for the other named executive officers) following the termination date; and the agreement has a “best pay” provision, so that severance payments will be reduced to the extent necessary so that no portion of any payments payable upon a change of control would be subject to the excise tax under Section 280G of the Internal Revenue Code, if the reduction would result in the net amount payable to the employee being greater than the net amount received without the reduction. All payments under the change of control agreements are designed to be paid in lump sum, subject to certain restrictions set forth in US Internal Revenue Code section 409A. Throughout the change of control payout period (two years for our chief executive officer, and one andone-half years for the other named executive officers), the executive will be obligated not to induce any person in our employment to terminate employment or accept employment with anyone other than us or, subject to certain limited exceptions, engage in any business or activity or render any services or provide any advice to any person, activity, business or entity that directly or indirectly competes in any material manner with us or meaningfully support any person, business, entity or activity or initiate or further that business or activity. The restriction on post-termination employment maywill not apply to executives residing in California, to the extent the restriction is not consistent with California law. In addition, as a condition to payment and providing any benefits under the agreements, the executive must deliver a general release of claims in favor of us. The agreements’ initial terms expire on the effective date’s third anniversary. Unless either party gives notice of its intention not to renew, the term will be automatically extended for successive three-year periods. Mr. Pendarvis’ agreement expires June 30, 2018; Mr. Douglas’ agreement expires May 1, 2020; and Messrs. Douglas, Farrell, Hollingshead, and Sandercock’s current agreements all expire JulyJanuary 1, 2020.2021. Mr. Pendarvis’ expires August 16, 2021. “Cause” is generally defined as the executive’s (a) conviction or plea of guilty or nolo contendere of a misdemeanor involving moral turpitude, dishonesty or a breach of trust; (b) commission of any act of theft, fraud, embezzlement or misappropriation against us; (c) failure to devote substantially all of the executive’s business time to our business affairs or material breach of the terms of any employment-related agreement; (d) failure to comply with any corporate policies that results or is likely to result in substantial injury, financial or otherwise, to us or our reputation; (e) unauthorized disclosure or use of our confidential information, that results or is likely to result in substantial injury, financial or otherwise, to us or our reputation; (f) violation of any rules or regulations of any governmental or regulatory body, that results or is likely to result in substantial injury, financial or otherwise, to us or our reputation; or (g) abuse of drugs, alcohol or illegal substances that results or is likely to result in substantial injury, financial or otherwise, to us or our reputation. A “change of control” is generally defined as (a) a transaction or series of transactions whereby any person or related group of people directly or indirectly acquires beneficial ownership of our securities possessing more than 50% of the total combined voting power of our securities outstanding immediately after the acquisition, subject to certain exceptions; (b) individuals who currently constitute the board cease for any reason to constitute at least a majority of the board, subject to certain exceptions; (c) the consummation by us of (1) a merger, consolidation, reorganization, or business combination, subject to certain exceptions; (2) a sale or other disposition of all or substantially all of our assets in any single transaction or series of related transactions, subject to certain exceptions; or (3) the acquisition of assets or stock of another entity, subject to certain exceptions; or (d) our stockholders approve a liquidation or dissolution of us. “Good reason” is generally defined as (a) the assignment to an executive of duties, responsibilities, authority, or reporting relationship that are materially diminished when compared withto the executive’s duties, responsibilities, authority, or reporting relationship with us immediately before the change of control;control (including no longer reporting to the chief executive officer or board of the parent company), except in connection with the termination of the executive’s employment for cause, death or disability, or by the executive other than for good reason; (b) a material reduction in the executive’s base salary as in effect at the time of the change of control; (c) any material diminution in the aggregate benefits provided to the executive under the benefit plans and arrangements in which the executive is participating in at the time of the change of control;control, unless an equitable arrangement (in an ongoing substitute or alternative plan) has been made with respect to the plan or arrangement; (d) any failure by us to continue in effect, or any material reduction in target short-term incentive opportunity or any material increase in target performance objectives under, any short-term incentive or incentive plan or arrangement in which the executive is participating in at the time of the change of control, thatwhich results in a material negative change in the executive’s short-term incentive or incentive compensation;compensation, unless an equitable arrangement (in an ongoing substitute or alternative plan) has been made with respect to such plan or arrangement with a comparable target short-term incentive opportunity and comparable target performance objectives; (e) any material diminution in the budget over which the executive retains authority over at the time of the change of control; (f) any requirement by us that the executive be based anywhere that is at least fifty50 miles away from both (1)(i) the executive’s office location as of the date of the change of control and (2) the(ii) executive’s then primary residence, except for required travel by the executive on our business; (g)(f) any failure by us to obtain the assumption of thisthe change of control agreement by ourany successor or assign;assign of ResMed; or (h)(g) any purported terminationother action or inaction by usResMed that constitutes a material breach of executive’s employment that is not effected by a noticethe change of termination satisfyingcontrol agreement under which the requirements set forth inexecutive provides services at the agreement.time of the change of control. Equity award terms – options and RSUs. OurDuring fiscal year 2018, the committee approved equity grant agreements to executive officers for grants made in fiscal year 2018 and later, that provide accelerated vesting only on termination due to death or permanent disability, or on a termination qualifying under the double-trigger benefits described in the “Change of control agreements” section above. The committee also provided that for grants made in fiscal year 2018 and later, RSU and option awards will vest on apro-rata basis on a qualifying retirement, and vested options may be exercised until the earlier of (1) 36 months after retirement or (2) the original grant term. Before the committee’s action, for grants made in fiscal year 2017 and earlier, our forms of option agreement and RSU agreement for named executive officers for grants made in fiscal year 2017 and earlier provideprovided accelerated vesting on a change of control, as well as on termination due to death or permanent disability. In August 2017, the committee agreed to change this provision in agreements for grants to executive officers made in fiscal year 2018 and beyond, so that accelerated vesting is only provided for a termination qualifying under the “double-trigger” benefits described below. ExistingThese existing grant agreements were not modified, with either change, and these legacy grants will continue to apply until theythe covered awards have fully vested or are terminated. Equity award terms – long-term performance based stock units.Our form of performance-based stock unit agreement provides that in the event of a change of control, death, permanent disability, an involuntary termination without cause, or voluntary termination for good reason, the following terms and number of units earned in these situations are calculated as follows: Change of control: TSR performance is measured through the date of the change of control and determines the number of units earned. Death or permanent disability: 100% of target units are earned as of the date of the event. Termination by company without cause or by executive for good reason:reason or for qualifying retirement: TSR performance is measured through the date of termination, and compared to a prorated performance target, and the number of units so earned are thenpro-rated based on executive’s service during the performance period. Termination by company for cause or by executive without good reason: all unearned units are forfeited. “Cause” and “good reason” are defined the same as in our change of control agreements described above. We believe that providing a pro ratapro-rata target adjustment and performance period measurement for performance stock units in the event of involuntary terminations without cause or voluntary terminations for good reason in the absence of a change of control; control—but requiring forfeitures for terminations with cause or resignations without good reason, reason—is an appropriate balance that reflects partial service during the three to four-year cliff vesting period of the PSUs, while maintaining the performance incentives. Estimated value of benefits. The following table presents our reasonable estimate of the benefits payable to our named executive officers under our agreements, assuming that the triggering event (either a change of control, a qualifying termination in connection with a change of control, death or disability, or a qualifying termination not in connection with a change of control) occurred on June 30, 2017,2018, the last business day of fiscal year 2017.2018. The table excludes benefits provided to all employees, such as accrued vacation, and benefits provided by third parties under our life and other insurance policies. It includes benefits under disability insurance policies not provided to all employees. It also excludes the value of the named executive officer’s deferred compensation account, which would be payable on termination of employment for any reason. While we have made reasonable assumptions regarding the amounts payable, there can be no assurance that in the event of a triggering event our named executive officers would receive, in addition to the cash compensation earned for the period, the amounts reflected below. The compensation amounts for Australian-based named executive officers are presented in US dollars based on the conversion rate in effect at the close of business June 30, 2017.2018. | Named executive officer | | Triggering event | | Cash
severance(a) | | | Health and
insurance(b) | | | Retirement
plan
contributions(c) | | | Value of option,
RSU, and PSU
acceleration(d) | | | Total value(e) | | | Triggering event | | Cash severance(a) | | | Health and insurance(b) | | | Retirement plan contributions(c) | | | Value of option, RSU,
and PSU
acceleration(d) | | | Total value(e) | | Michael Farrell | | Change of control | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 14,578,138 | | | $ | 14,578,138 | | | Change of control | | | $0 | | | | $0 | | | | $0 | | | | td6,043,195 | | | | td6,043,195 | | | | Change of control and qualifying termination | | $ | 5,380,800 | | | $ | 47,751 | | | $ | 21,600 | | | $ | 14,578,138 | | | $ | 20,028,289 | | | | | Death or disability | | $ | 0 | | | $ | 445,932 | | | $ | 0 | | | $ | 21,197,975 | | | $ | 21,643,907 | | | | | Qualifying termination (without change of control) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | Michael Farrell | | | Change of control and qualifying termination | | | $5,605,000 | | | | td05,313 | | | | td2,000 | | | | td6,043,195 | | | | $31,775,508 | | | | Death or disability | | | $0 | | | | $424,640 | | | | $0 | | | | td7,982,342 | | | | td8,406,982 | | | | Qualifying termination (without change of control) | | | $0 | | | | $0 | | | | $0 | | | | td4,155,424 | | | | td4,155,424 | | | | Change of control | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 9,509,381 | | | $ | 9,509,381 | | | Change of control | | | $0 | | | | $0 | | | | $0 | | | | td7,473,411 | | | | td7,473,411 | | | | Change of control and qualifying termination | | $ | 3,206,800 | | | $ | 36,256 | | | $ | 16,200 | | | $ | 9,509,381 | | | $ | 12,768,636 | | | | | Death or disability | | $ | 0 | | | $ | 212,149 | | | $ | 0 | | | $ | 13,873,422 | | | $ | 14,085,571 | | | | | Qualifying termination (without change of control) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | Rob Douglas | | | Change of control and qualifying termination | | | $3,286,972 | | | | $78,985 | | | | td6,500 | | | | td7,473,411 | | | | td0,855,868 | | | | Death or disability | | | $0 | | | | td07,704 | | | | $0 | | | | td6,882,015 | | | | td7,089,719 | | | | Qualifying termination (without change of control) | | | $0 | | | | $0 | | | | $0 | | | | $9,427,382 | | | | $9,427,382 | | | | Change of control | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 4,802,968 | | | $ | 4,802,968 | | | Change of control | | | $0 | | | | $0 | | | | $0 | | | | $8,170,481 | | | | $8,170,481 | | | | Change of control and qualifying termination | | $ | 1,690,892 | | | $ | 36,256 | | | $ | 16,200 | | | $ | 4,802,968 | | | $ | 6,546,316 | | | | | Death or disability | | $ | 0 | | | $ | 279,027 | | | $ | 0 | | | $ | 6,859,773 | | | $ | 7,138,799 | | | | | Qualifying termination (without change of control) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | Jim Hollingshead | | | Change of control and qualifying termination | | | td,170,000 | | | | $78,985 | | | | td6,500 | | | | $8,170,481 | | | | td0,435,966 | | | | Death or disability | | | $0 | | | | td71,180 | | | | $0 | | | | $8,744,860 | | | | $9,016,041 | | | | Qualifying termination (without change of control) | | | $0 | | | | $0 | | | | $0 | | | | $4,702,193 | | | | $4,702,193 | | | | Change of control | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 4,373,499 | | | $ | 4,373,499 | | | Change of control | | | $0 | | | | $0 | | | | $0 | | | | $7,608,554 | | | | $7,608,554 | | | | Change of control and qualifying termination | | $ | 1,776,218 | | | $ | 28,011 | | | $ | 16,200 | | | $ | 4,373,499 | | | $ | 6,193,927 | | | | | Death or disability | | $ | 0 | | | $ | 188,431 | | | $ | 0 | | | $ | 6,254,201 | | | $ | 6,442,632 | | | | | Qualifying termination (without change of control) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | David Pendarvis | | | Change of control and qualifying termination | | | td,819,776 | | | | $53,183 | | | | td6,500 | | | | $7,608,554 | | | | $9,498,013 | | | | Death or disability | | | $0 | | | | td84,946 | | | | $0 | | | | $7,146,594 | | | | $7,331,540 | | | | Qualifying termination (without change of control) | | | $0 | | | | $0 | | | | $0 | | | | $4,027,862 | | | | $4,027,862 | | | | Change of control | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 4,392,918 | | | $ | 4,392,918 | | | Change of control | | | $0 | | | | $0 | | | | $0 | | | | $7,043,169 | | | | $7,043,169 | | | | Change of control and qualifying termination | | $ | 1,607,956 | | | | — | | | $ | 65,467 | | | $ | 4,392,918 | | | $ | 6,066,341 | | | | | Death or disability | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 6,456,055 | | | $ | 6,456,055 | | | | | Qualifying termination (without change of control) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | Brett Sandercock | | | Change of control and qualifying termination | | | td,570,587 | | | | - | | | | $63,945 | | | | $7,043,169 | | | | $8,677,701 | | | | Death or disability | | | $0 | | | | $0 | | | | $0 | | | | $6,928,257 | | | | $6,928,257 | | | | Qualifying termination (without change of control) | | | $0 | | | | $0 | | | | $0 | | | | $4,167,597 | | | | $4,167,597 | |
(a) | | | (a) | | Represents the dollar value of cash severance under the formula described above. For change of control and qualifying termination, this represents each executive’s termination salary plus: (1) for Pendarvis,plus the highest actual short-term incentive amounts received during the three previous years; and for Farrell, Douglas, Sanderock, and Hollingshead, the percentage ofbased on termination base pay specified above. | | | (b) |
(b) | Represents continued medical and dental benefits for the payout period, based on our current costs to provide such coverage. When the triggering event is due change of control and qualifying termination, the amount includes a tax gross-up. When the triggering event is termination due to disability, also includes the present value of monthly payments of executive disability through age 65 using the long-term applicable federal rate for June 30, 2017.2018. | | | (c) |
(c) | Represents the dollar value of retirement plan contributions, under the formula described above and based on the executive’s termination base salary. |
(d) | | | (d) | | The value of accelerating options is based on the difference between the option exercise price and the June 30, 20172018 closing price of our common stock on the NYSE ($77.87)103.58). The value of accelerating outstanding restricted stock units is based on the June 30, 20172018 closing price of our common stock on the NYSE. The value of accelerating performance stock units is based on interim TSR performance measured as of June 30, 2017, under which no shares would have been earned per PSUs granted in 2014, except for a termination2018. Termination based on death or disability when the value of PSU vesting isPSUs based on target shares at the June 30, 20172018 closing price of our common stock on the NYSE, and the other PSU valuation were based on results as of June 30, 2018 of 225% for outstanding PSUs granted between 2015 and June 2017, of 69% and 66%100% for outstanding PSUs granted in 2015November 2017. No executive qualified for retirement under the 2009 Incentive Award Plan, as amended and 2016, respectively.restated during fiscal year 2018, which value would be included under termination without change of control. | | | (e) |
(e) | Excludes the value to the executive of the continued right to indemnification by us. Executives will be indemnified by us and will receive continued coverage under our directors’ and officers’ liability insurance (to the extent applicable). |
| Risk considerations in compensation programs |
Risk considerations in compensation programs
The compensation committee reviews our compensation programs for executives as well as our compensation policies and practices for all employees, to evaluate whether the policies or practices present an environment that would facilitate excessive risks or behaviors. The committee believes that our programs, policies and practices, are not reasonably likely to have a material adverse effect on our company. This conclusion is supported by the combination of controls and considerations used in our compensation program, including the annual review of the program, blend of short-, long-term and incentive-based compensation, the use of performance-based targets and evaluations, and our compensation recovery policy. Compensation committee report
| Chief executive officer pay ratio |
We are providing information about the relationship between the annual total compensation of our chief executive officer and an estimate of the median of the annual total compensation of our other employees. This information is required by the US Dodd-Frank Wall Street Reform and Consumer Protection Act and applicable SEC rules. We have used June 30, 2018 as the date for establishing the employee population used in identifying the median employee and the fiscal year as the measurement period. We captured all full-time, part-time and temporary employees as of that date, consisting of 5,617 individuals. We identified the median employee using total target cash including base salary or wages, target incentive payment and cash allowances paid to our employees. For fiscal year 2018, the annual total compensation of the employee identified at median of our company (other than our chief executive officer), was $60,725; and the annual total compensation of our chief executive officer for purposes of determining this pay ratio was $9,082,204. The annual total compensation of the median employee and the annual total compensation of the chief executive officer were calculated in accordance with the requirements of Item 402(c)(2)(x) of RegulationS-K. Based on this information, for fiscal year 2018, we estimate the ratio of the annual total compensation of our chief executive officer to the annual total compensation of our median employee was 150 to 1. | Compensation committee report |
The compensation committee has reviewed and discussed the compensation discussion and analysis with management, and based on the review and discussions, the compensation committee recommended to our board that the compensation discussion and analysis be included in our 20172018 annual report on Form10-K (where it is incorporated by reference) and in this proxy statement for the 20172018 annual meeting of stockholders. Compensation committee Rich Sulpizio, Chairchair Karen Drexler Gary Pace Ron Taylor
The report of the compensation committee will not be deemed to be incorporated by reference to any filing by ResMed under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that ResMed specifically incorporates it by reference. AUDITCOMMITTEEREPORT Following is the report of the audit committee with respect to our audited consolidated balance sheet as of June 30, 20172018 and 2016,2017, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended June 30, 2017,2018, and the notes to those statements. The audit committee, acting on behalf of our board, oversees our financial reporting process and systems of internal accounting control, and exercises oversight over management’s assessment of internal controls. Our management has primary responsibility for our financial statements as well as its financial reporting process, accounting principles and systems of internal accounting controls. The independent registered public accounting firm is responsible for performing an audit of our financial statements and expressing an opinion as to the conformity of the financial statements with US generally accepted accounting principles. The independent registered public accounting firm is also responsible for auditing our internal control over financial reporting, and expressing an opinion on the effectiveness of our internal control over financial reporting. In this context, the audit committee has reviewed and discussed with management and its independent registered public accounting firm, KPMG LLP, our audited financial statements as of and for the fiscal year ended June 30, 2017,2018, and the effectiveness of our internal controls as of June 30, 2017.2018. The audit committee has discussed with our independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards 16,No. 1301, “Communications with Audit Committees,” as adopted by the Public Company Accounting Oversight Board, or PCAOB, in Rule 3200T.PCAOB. In addition, the audit committee has received and reviewed the written disclosures and the letter from the independent registered public accounting firm required by the PCAOB regarding the independent registered public accounting firm’s communications with the audit committee concerning the registered public accounting firm’s independence and it has discussed with the independent registered public accounting firm its independence from ResMed and its management. The audit committee members are not engaged in the accounting or auditing profession and are not involved inday-to-day operations of ResMed. In the performance of their oversight function, the audit committee’s members necessarily rely on the information, opinion, reports and statements presented to them by our management and by the independent registered public accounting firm. The audit committee’s oversight and the review and discussions referred to above do not assure that management has maintained adequate financial reporting processes, principles and systems of internal accounting controls, that our financial statements are accurate, that the audit of the financial statements has been conducted in accordance with standards of the PCAOB or that our independent registered public accounting firm meets the applicable standards for auditor independence. Based on the reports and discussions described above, the audit committee recommended to our board that the audited financial statements be included in our annual report on Form10-K for the fiscal year ended June 30, 2017,2018, for filing with the SEC. Audit committee Carol Burt, chair Ron Taylor Jack Wareham Chair Carol Burt
Chris Roberts
The report of the audit committee will not be deemed to be incorporated by reference to any filing by ResMed under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that ResMed specifically incorporates it by reference. AUDITFEES The following table presents fees for professional audit services by KPMG LLP for the audit of our annual financial statements for fiscal years 20172018 and 2016,2017, and fees billed for other services by KPMG LLP. | Fees | | 2017 | | | 2016 | | | 2018 | | 2017 | Audit fees(a) | | $ | 2,021,613 | | | $ | 2,036,124 | | | $2,021,613 | | $2,036,124 | Audit-related fees | | $ | 0 | | | $ | 0 | | | $0 | | $0 | Tax-related fees | | $ | 25,000 | | | $ | 0 | | | $25,000 | | $0 | All other fees(b) | | $ | 0 | | | $ | 0 | | | $0 | | $0 | | | | | | | | | Total fees | | $ | 2,046,613 | | | $ | 2,036,124 | | | $2,046,613 | | $2,036,124 | | | | | | | | |
| | | (a) | | Fees for audit services consisted of: (1) audits of our annual financial statements and systems of internal accounting controls; (2) reviews of our quarterly financial statements; (3) consents and other services related to US SEC matters; and (4) Sarbanes-Oxley Act Section 404 attestation reports. |
| | (b) | | Fees related to review and approvals of financial statements included in registration statements. |
Pre-approval policy
The audit committeepre-approves all audit and permissiblenon-audit fees. Since the 2003 effective date of the SEC rules stating that an auditor is not independent of an audit client if the services it provides to the client are not appropriately approved, each new engagement of KPMG LLP was approved in advance by our audit committee, and none of those engagements made use of the rules’de minimus exception topre-approval. COMMONSTOCKOWNERSHIPOFPRINCIPALSTOCKHOLDERSANDMANAGEMENT The following table shows the number and percentage of shares of our common stock that, according to information supplied to us, are beneficially owned as of the record date by: (1) each person who, to our knowledge based on Schedules 13G filed with the SEC and Substantial Stockholder Notices filed with the ASX, is the beneficial owner of more than 5% of our outstanding common stock; (2) each person who is currently a director or a nominee for election as director; (3) each of the named executive officers; and (4) all current directors and executive officers as a group. In this proxy statement, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (that is, the power to dispose of, or to direct the disposition of, a security). All of the following calculations are based on 142,300,451142,691,815 shares of our common stock outstanding (which excludes treasury shares) on September 19, 2017,17, 2018, the record date. Except to the extent indicated in the footnotes to the following table, the person or entity listed has sole voting and dispositive power with respect to the shares that are deemed beneficially owned by the person or entity, subject to community property laws, where applicable. | | | | | | | | | Name of beneficial owner | | Amount and nature of
beneficial ownership | | Percent of outstanding common stock | Vanguard | | | Percent of outstanding
common stock | | 100 Vanguard Blvd. | | 14,281,291 (a) | | 10.01% | Malvern, PA 19355 | | | | | Capital World Investors | | | | | 333 South Hope Street | | 12,186,700 (b) | | 8.54% | Los Angeles, CA 90071 | | | | | Black Rock, Inc.
400 Howard | | | | | 55 East 52nd Street | | 12,149,423 (c) | 13,625,036 | (a)8.51% | New York, NY 10055 | | | 9.58 | % | San Francisco, CA 94105FMR LLC
| | | | | | | | | Vanguard Group Inc.
| | | | | | | | | P.O. Box 2600
| | | 11,027,315 | (b) | | | 7.75 | % | Valley Forge, PA 19482-2600
| | | | | | | | | Capital World Investors
333 South Hope 245 Summer Street
| | 8,257,459 (d) | 10,867,958 | (c)5.79% | Boston, MA 02210 | | | 7.64 | % | Los Angeles, CA 90071
| | | | | | | | |
| | | | | | | | | Named executive officer, directors and nominees | | Amount and nature of
beneficial ownership(d) | | | Percent of outstanding
common stock | | Christopher Roberts | | | 738,131 | (e) | | | * | | Peter Farrell | | | 453,192 | | | | * | | Michael Farrell | | | 310,253 | | | | * | | Robert Douglas | | | 260,961 | | | | * | | David Pendarvis | | | 214,027 | | | | * | | Gary Pace | | | 193,129 | | | | * | | John Wareham | | | 127,045 | | | | * | | James Hollingshead | | | 75,874 | | | | * | | Brett Sandercock | | | 69,150 | | | | * | | Richard Sulpizio | | | 32,832 | | | | * | | Ronald Taylor | | | 23,645 | | | | * | | Carol Burt | | | 18,649 | | | | * | | Karen Drexler | | | 0 | | | | * | | All current executive officers and directors as a group (13 persons) | | | 2,516,888 | | | | 1.77 | % |
| | | | | | | | | | | Executive officers, directors and nominees | | Amount and nature of beneficial ownership(e) | | Percent of outstanding common stock | | Michael Farrell | | | | 415,078 | | | * | | Rob Douglas | | | | 346,178 | | | * | | Peter Farrell | | | | 240,896 | | | * | | David Pendarvis | | | | 213,593 | | | * | | Gary Pace | | | | 167,717 | | | * | | Jack Wareham | | | | 116,226 | | | * | | Jim Hollingshead | | | | 84,539 | | | * | | Brett Sandercock | | | | 81,306 | | | * | | Richie McHale | | | | 36,641 | | | * | | Ron Taylor | | | | 21,751 | | | * | | Carol Burt | | | | 21,640 | | | * | | Raj Sodhi | | | | 20,398 | | | * | | Rich Sulpizio | | | | 7,420 | | | * | | Karen Drexler | | | | 2,991 | | | * | | Harjit Gill | | | | - | | | * | All current executive officers and directors as a group (14 persons) | | | | 1,776,374 | | | 1.24% |
(a) | | | Based on information provided in Schedule 13G/A filed with the SEC on January 25, 2017, by BlackRock, Inc., that reports sole voting power over 12,049,230 shares and sole dispositive power over all these shares.(a)
|
(b) | Based on information provided in Schedule 13G/A filed with the SEC on February 10, 2017,12, 2018, by The Vanguard Group, that reports sole voting over 113,369201,655 shares, sole dispositive power over 10,890,38514,049,153 shares, shared voting power over 27,96131,580 shares and shared dispositive power over 136,930232,138 shares. | | | (b) |
(c) | Based on information provided in Schedule 13G13G/A filed with the SEC on February 13, 2017,14, 2018, by Capital World Investors, that reports sole voting and dispositive power over all these shares. | | | (c) | | Based on information provided in Schedule 13G/A filed with the SEC on February 8, 2018, by BlackRock, Inc., that reports sole voting power over 10,629,839 shares and sole dispositive power over all these shares. |
(d) | | (d) | | Based on information provided in Schedule 13G filed with the SEC on February 13, 2018, by FMR, Inc., that reports sole voting power over 510,030 shares and sole dispositive power over all these shares. | | | (e) | | Beneficial ownership is stated as of September 19, 2017,17, 2018, and includes shares subject to options exercisable, and restricted stock units (RSUs) that vest within sixty days after September 19, 2017,17, 2018, as set forth below. Does not include shares subject to PSUs that may be earned and vest in November 2018 as their number cannot be finally determined until the compensation committee certifies the performance of the TSR objectives in November. Shares subject to those options and RSUs are deemed beneficially owned by the holder to compute that person’s ownership percentage, but are not treated as outstanding to compute any other person’s ownership percentage. Shares have been rounded to the nearest whole number. |
| Named executive officers, directors and nominees | | Stock options | | | RSUs(i) | | | Christopher Roberts | | | 81,628 | | | | — | | | Executive officers, directors and nominees | | | Stock options | | RSUs(i) | | Michael Farrell | | | 220,480 | | 32,277 | | Rob Douglas | | | 219,325 | | 16,647 | Peter Farrell | | | 158,392 | | | | 4,429 | | | - | | 2,991 | Michael Farrell | | | 142,965 | | | | 42,032 | | | Robert Douglas | | | 146,620 | | | | 22,973 | | | David Pendarvis | | | 135,680 | | | | 6,888 | | | 124,342 | | 6,323 | Gary Pace | | | 95,542 | | | | 4,429 | | | 67,139 | | 2,991 | John Wareham | | | 114,045 | | | | — | | | James Hollingshead | | | 37,090 | | | | 11,864 | | | | Jack Wareham | | | 103,226 | | - | | Jim Hollingshead | | | 40,523 | | 11,157 | Brett Sandercock | | | 13,578 | | | | 13,049 | | | 27,157 | | 11,777 | Richard Sulpizio | | | 28,403 | | | | 4,429 | | | Ronald Taylor | | | — | | | | 4,429 | | | | Richie McHale | | | 27,846 | | 4,850 | | Ron Taylor | | | - | | 2,991 | Carol Burt | | | — | | | | 4,429 | | | - | | 2,991 | | Raj Sodhi | | | - | | 9,726 | | Rich Sulpizio | | | - | | 2,991 | Karen Drexler | | | — | | | | — | | | - | | 2,991 | | Harjit Gill | | | - | | - |
| | (i) | Excludes shares that may vest from the November 20142015 PSU grant, because they are not determinable until the performance period ends on November 18, 2017.ends. |
(e) | Includes 23,200 shares held by his spouse, plus 298,900 shares held by Cabbit Pty Ltd and 136,000 shares owned by AceMed Pty Ltd., two Australian corporations controlled by Dr. Roberts and his wife.
|
EQUITYCOMPENSATIONPLANINFORMATION The following table summarizes outstanding incentive award plan balances as of June 30, 2017.2018. | | | | | | | | | | | | | Plan category | | Number of securities to be
issued on exercise of
outstanding options,
warrants and rights(a) | | | Weighted average exercise
price of outstanding options,
warrants and rights(b) | | | Number of securities
remaining available for
future issue under
equity compensation
plans(c) | | Equity compensation plans approved by security holders | | | 6,833,617 | | | $ | 47.09 | | | | 11,607,529 | | Employee stock purchase plan approved by security holders | | | N/A | | | | N/A | | | | 840,636 | | Equity compensation plans not approved by security holders | | | 0 | | | | 0 | | | | 0 | | | | | | | | | | | | | | | Total | | | 6,833,617 | | | $ | 47.09 | | | | 12,448,165 | | | | | | | | | | | | | | |
| | | | | | | | Plan category | | Number of securities to be issued on exercise of outstanding options, warrants and rights(a) | | Weighted average exercise price of outstanding options, warrants and rights(b) | | Number of securities remaining available for future issue under equity compensation plans(c) | Equity compensation plans approved by security holders | | 2,850,580 | | $60.48 | | 17,767,256 | Employee stock purchase plan approved by security holders | | N/A | | N/A | | 537,880 | Equity compensation plans not approved by security holders | | 0 | | 0 | | 0 | Total | | 2,850,580 | | $60.48 | | 18,305,136 |
(a) | | | (a) | | Represents shares reserved for options, RSUs and PSUs outstanding under our 1997 and 2009 incentive award plans. Includes 1,495,5731,205,826 shares reserved for outstanding options, 2,492,499751,261 shares reserved for outstanding RSUs and 2,845,545893,493 shares reserved for outstanding PSUs. Shares reserved for PSUs are calculated at target number of shares for all outstanding PSU grants, assuming target achievement of performance related conditions, even though if performance were measured as of June 30, 2017, no2018, shares would have been earned under anyabove the target PSU grant. | | | (b) |
(b) | Represents the weighted-average exercise price of the 1,495,5731,205,826 outstanding stock options as of June 30, 2017.2018. | | | (c) |
(c) | Represents shares available for issuance under our 2009 Planincentive plan and our employee stock purchase plan. Assumes 4,004,9822,501,780 shares are not available to issue, because they would be issued if all outstanding TSR performance-based stock units were earned at the maximum possible level (200% or 225%(225% of target). Does not give effect to the proposal to increase the authorized shares under our employee stock purchase plan by 2,000,000 shares that the stockholders are being asked to approve at this Annual Meeting. See “Proposal 3 Approval of Amendments to the ResMed Inc. 2009 Employee Stock Purchase Plan.” |
SECTION 16(A)BENEFICIALOWNERSHIPREPORTINGCOMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers, and individuals who own more than 10% of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of our common stock and other equity securities. SEC regulations also require executive officers, directors and 10% stockholders to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of copies of the forms we received, or written representations from certain reporting individuals, we believe that all Section 16(a) filing requirements applicable to our directors, executive officers and 10% stockholders during fiscal year 20172018 were satisfied, except that a Form 4 was filed late, due to administrative error, on June 27, 2017, reporting the sale of stock by the Magali Charitable Remainder Unitrust.satisfied. TRANSACTIONSWITHRELATEDPERSONS Our code of conduct requires directors, executive officers, and employees to disclose any situations that would reasonably be expected to give rise to a conflict of interest. Conflicts involving executive officers may be waived only by our board or the appropriate board committee. Under our related party transaction policy and procedures, our audit committee will review and either approve or disapprove any transaction between ResMed and an executive officer, director, director nominee, or any other “related party” (as defined under Item 404 of SEC RegulationS-K) valued at $120,000 or more. Management is responsible for providing a report to the audit committee on an ongoing basis as to all potential related party transactions. Under this policy, the audit committee haspre-approved any compensation arrangement that is approved by our compensation committee for payment to an executive officer, or to a family member of a board member or executive officer, if approved by the compensation committee or approved in the normal course of business without the participation by the board member or executive officer. We historically and currently review in detail the responses of our executive officers and directors to their director’s and officer’s questionnaires for any reportable related party transactions. Michael Farrell is our chief executive officer and a director, and the son of Peter Farrell, our founder andnon-executive chairman. Their compensation is discussed in this proxy statement under the section “Compensation Discussion and Analysis” for Michael Farrell, and “Director Compensation – 2017”2018” for Peter Farrell. We set compensation for Michael Farrell and Peter Farrell in accordance with our related party transaction policy. In setting compensation, we followed the same policies and practices that we have historically used to set compensation for other similarly-situated employees and directors. In addition, all compensation paid to Michael Farrell andwas approved by our compensation committee; all compensation paid to Peter Farrell was approved by the independent members of our board (without Michael Farrell or Peter Farrell’s participation), after considering the compensation committee.committee’s recommendation. The following transaction was disclosed in our 2016 proxy statement, but is repeated here because it occurred during fiscal year 2017. In September 2016, we sold an aircraft owned by ResMed Inc. to two corporations not related to us, in equal shares, for total consideration of $1.2 million. After the sale, a trust controlled by Peter Farrell purchased the outstanding equity interest in one of the buyers, for total consideration of $600,000. The transaction was reviewed by our audit committee before completion. The committee reviewed the substance of the transaction, and concluded that it was fair and reasonable to ResMed. In reaching that conclusion, the committee considered the relevant facts and circumstances, including the following factors. The purchase price and all other material terms were negotiated and agreed with a third party before Dr. Farrell’s involvement, and didn’t change after his involvement. We obtained a third-party valuation several months before negotiating the initial transaction, and the purchase price was within the valuation range.
TRANSACTIONOFOTHERBUSINESSTHATMAYPROPERLYCOMEBEFORETHEMEETING We are not aware of any other matters to come before the annual meeting, and we have not received timely notice from any stockholder that they intend to present any other proposal at the meeting. If any matter not mentioned in this proxy statement is properly brought before the annual meeting, the persons named as proxies in the accompanying proxy, or their substitutes, will have discretionary authority to vote all proxies on those matters according to their best judgment. STOCKHOLDERPROPOSALSFOR 20182019ANNUALMEETING Proposals included in the proxy statement
| Proposals included in the proxy statement |
Under SEC rules, if a stockholder wishes to submit a proposal for possible inclusion in the proxy statement for our 20182019 annual meeting, we must receive it no later than 120 days before the anniversary of this year’s mailing date. Accordingly, to be timely, we must receive any proposal at our principal executive office in San Diego, California, USA, on or before June 4, 2018.6, 2019. The proposal must also comply with Rule14a-8 under the Securities and Exchange Act of 1934. Proposals not included in the proxy statement
| Proposals not included in the proxy statement |
Under our amended and restated bylaws, to nominate a director or bring any other business before the stockholders at the 20162019 annual meeting that will not be included in our proxy statement;statement, you must comply with the procedures described below. In addition, you must notify us in writing and deliver that notice to our secretary no earlier than August 18, 2018,17, 2019, and no later than September 7, 2018.6, 2019. Our bylaws require a stockholder’s notice of a proposed business item or nominee to include: | | (1) | a brief description of the business desired to be brought before the meeting; |
| | (2) | the reasons for conducting that business at the meeting; |
| | (3) | any material interest of the stockholder, beneficial owner, participants with the stockholder in the solicitation, associate of the stockholder, and any other person acting in concert with the stockholder or beneficial owner (each, a “Proposing Person”) in the proposed business (including a reasonably detailed description of all understandings between or among the Proposing Persons, or between or among any Proposing Person and other person or entity); |
| | (4) | the beneficial owner, if any, on whose behalf the proposal is made; and |
| | (5) | if the proposed business includes a proposal to amend our bylaws, the language of the proposed amendment. |
If the stockholder proposes to nominate a director, the notice must include all information relating to the nominee that is required to be disclosed under applicable SEC rules. In addition, the bylaws provide that a stockholder proposing any nomination or other business item must include, as to all Proposing Persons: | | (1) | the name and address of the Proposing Person, as they appear on our books; |
| | (2) | the class and number of shares of our capital stock that are owned beneficially and of record by the Proposing Persons; |
| | (3) | a representation that the stockholder is a holder of record of our stock entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to propose the business or nomination; |
| | (4) | a representation whether the Proposing Person intends: (a) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of our outstanding capital stock required to approve or adopt the proposal or elect the nominee; and/or (b) otherwise to solicit proxies from stockholders in support of the proposal or nomination; and |
| | (5) | as to each Proposing Person: |
| | a. | the full notional amount of any securities that, directly or indirectly, underlie any derivative security; |
| | b. | any rights to dividends on any shares of the company beneficially owned by the Proposing Person that are separated or separable from the underlying security; |
| | c. | any material pending or threatened legal proceeding, in which a Proposing Person is a party, that involves us or any of our officers, directors or affiliates; |
| | d. | any other material relationship between the Proposing Person and the company, its affiliates or principal competitors; |
| | e. | any direct or indirect material interest of a Proposing Person with the company, its affiliates or principal competitors; and |
| | f. | any other information relating to a Proposing Person that would be required to be disclosed in a filing required to be made in connection with the solicitation of proxies or consents in support of the business proposed to be brought before the meeting. We may require any proposed nominee to furnish other information that we may reasonably deem appropriate in determining the eligibility of the proposed nominee to serve as our director. |
Our bylaws require a stockholder’s nomination to contain the following information about the nominee: | | (1) | all information that would be required to be disclosed regarding the nominee if the nominee were a Proposing Person; |
| | (2) | all information relating to the nominee that is required to be disclosed in proxy solicitations for a director election contest, or is otherwise required, in each case by the then-current version of Regulation 14A under the Securities Exchange Act of 1934, and Rule14a-12; |
| | (3) | a description of any direct or indirect material interest in any material contract between or among any Proposing Person, on one hand, and each candidate for nomination or the respective associates and other participants in the solicitation, on the other hand; and |
| | (4) | the nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected. Any candidates recommended by a stockholder for nomination to the board will be evaluated in the same manner that nominees suggested by board members, management or other parties are evaluated. |
You may write to our secretary at ResMed Inc., 9001 Spectrum Center Boulevard, San Diego, California 92123 USA to deliver the notices discussed above and for a copy of the relevant bylaw provisions regarding the requirements for making stockholder proposals and nominating director candidates under the bylaws. Cautionary note regarding forward-looking statements
| Cautionary note regarding forward-looking statements |
Statements contained in this proxy statement that are not historical facts are “forward-looking” statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including statements regarding our plans to pay quarterly dividends, our net revenue, net income, and diluted earnings per share performance, are subject to risks and uncertainties, which could cause actual results to materially differ from those projected or implied in the forward-looking statements. Those risks and uncertainties are discussed in our Annual Report on Form10-K for our most recent fiscal year and in other reports we file with the US Securities and Exchange Commission. Those reports are available on our website. APPENDIX A Reconciliation of non-GAAP financial measures
| Reconciliation of non-GAAP financial measures |
The measure,“non-GAAP income from operations” is reconciled with GAAP income from operations below (in US$ thousands, except share and per share data): | | | | | | | | | | | | Twelve months ended June 30, | | | | | 2017 | | | 2016 | | GAAP income from operations | | | 425,798 | | | $ | 428,952 | | Deferred revenue fair value adjustment(a) | | | — | | | | 2,332 | | SERVE-HF accrual (release)(a) | | | — | | | | (2,804 | ) | Astral battery field safety notification expenses | | | 5,070 | | | | — | | Restructuring expenses(a) | | | 12,358 | | | | 6,914 | | Litigation settlement expenses | | | 8,500 | | | | — | | Acquisition and integration expenses(a) | | | 10,076 | | | | 5,464 | | Amortization of acquired intangible assets(a) | | | 46,578 | | | | 23,923 | | Non-GAAP income from operations | | $ | 508,380 | | | $ | 464,781 | |
The measures“non-GAAP net income” and“non-GAAP diluted earnings per share” are reconciled with GAAP net income and GAAP diluted earnings per share in the table below:
| | | | Twelve months ended June 30, | | | Twelve months ended June 30, | | | | 2017 | | | 2016 | | | 2018 | | 2017 | GAAP income from operations | | | $541,831 | | | $425,798 | | Amortization of acquired intangible assets(a) | | | 46,383 | | | 46,578 | | Restructuring expenses(a) | | | 18,432 | | | 12,358 | | Astral battery field safety notification expenses | | | - | | | 5,070 | | Litigation settlement expenses | | | - | | | 8,500 | | Acquisition and integration expenses(a) | | | - | | | 10,076 | | Non-GAAP income from operations | | | $606,646 | | | $508,380 | | | The measures“non-GAAP net income” and“non-GAAP diluted earnings per share” are reconciled with GAAP net income and GAAP diluted earnings per share in the table below: | | The measures“non-GAAP net income” and“non-GAAP diluted earnings per share” are reconciled with GAAP net income and GAAP diluted earnings per share in the table below: | | | | | | Twelve months ended June 30, | | | | | 2018 | | 2017 | GAAP net income | | $ | 342,284 | | | $ | 352,408 | | | $315,588 | | | $342,284 | | Deferred revenue fair value adjustment(a) | | | — | | | | 1,478 | | | SERVE-HF accrual (release), net of tax(a) | | | — | | | | (1,963 | ) | | Amortization of acquired intangible assets, net of tax(a) | | | 33,694 | | | 31,679 | | U.S. tax reform transition impact(a) | | | 126,881 | | | - | | U.S. tax reform impact on deferred taxes(a) | | | 11,135 | | | - | | Restructuring expenses, net of tax(a) | | | 13,328 | | | 8,295 | | Foreign tax credit adjustment | | | 7,204 | | | - | | Astral battery field safety notification expenses | | | 3,549 | | | | — | | | - | | | 3,549 | | Restructuring expenses, net of tax(a) | | | 8,295 | | | | 5,204 | | | Litigation settlement expenses, net of tax | | | 5,392 | | | | — | | | - | | | 5,392 | | Acquisition related expenses | | | 10,076 | | | | 4,943 | | | - | | | 10,076 | | Amortization of acquired intangible assets, net of tax(a) | | | 31,679 | | | | 17,366 | | | Non-GAAP net income(a) | | $ | 401,275 | | | $ | 379,436 | | | $507,830 | | | $401,275 | | Diluted shares outstanding | | | 142,453 | | | | 141,669 | | | 143,987 | | | 142,453 | | GAAP diluted earnings per share | | $ | 2.40 | | | $ | 2.49 | | | $2.19 | | | $2.40 | | Non-GAAP diluted earnings per share(a) | | $ | 2.82 | | | $ | 2.68 | | | $3.53 | | | $2.82 | |
| | | (a) | | ResMed adjusts for the impact of the Astral battery field safety notification expenses, movements in theSERVE-HF accrual, restructuring expenses, litigation settlement expenses,one-time deferred revenue fair value adjustment, acquisition related expenses, and amortization of acquired intangible assets from their evaluation of ongoing operations and believes investors benefit from adjusting these items to facilitate a more meaningful evaluation of current operating performance. ResMed believes thatnon-GAAP diluted earnings per share is an additional measure of performance investors can use to compare operating results between reporting periods. ResMed usesnon-GAAP information internally in planning, forecasting, and evaluating the results of operations in the current period and in comparing it to past periods. ResMed believes this information provides investors better insight in evaluating ResMed’s performance from core operations and provides consistent financial reporting. Our use ofnon-GAAP measures is intended to supplement, and not to replace, our presentation of net income and other GAAP measures. Like allnon-GAAP measures,non-GAAP earnings are subject to inherent limitations because they do not include all the expenses that must be included under GAAP. |
ResMed believes thatnon-GAAP diluted earnings per share is an additional measure of performance investors can use to compare operating results between reporting periods. ResMed usesnon-GAAP information internally in planning, forecasting, and evaluating the results of operations in the current period and in comparing it to past periods. ResMed believes this information provides investors better insight in evaluating ResMed’s performance from core operations and provides consistent financial reporting. Our use ofnon-GAAP measures is intended to supplement, and not to replace, our presentation of net income and other GAAP measures. Like allnon-GAAP measures,non-GAAP earnings are subject to inherent limitations because they do not include all the expenses that must be included under GAAP.
APPENDIX B THE RESMED INC. 2009 INCENTIVE AWARD 2018 EMPLOYEE STOCK PURCHASE PLAN AS AMENDED AND RESTATED DATED: AUGUST 17, 2018 2018 EMPLOYEE STOCK PURCHASE PLAN TABLE OF CONTENTS THE RESMED INC. 2018 EMPLOYEE STOCK PURCHASE PLAN ResMed Inc., a Delaware corporation (the “Company”“Company”), maintainsadopted the ResMed Inc. 2009 Incentive AwardEmployee Stock Purchase Plan, renamed as the ResMed Inc. 2018 Employee Stock Purchase Plan (the “Plan”“Plan”). The Plan initially became effective on November 9, 2006, the date upon which the Company’s stockholders approved the Plan. The Plan was amended and restated effective on October 1, 2008. The Plan was further amended on September 30, 2009, subject to the approval of the Company’s stockholders, and was further amended, with approval of the Company’s stockholders,, effective as of each of September 1, 2011 and September 12, 2013.November 14, 2003. The ResMed Inc. 2009 Incentive Award Plan as Amended and Restated (also referred to herein as the “Plan”) is effective as of September 11, 2017, subject to the approval of the Company’s stockholders (the date of such stockholder approval, the “2017 Restatement Date”).has been most recently amended on August 17, 2018. The purposepurposes of the Plan is to promote the success and enhance the valueare as follows: (1) To assist Eligible Employees of the Company by linkingand its Designated Subsidiaries (as defined below) in acquiring stock ownership in the personal interestsCompany pursuant to a plan which is intended to qualify as an “employee stock purchase plan,” within the meaning of Section 423(b) of the membersCode (as defined below). (2) To help such employees provide for their future security and to encourage them to remain in the employment of the Board, Employees,Company and Consultantsits Subsidiary Corporations. The Company intends for Offerings under the Plan to thosequalify as an “employee stock purchase plan” under Section 423 of the Company’s stockholders and by providing such individuals with an incentive for outstanding performance to generate superior returns toCode (each, a “Section 423 Offering”); provided, however, that the Company’s stockholders. TheCommittee may also authorize the grant of Options in Offerings under the Plan is furtherthat are not intended to provide flexibility tocomply with the Company in its ability to motivate, attract, and retain the servicesrequirements of membersSection 423 of the Board, Employees, and Consultants upon whose judgment, interest, and special effortCode, pursuant to any rules, procedures, agreements, appendices, orsub-plans adopted by the successful conductCommittee for such purpose (each, a“Non-423 Offering”). 1. Definitions. Whenever any of the Company’s operation is largely dependent. ARTICLE I.
DEFINITIONS
Wherever the following terms areis used in the Plan theywith the first letter or letters capitalized, it shall have the meanings specified below,following meaning unless the context clearly indicates otherwise. Theto the contrary (such definitions to be equally applicable to both the singular pronoun shall includeand the plural where the context so indicates.
1.1 “Administrator” shall mean the entity that conducts the general administrationforms of the Plan as provided in Article X. With reference toterms defined):
(a) “Account” means the duties of the Committeeaccount established for a Participant under the Plan which have been delegated toPlan. (b) “Affiliate” means any entity, other than a Parent Corporation or a Subsidiary Corporation, that directly or through one or more persons pursuant to Section 10.5, or as to which the Board has assumed, the term “Administrator” shall refer to such person(s) unless the Committee has revoked such delegation. 1.2 “Award” shall mean an Option, a Restricted Stock award, a Restricted Stock Unit award, a Performance Award, a Dividend Equivalents award, a Deferred Stock award, a Stock Payment award or a Stock Appreciation Right, which may be awarded or granted under the Plan (collectively, “Awards”).
1.3 “Award Agreement” shall mean a written (or electronic) agreement, which shall contain such terms and conditions with respect to an Award as the Administrator shall determine, which terms and conditions shall not be inconsistent with the terms of the Plan.
1.4 “Award Limit” shall mean three million (3,000,000) shares of Common Stock, as adjusted pursuant to Section 11.3;provided, however,that each share of Common Stock subject to an Award shall be counted as one share against the Award Limit. Solely with respect to Performance Awards granted pursuant to Section 8.2(b), “Award Limit” shall mean $5,000,000.
1.5 “Board” shall mean the Board of Directors of the Company.
1.6 “Change in Control” shall mean the occurrence of any of the following events:
(a) a transaction or series of transactions (other than an offering of Stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls,intermediaries is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule13d-3 under the Exchange Act) of securities of the Company, possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or
(b) During any 36-month period, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in Section 1.6(a) or Section 1.6(c)) whose electionas determined by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the 36-month period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; orCommittee.
(c) The consummation by“Agent” means the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a salebrokerage firm, bank or other disposition of allfinancial institution, entity or substantially all ofperson(s), if any, engaged, retained, appointed or authorized to act as the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction: (i) Which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securitiesagent of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeedsan Employee with regard to the businessPlan.
(d) “Applicable Law” means the requirements relating to the administration of equity-based awards under applicable corporate laws, United States federal and state securities laws, the Code, any stock exchange or quotation system on which the Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options are, or will be, granted under the Plan. (e) “Authorization” means a Participant’s payroll deduction authorization or authorization for other Contributions with respect to an Offering Period provided by such Participant in accordance with Section 3(d). (f) “Board” means the Board of Directors of the Company, (the Company or such person, the “Successor Entity”) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, andas constituted from time to time. (ii) After which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity;provided, however, that no person or group shall be treated for purposes of this Section 1.6(c)(ii) as beneficially owning 50% or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or
(d) The Company’s stockholders approve a liquidation or dissolution of the Company.
For purposes of subsection (a) above, the calculation of voting power shall be made as if the date of the acquisition were a record date for a vote of the Company’s stockholders, and for purposes of subsection (c) above, the calculation of voting power shall be made as if the date of the consummation of the transaction were a record date for a vote of the Company’s stockholders.
1.7 “Code” shall mean(g) “Code” means the Internal Revenue Code of 1986, as amended from time to time.amended.
1.8 “Committee” shall mean(h) “Committee” means the Compensation Committee of the Board, or another committee or subcommittee of the Board appointed as provided into administer the Plan pursuant to Section 10.1.12.
1.9 “Common Stock” shall mean the common stock of the Company, par value $0.004 per share.
1.10 “Company” shall mean(i) “Company” means ResMed Inc., a Delaware corporation.corporation, or any successor corporation or entity.
1.11 “Consultant” shall mean
(j) “Compensation” of an Employee means all compensation received by such Employee from the Company or any consultant or adviser if: (a) the consultant or adviser is a natural person, (b) the consultant or adviser renders bona fideDesignated Subsidiary on each Payday as compensation for services to the Company or any Subsidiary; and (c) the services renderedDesignated Subsidiary, including all salary, wages (including amounts elected to be deferred by the consultantEmployee, but would otherwise have been paid, under any cash or adviser are notdeferred arrangement established by the Company or a Designated Subsidiary), overtime pay, sales commissions, bonuses, and other remuneration paid directly to the Employee; but excluding the cost of employee benefits paid by the Company or a Designated Subsidiary, education or tuition reimbursements, imputed income arising under any Company or Designated Subsidiary group insurance or benefit program, travel expenses, business and moving reimbursements, income received in connection with stock options or other equity awards, contributions made by the offerCompany or salea Designated Subsidiary under any employee benefit plan, and similar items of securitiescompensation. (k) “Contributions” means the amount of Compensation contributed by a Participant through payroll deductions; provided, however, that “Contributions” may also include other payments that the Committee may permit a Participant to make to fund the exercise of Options to purchase shares of Stock under the Plan to the extent payroll deductions are not permitted by Applicable Law, as determined by the Company in a capital-raising transaction and do not directlyits sole discretion. (l) “Date of Exercise” of any Option means the date on which such Option is exercised, which shall be the last Trading Day of the Offering Period with respect to which the Option was granted, in accordance with Section 4(a) (except as provided in Section 9). (m) “Date of Grant” of any Option means the date on which such Option is granted, which shall be the first Trading Day of the Offering Period with respect to which the Option was granted, in accordance with Section 3(e). (n) “Designated Subsidiary” means any Subsidiary Corporation designated by the Committee or indirectly promote or maintain a market for the Company’s securities.Board in accordance with Section 13. 1.12 “Covered Employee” shall mean any(o) “Eligible Employee” means an Employee who is,meets the requirements for eligibility in accordance with Section 3(a).
(p) “Employee” means an individual who renders services to the Company or could be, a “covered employee”Designated Subsidiary in the status of an “employee,” within the meaning of Section 162(m)3401(c) of the Code. 1.13 “Deferred Stock” shall mean rights For purposes of clarity, the term “Employee” will not include the following, regardless of any subsequent reclassification as an employee by the Company or a Designated Subsidiary, any governmental agency, or any court: (i) any independent contractor; (ii) any consultant; (iii) any individual performing services for the Company or a Designated Subsidiary under a purchase order, a supplier agreement or any other agreement that the Company or a Designated Subsidiary enters into for services; (iv) any individual classified by the Company or a Designated Subsidiary as contract labor (such as contractors, contract employees, job shoppers), regardless of length of service; and (vi) any leased employee. The Committee will have exclusive discretion to receive Common Stock awarded under Article VIIIdetermine whether an individual is an Employee for purposes of the Plan.
1.14 “Director” shall mean a member of the Board.
1.15 “Dividend Equivalent” shall mean a right to receive the equivalent value (in cash or Common Stock) of dividends paid on Common Stock, awarded with respect to Full Value Awards pursuant to Article VIII of the Plan.
1.16 “DRO” shall mean a domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended from time to time, or the rules thereunder.
1.17 “Effective Date” shall mean November 9, 2006 (the initial date the Plan was approved by the Company’s stockholders).
1.18 “Employee” shall mean any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company, or of any Subsidiary.
1.19 “Exchange Act” shall mean(q) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.amended.
1.20 “Fair(r) “Fair Market Value” shall mean, as of any date, the valueValue” of a share of Common Stock determined as follows:
(a) Ifof a given date means: (A) the Common Stock is listed on any established stock exchange (such as the New York Stock Exchange, the NASDAQ Global Market and the NASDAQ Global Select Market) or any national market system, including without limitation any market system of The NASDAQ Stock Market, the valueclosing price of a share of Common Stock shall beon the principal exchange on which the Stock is then trading, if any, on such date (or, if shares of Stock were not traded on such date, then on the next preceding trading day during which a sale occurred); (B) if the Stock is not traded on an exchange, but is quoted on Nasdaq or a successor quotation system, (1) the last sales price (if the Stock is then listed as a National Market Issue under the NASD National Market System), or (2) the mean between the closing sales pricerepresentative bid and asked prices (in all other cases) for a share of Common Stock on such date (or, if shares of Stock were not traded on such date, then on the next preceding trading day during which a sale occurred) as reported by Nasdaq or such successor quotation system; (3) if the Stock is not publicly traded on an exchange and not quoted on such exchangeNasdaq or system for such date, or if there is no closing sales price for a share of Common Stock on the date in question, the closing sales price for a share of Common Stock on the last preceding date for which suchsuccessor quotation exists, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(b) If the Common Stock is regularly quoted by a recognized securities dealer but closing sales prices are not reported, the value of a share of Common Stock shall besystem, the mean ofbetween the high
closing bid and low asked prices for such date or, if there are no high bid and low asked prices for a share of Common Stock on thesuch date in question, the high bid and low asked prices for a share(or, if shares of Common Stock were not traded on such date, then on the lastnext preceding date fortrading day during which such information exists,a sale occurred), as reporteddetermined in The Wall Street Journalgood faith by the Committee; or such other source as(4) if the Administrator deems reliable; or (c) If the Common Stock is neither listed on an established stock exchange or a nationalnot publicly traded, the fair market system nor regularly quoted by a recognized securities dealer, the value of a share of Common Stock shall be established by the AdministratorCommittee acting in good faith.
1.21 “Fiscal Year” shall mean the fiscal year(s) “Offering” means a Section 423 Offering or aNon-423 Offering of the Company.
1.22 “Full Value Award” shall mean any Award other than an Option Stock Appreciation Rightunder the Plan during an Offering Period. Unless otherwise determined by the Committee, each Offering under the Plan in which Eligible Employees of one or other Awardmore Designated Subsidiaries may participate will be deemed a separate Offering for which the Holder pays a purchase price (whether directly or by forgoing a right to receive a payment from the Company).
1.23 “Holder” shall mean a person who has been granted or awarded an Award.
1.24 “Incentive Stock Option” shall mean an option which conforms to the applicable provisionspurposes of Section 422423 of the Code, even if the dates of the applicable Offering Periods of each such Offering are identical, and the provisions of the Plan will separately apply to each Offering. With respect to Section 423 Offerings, the terms of separate Offerings need not be identical provided that all Eligible Employees granted Options in a particular Offering will have the same rights and privileges, except as otherwise may be permitted by Section 423 of the Code; aNon-423 Offering need not satisfy such requirements.
(t) “Offering Period” means each period, the duration of which is designated as an Incentive Stock Optionshall be set by the Administrator.Committee, during which Options are granted to Eligible Employees; provided, however, that the duration of any Offering Period can be no less than three months and no more than 27 months, and shall initially be six months. 1.25 “Non-Employee Director” shall mean a member(u) “Option” means an option to purchase shares of the Board who is not an Employee.
1.26 “Non-QualifiedStock Option” shall mean an Option which is not designated as an Incentive Stock Option by the Administrator.
1.27 “Option” shall mean a stock option granted under Article IV of the Plan. An Option granted under the Plan shall, as determined byto a Participant in accordance with Section 3(e).
(v) “Option Price” means the Administrator, be either aNon-Qualified Stock Option or an Incentive Stock Option;provided, however,that Options granted toNon-Employee Directors and Consultants shall beNon-Qualified Stock Options. 1.28 “Performance Award” shall mean a cash bonus, stock bonus or other performance or incentive award that is paid in cash, Common Stock or a combination of both, awarded under Article VIII of the Plan.
1.29 “Performance Criteria” shall mean the criteria that the Committee selects for an Award for purposes of establishing the Performance Goal or Performance Goals for a Performance Period, determined as follows:
(a) The Performance Criteria that will be used to establish Performance Goals are limited to the following, or increase or decrease in the following, alone or in combination: (i) net earnings (either before or after (A)
interest, (B) taxes, (C) depreciation and (D) amortization), (ii) gross or net sales or revenue, (iii) net income (either before or after taxes), (iv) operating income (either before or after taxes), (v) cash flow or cash flow per share (including, but not limited to, operating cash flow and free cash flow and either before or after dividends), (vi) cash flow return on investment, (vii) return on assets or net assets, (viii) return on capital (including, but not limited to, total return on capital and return on invested capital), (ix) return on stockholders’ equity, (x) total stockholder return, (xi) economic value added, (xii) return on sales, (xiii) gross or net profit, cash or operating margin, (xiv) costs, (xv) funds from operations, (xvi) expenses, (xvii) working capital, (xviii) earnings per share, (xix)purchase price per share of Common Stock or any otherpublicly-traded security of the Company, (xx) FDA or other regulatory body approval for commercialization of a product, (xxi) implementation or completion of critical projects, (xxii) market share, (xxiii) debt, (xxiv) cash, (xxv) stockholder equity, (xxvi) factoring transactions, (xxvii) initiating or completing clinical studies or phases of clinical studies, (xxviii) initiating enrollment, completing enrollment or enrolling particular numbers of subjects in clinical studies, (xxix) financing and other capital raising transactions (including sales of the Company’s equity or debt securities), (xxx)in-licensing andout-licensing of intellectual property, (xxxi) third-party validation of any manufacturing process of the Company, any Subsidiary or any third-party manufacturer, (xxxii) sales or licenses of assets (including, but not limited to, intellectual property), (xxxiii) manufacturing yields, (xxxiv) productivity; (xxxv) operating efficiency; and (xxxvi) return on net assets, any of which may be measured either in absolute terms or as compared to any incremental increase or decrease or as compared to the performance of one or more other companies.
(b) The Committee may, in its discretion, at the time of grant or within the time prescribed by Section 162(m) of the Code, specify in the Award that one or more objectively determinable adjustments shall be made to one or more of the Performance Goals. Such adjustments may include (although are not limited to) one or more of the following: (i) items related to changes in applicable laws, regulations, accounting principles, or business conditions; (ii) items relating to financing activities; (iii) expenses for restructuring or productivity initiatives; (iv) othernon-operating items; (v) items related to acquisitions; (vi) items attributable to the business operations of any entity acquired by the Company during the Performance Period; (vii) items related to the disposal of a business or segment of a business; (viii) items related to any unusual or infrequently occurring corporate item, transaction, event, or development, or (ix) items related to discontinued operations that do not qualify as a segment of a business under United States generally accepted accounting principles (“GAAP”).
1.30 “Performance Goals” shall mean, for a Performance Period, the goals established in writing by the Committee for the Performance Period based upon the Performance Criteria. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance or the performance of a Subsidiary, product, division, business unit, or an individual. The achievement of each Performance Goal and adjustments thereto shall be determined in accordance with GAAP to the extent applicable, or may be adjusted when established to include or excludeSection 4(b).
(w) “Parent Corporation” means any items otherwise includable or excludable under GAAP. 1.31 “Performance Period” shall mean one or more periods of time, which may be of varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Holder’s right to, and the payment of, a Performance Award.
1.32 “Plan” shall mean the ResMed Inc. 2009 Incentive Award Plan, as Amended and Restated, as the same may be further amended or restated from time to time.
1.33 “Restricted Stock” shall mean Common Stock awarded under Article VII of the Plan.
1.34 “Restricted Stock Units” shall mean rights to receive Common Stock or an equivalent cash payment, or a combination of both, awarded under Article VIII of the Plan.
1.35 “Rule16b-3” shall mean Rule16b-3 promulgated under the Exchange Act, as such Rule may be amended from time to time.
1.36 “Securities Act” shall mean the Securities Act of 1933, as amended from time to time.
1.37 “Stock Appreciation Right” or “SAR” shall mean a stock appreciation right granted under Article IX of the Plan.
1.38 “Stock Payment” shall mean: (a) a payment in the form of shares of Common Stock, or (b) an option or other right to purchase shares of Common Stock, as part of a deferred compensation arrangement, made in lieu of all or any portion of the compensation, including without limitation, salary, bonuses, commissions and directors’ fees, that would
otherwise become payable to a Employee,Non-Employee Director or Consultant in cash, awarded under Article VIII of the Plan.
1.39 “Subsidiary” shall mean any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the Company if each of the entitiescorporation, other than the last entity in the unbroken chain beneficially owns, at the time of the determination, securities or interests representing more than fifty percent (50%) of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.
1.40 “Subsidiary Corporation” shall mean any corporationCompany, in an unbroken chain of corporations beginningending with the Company if, at the time of the granting of the Option, each of the corporations other than the last corporation in the unbroken chain thenCompany directly or indirectly owns stock possessing fifty percent (50%)50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
1.41 “Substitute Award”(x) “Participant” means an Eligible Employee who has elected to participate in the Plan, in accordance with the provisions of Section 3(d).
(y) “Payday” means the regular and recurring established day for payment of Compensation to an Employee of the Company or any Designated Subsidiary. (z) “Plan” means the ResMed Inc. 2018 Employee Stock Purchase Plan, as amended and/or restated from time to time. (aa) “Stock” means the shares of the Company’s Common stock, $.004 par value per share. (bb) “Subsidiary Corporation” means any entity that is a subsidiary corporation of the Company within the meaning of Section 423 of the Code and the regulations promulgated thereunder. In addition, solely with respect toNon-423 Offerings under the Plan, Subsidiary Corporation shall mean an Awardinclude any corporate or noncorporate entity in which the Company has a direct or indirect equity interest or significant business relationship. (cc) “Tax-Related Items” means any income tax, social insurance, payroll tax, fringe benefit tax, payment on account or othertax-related items arising in relation to a Participant’s participation in the Plan. (dd) “Trading Day” means a day on which the New York Stock Exchange is open for trading. 2. Stock Subject to the Plan. Subject to the provisions of Section 9 hereof (relating to adjustments upon changes in the Stock) and Section 11 hereof (relating to amendments of the Plan), the Stock that may be sold pursuant to Options granted under the Plan shall not exceed in the aggregate 6,200,000 shares of Stock.1 The shares of Stock sold pursuant to Options granted under the Plan may be unissued shares or treasury shares of Stock, or shares reacquired in private transactions or open market purchases. If and to the extent that any right to purchase reserved shares shall not be exercised by any Participant for any reason, or if such right to purchase shall terminate as provided herein, shares that have not been so purchased hereunder shall again become available for the purposes of this Plan, unless this Plan shall have been terminated, but all shares sold under this Plan, uponregardless of source, shall be counted against the assumptionlimitation set forth above. For avoidance of or in substitution for, outstanding equity awards previously granted by a company or other entity in connection with a corporate transaction,doubt, up to the maximum number of shares of Stock reserved under this Section 2 may be used to satisfy purchases of Stock under Section 423 Offerings and any remaining portion of such as a merger, combination, consolidation or acquisitionmaximum number of property or stock;provided, however,that in no event shall the term “Substitute Award”Stock may be construedused to refer to an award made in connection with the cancellationsatisfy purchases of Stock underNon-423 Offerings. 3. Eligibility and repricingGrant of an Option or Stock Appreciation Right.Options. 1.42 “Termination(a) Eligibility. Each Employee of Consultancy” shall mean the time when the engagement of a Holder as a Consultant to the Company or aany Designated Subsidiary is terminatedas of the commencement of an Offering Period will be eligible to participate in the Plan, subject to the requirements of this Section 3. Notwithstanding the foregoing, the Committee may determine in its discretion, and if so determines, shall set forth in the terms of the applicable Offering, that an Employee of the Company or any Designated Subsidiary shall be eligible to participate in such Offering Period, unless, as of the first day of such Offering Period: (1) such Employee has been in the employ of the Company or any Designated Subsidiary for any reason, with or without cause, including, without limitation, by resignation, discharge, death or retirement, but excluding terminations where there is a simultaneous commencement ofless than two years; (2) such Employee’s customary employment with the Company or any Subsidiary. The Administrator, in its absolute discretion, shall determine the effect of all matters and questions relating to Termination of Consultancy, including, without limitation, the question of whether a Termination of Consultancy resulted from a discharge for cause.
1.43 “Termination of Directorship” shall mean the time when a Holder whoDesignated Subsidiary is twenty hours or less per week and/or less than five months per calendar year; (3) such Employee is aNon-Employee Director ceases to be a Director for any reason, including, without limitation, a termination by resignation, failure to be elected, death or retirement. The Administrator, in its sole and absolute discretion, shall determine the effect “highly compensated employee” of all matters and questions relating to Termination of Directorship with respect toNon-Employee Directors.
1.44 “Termination of Employment” shall mean the time when the employee-employer relationship between a Holder and the Company or any Designated Subsidiary is terminated for any reason, with (within the meaning of Section 414(q) of the Code); and/or without cause, including, without limitation, a termination by resignation, discharge, death, disability or retirement; but excluding: (a) terminations where there(4) such employee is a simultaneous reemploymentcitizen or continuing employmentresident of a Holder byjurisdiction other than the CompanyUnited States (without regard to whether such individual also is a citizen or any Subsidiary, and (b) terminations which are followed byresident of the simultaneous establishment ofUnited States or is a consulting or other service relationship byresident alien (within the Company or a Subsidiary with the former employee. The Administrator, in its absolute discretion, shall determine the effect of all matters and questions relating to Termination of Employment, including, without limitation, the question of whether a Termination of Employment resulted from a discharge for cause;provided, however,that, with respect to Incentive Stock Options, a leave of absence, change in status from an employee to an independent contractor or other change in the employee-employer relationship shall constitute a Termination of Employment for Incentive Stock Option purposes if, and to the extent that, such leave of absence, change in status or other change interrupts employment for the purposesmeaning of Section 422(a)(2)7701(b)(1)(A) of the CodeCode)) and the then applicable regulations and revenue rulings under said Section, and in such case any Incentive Stockgrant of an Option shall be treated for tax purposes as aNon-Qualified Stock Option three (3) months thereafter or after such longer period as may be permitted under Section 422 of the Code.
1.45 “Termination of Service” shall mean the time when a Holder experiences a Termination of Consultancy, a Termination of Directorship or a Termination of Employment, as applicable.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1Shares Subject to Plan.
(a) Subject to adjustment pursuant to Section 11.3 and Section 2.1(b), and as of the 2017 Restatement Date, the maximum number of shares of Common Stock that shall be authorized for Awards granted under the ResMed Inc. 2009 Incentive Award Plan, as Amended and Restated, is equal to 19,000,000 shares, less the number of shares subject to Awards granted after June 30, 2017 and prior to the 2017 Restatement Date, which number shall be calculated as follows: (i) one share for each one share of Common Stock that was granted subject to any Award other
than a Full Value Award, and (ii) 2.8 shares for each share of Common Stock that was granted subject to a Full Value Award. Subject to Section 11.3, the aggregate number of shares of Common Stock which may be issued or transferred pursuant to the exercise of Incentive Stock Options under the Plan shall be 19,000,000 shares.1
Effective for any Award granted on or after June 30, 2013, the aggregate number of shares of Common Stock available for grantis prohibited under the Applicable Laws of such jurisdiction, or compliance with the Applicable Laws of such jurisdiction would cause the Plan shall be reduced by 2.8 shares for each shareto violate the requirements of Common Stock granted subject to any Full Value Award and shall be reduced by one share for each share of Common Stock granted subject to any Award that is not a Full Value Award.
(b) To the extent that an Award terminates, expires, lapses or is forfeited or settled for cash (in whole or in part) for any reason on or after June 30, 2013, and regardless of when the Award was granted, any shares of Common Stock then subject to that Award to the extentSection 423 of the termination, lapse, forfeiture or cash settlement, will again be available for grant under the Plan;Code;provided however, that the numberany exclusion in clauses (1), (2), (3) and (4) shall be applied in an identical manner to all employees of shares that will again be available for grant under the Plan will be increased by one share for each share of Common Stock subject to an Option or SAR (or other award that is not a Full Value Award) or by 2.8 shares for each share of Common Stock subject to a Full Value Award at the time the Award terminates, expires, lapses or is forfeited or settled for cash for any reason after June 30, 2013.
In the event that withholding tax liabilities arising from a Full Value Award after June 30, 2013 are satisfied by the tendering of shares of Common Stock (either actually or by attestation) or by the withholding of shares of Common Stock by the Company the shares so tendered or withheld shall be added to the shares available for Awardsand all Designated Subsidiaries whose employees are granted Options in Section 423 Offerings under the Plan, in accordance with Treasury RegulationSection 1.423-2(e). Furthermore, in the share counting rules set forth abovecase of aNon-423 Offering, an Eligible Employee (or group of Eligible Employees) may be excluded from participation in this Section 2.1(b), exceptthe Offering if the Committee has determined, in its sole discretion, that participation of such Eligible Employee(s) is not advisable or practicable for any reason.
(b) $25,000 Limitation. No Participant shall be granted an Option under the Plan which permits his rights to purchase shares of Stock under the extent otherwise set forth in Section 11.5. SharesPlan, together with other options to purchase shares of Common Stock withheld byor other stock under all other employee stock purchase plans of the Company, or delivered to the Company in payment of the exercise price or tax withholding obligations with respect to an Option or SAR and shares of Common Stock subject to a Stock Appreciation Right that are not issued in connection with the stock settlement of that Stock Appreciation Right will not be available for grant under the Plan. Shares of Common Stock reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of Options will not be available for grant under the Plan. The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards will not be counted against the shares available for issuance under the Plan. To the extent permitted by applicable law or any exchange rule, shares of Common Stock issued in assumption of, or in substitution for, any outstanding Awards of any entity acquired in any form of combination by the CompanyParent Corporation or any Subsidiary and all Substitute Awards (as defined inCorporation subject to the Plan), shall not be counted againstSection 423, to accrue at a rate which exceeds $25,000 of fair market value of such shares of Common Stock available for grant under this Plan. Further, available shares under a stockholder approved Plan of an entity acquired by the Company or any Subsidiary (as appropriately adjusted to reflect the acquisition transaction using the exchange ratio or other adjustmentstock (determined at the time the Option or valuation ratio or formula used in the acquisition or combination to determine the consideration payable to the Holdersother option is granted) for
1 The Plan was initially approved with an aggregate of Common3,250,000 shares of Stock of the entities party to the acquisition or combination) may be used for Awardsthat were issuable under the Plan, and may not be counted againstwhich number of shares of Common Stock available for grant under this Plan (andwas subsequently adjusted to 6,500,000 shares subjectdue to those Awards shall not be added to the shares available for Awards under the Plan as provided in the paragraph below), subject to applicable law and exchange rules. Notwithstanding the provisions of this Section 2.1(b), no shares of Common Stock may again be optioned, granted or awarded if that action would cause an Incentive Stock Option to fail to qualify as an incentivea September 2005 stock option under Section 422split of the Code.
2.2Stock Distributed. Any Common Stock distributed pursuant to an Award shall consist,Company’s Stock. In September 2007, the Board approved a reduction in whole or in part, of authorized and unissued Common Stock, shares of Common Stock held in treasury or shares of Common Stock purchased on the open market.
2.3Limitation on Number of Shares Subject to Awards. Notwithstanding any provision in the Plan to the contrary, and subject to Article XI, the maximum number of shares of Common Stock with respectissuable under the Plan, from 6,500,000 to one or more Awards that may be granted500,000. An amendment to any one individual other thanthe Plan dated September 30, 2009, increased the number of shares by 600,000, for aNon-Employee Director during any calendar year shall not exceed total of 1,100,000. That total number of shares was adjusted to 2,200,000 due to an October 2012 stock split. An August 2012 amendment increased the Award Limit;provided, however,that innumber of shares by 2,000,000, to a total of 4,200,000. On August 17, 2018, the year of initial hiring of an Employee,Board amended the maximumPlan to increase the number of shares of Common Stock with respectissuable under the Plan by 2,000,000, to one or more Awards that may be granteda total of 6,200,000, subject to such Employee during suchstockholder approval.
each calendar year of initial hiring shall not exceed 150%in which the Option is outstanding. For purpose of the Award Limit. Tolimitation imposed by this subsection, (1) the extent required byright to purchase shares of Stock or other stock under an Option or other option accrues when the Option or other option (or any portion thereof) first becomes exercisable during the calendar year, (2) the right to purchase shares of Stock or other stock under an Option or other option accrues at the rate provided in the Option or other option, but in no case may such rate exceed $25,000 of the fair market value of such Stock or other stock (determined at the time such Option or other option is granted) for any one calendar year, and (3) a right to purchase Stock or other stock which has accrued under an Option or other option may not be carried over to any other Option or other option. This limitation shall be applied in accordance with Section 162(m)423(b)(8) of the Code shares subject to Awards which are canceled shall continue to be counted againstand the Award Limit. 1 | This share pool represents an increase of 7,392,471 shares from the number of shares of Common Stock previously authorized under the Plan, after giving effect to stock splits.
|
2.4Limitation on Awards toNon-Employee Directors. Notwithstanding any provision to the contrary in the Plan, the aggregate grant date fair value (determined as of the date of grant under Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto) of all equity-based Awards granted during any single calendar year plus the aggregate amount of all cash payments made for such calendar year to aNon-Employee Director for services as aNon-Employee Director shall not exceed $700,000;provided, however, that the foregoing limit shall be increased by $500,000 for anyNon-Employee Director who is also serving as Chairman of the Board. For the avoidance of doubt, compensation shall count towards this limit for the year in which it was earned, and not later when distributed, in the event it is deferred.
ARTICLE III.
GRANTING OF AWARDS
3.1Award Agreement. Each Award shall be evidenced by an Award Agreement. Award Agreements evidencing Awards intended to qualify as performance-based compensation (as described in Section 162(m)(4)(C) of the Code) shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code. Award Agreements evidencing Incentive Stock Options shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 422 of the Code.
3.2Provisions Applicable to Covered Employees.
(a) The Committee, in its discretion, may determine whether an Award is to qualify as performance-based compensation (as described in Section 162(m)(4)(C) of the Code).
(b) Notwithstanding anything in the Plan to the contrary, the Committee may grant any Award to a Covered Employee, including Restricted Stock the restrictions with respect to which lapse upon the attainment of specified Performance Goals and any performance or incentive award described in Article VIII that vests or becomes exercisable or payable upon the attainment of one or more specified Performance Goals.Treasury Regulations thereunder.
(c) To the extent necessary to comply with the performance-based compensation requirements of Section 162(m)(4)(C) of the Code, with respect to any Award granted under Articles VII and VIII which may be granted to one or more Covered Employees, no later than ninety (90) days following the commencement of any Performance Period (or such other time as may be required or permitted by Section 162(m) of the Code), the Committee shall, in writing, (i) designate one or more Covered Employees, (ii) select the Performance Criteria (including any adjustments) applicable to the Performance Period, (iii) establish the various performance targets, in terms of an objective formula or standard, and amounts of such Awards, as applicable, which may be earned for such Performance Period, and (iv) specify the relationship between Performance Criteria and the performance targets and the amounts of such Awards, as applicable, to be earned by each Covered5 Percent Holders. No Employee for such Performance Period. Following the completion of each Performance Period, the Committee shall certify in writing whether the applicable performance targets have been achieved for such Performance Period. In determining the amount earned by a Covered Employee, the Committee shall have the right to reduce (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the Performance Period. (d) Furthermore, notwithstanding any other provision of the Plan, any Award which is granted to a Covered Employee and is intended to qualify as performance-based compensation (as described in Section 162(m)(4)(C) of the Code) shall be subject to any additional limitations set forth in Section 162(m) of the Code (including any amendment to Section 162(m) of the Code) or any regulations or rulings issued thereunder that are requirements for qualification as performance-based compensation (as described in Section 162(m)(4)(C) of the Code), and the Plan shall be deemed amended to the extent necessary to conform to such requirements.
3.3Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan, the Plan, and any Award granted or awarded to any individual who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
3.4No Right to Employment or Service. Nothing in the Plan or in any Award Agreement hereunder shall confer upon any Holder any right to continue in the employ of, or as a Consultant for, the Company or any Subsidiary, or as a Director of the Company, or shall interfere with or restrict in any way the rights of the Company and any Subsidiary, which rights are hereby expressly reserved, to discharge any Holder at any time for any reason whatsoever, with or without cause, unless otherwise required by applicable law or agreement with the Holder.
3.5Foreign Laws. Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company or its Subsidiaries operate or have Employees,Non-Employee Directors or Consultants, or in order to comply with the listing standards of any foreign stock exchange on which the Company’s shares are listed or traded, the Administrator, in its discretion, shall have the power and authority to: (i) determine which Subsidiaries shall be covered by the Plan; (ii) determine which Employees,Non- Employee Directors or Consultants outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Awards to comply with applicable foreign laws or listing requirements of any such foreign stock exchange; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable;provided, however, that no such subplans and/or modifications shall increase the share limitation contained in Section 2.1 of the Plan; and (v) take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local governmental regulatory exemptions or approvals or listing requirements of any such foreign stock exchange. Notwithstanding the foregoing, the Administrator may not take any actions under this Section 3.5 that would violate the Code, any applicable federal, state or foreign securities law or governing statute or any other applicable law or that would require prior stockholder approval (until such approval was obtained).
3.6Awards in Lieu of Cash Compensation. Subject to compliance with Section 409A of the Code, Awards may be granted under the Plan to Employees and Consultants in lieu of cash bonuses which would otherwise be payable to such Employees and Consultants, and toNon- Employee Directors in lieu of directors’ fees which would otherwise be payable to suchNon- Employee Directors, pursuant to such policies which may be adopted by the Administrator from time to time.
ARTICLE IV.
GRANTING OF OPTIONS TO EMPLOYEES, CONSULTANTS AND
NON-EMPLOYEE DIRECTORS
4.1Eligibility. Each Employee, Consultant andNon-Employee Director selected by the Administrator shall be eligible towill be granted an Option.
4.2Disqualification for Stock Ownership. No person may be granted an Incentive Stock Option under the Plan if immediately after the grant, such Employee (or any other person atwhose stock would be attributed to such Employee pursuant to Section 424(d) of the time the Incentive Stock Option is granted, ownsCode) would own stock and/or hold outstanding options to purchase stock possessing five percent or more than 10% of the total combined voting power or value of all classes of stock of the Company or of any then existing Subsidiary Corporation or parent corporation (asParent Corporation. For purposes of the foregoing, the rules of Section 424(d) of the Code with regard to the attribution of stock ownership shall apply in determining the stock ownership of an individual, and stock which an Employee may purchase under outstanding options shall be treated as stock owned by the Employee.
(d) Election to Participate. An Eligible Employee may elect to participate in an Offering Period by delivering to the Company (or an Agent) a completed and executed written authorization in a form approved by the Company (the “Authorization”) within the time determined by the Company and set forth in the terms of such Offering Period. Each Participant’s Authorization shall give notice of such Participant’s election to participate in the Plan for such Offering Period (and subsequent Offering Periods) and shall designate a whole percentage of such Participant’s Compensation to be contributed by such Participant on each Payday during the Offering Period. A Participant may designate any whole percentage of Compensation that is not less than one percent and not more than a maximum percentage determined by the Committee (which maximum percentage shall be fifty percent in the absence of such determination). A Participant’s Compensation payable during an Offering Period shall be reduced each Payday through Contributions in an amount equal to the percentage specified in the Authorization, and such amount shall be credited to such Participant’s Account under the Plan. A Participant may increase or decrease the percentage of Compensation designated in the Authorization, subject to the limits of this subsection (d), or may suspend the Authorization, only as provided by the Committee with respect to such Offering Period and set forth in the terms of such Offering Period. Any Authorization shall remain in effect for each subsequent Offering Period, unless the Participant submits a new Authorization pursuant to this subsection (d), withdraws from the Plan pursuant to Section 5, ceases to be an Eligible Employee as defined in Section 424(e)1(o) or terminates employment as provided in Section 6(a). Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code) unlessCode and Sections 3(b), (c) and (e) of the Plan, the Company may reduce a Participant’s rate of Contributions to zero at such Incentive Stock Option conformstime during any Offering Period. Contributions will recommence at the rate provided by the Participant in his or her Authorization to the applicable provisionsextent such Contributions may be applied to purchase shares of Stock in accordance with Section 422423(b)(8) of the Code.Code and Sections 3(b), (c) and (e) of the Plan, unless terminated by the Participant as provided in Section 5 of the Plan. 4.3Qualification(e) Option Grants. The Company shall grant Options under the Plan to all Eligible Employees in successive Offering Periods until the earlier of: (1) the date on which the number of Incentiveshares of Stock Options. No Incentive Stock Optionavailable under the Plan have been sold, or (2) the date on which the Plan is suspended or terminates. Each Participant shall be granted an Option with respect to an Offering Period on the Date of Grant for that Offering Period. Each Option shall expire on the Date of Exercise for such Offering Period immediately after the automatic exercise of the Option in accordance with Section 4(a), unless such Option terminates earlier in accordance with Section 5, 6 or 9. The number of shares of Stock subject to a Participant’s Option shall equal the cumulative Contributions made by such Participant in accordance with subsection (d) for the Offering Period (if any), divided by the Option Price for the Option; provided, however, that the number of shares of Stock subject to such Option shall not
exceed the number determined in accordance with Section 3(b). In connection with each Offering Period made under the Plan, the Committee shall also specify a maximum number of shares of Stock that may be purchased by any Employee pursuant to such Offering Period (which maximum shall be 5,000 shares of Stock per Offering in the absence of such determination). The Company shall not grant an Option with respect to an Offering Period to any personEmployee who is not an Eligible Employee on the first day of such Offering Period. 4. Exercise of Options; Option Price. (a) Option Exercise. Each Participant automatically shall be deemed to have exercised such Participant’s Option on the Date of Exercise for an Offering Period to the extent that the balance then in the Participant’s Account is sufficient to purchase, at the Option Price for such Option, shares of the Company or a Subsidiary Corporation. 4.4Granting of Options to Employees and Consultants.
(a) The Administrator shall from time to time, in its discretion, and,Stock subject to applicable limitationsthe Option, provided, however, that any balance that is insufficient to purchase one share of the Plan:
(i) Select from among the Employees or Consultants (including Employees or Consultants who have previously received Awards under the Plan) such of them as in its opinion shouldStock shall be granted Options;
(ii) Subject to Section 2.3, determine the number of shares to be subject to such Options grantedcarried over to the selected Employees or Consultants;
(iii) Subjectnext Offering Period and shall remain credited to Section 4.3, determine whether such Options are to be Incentive Stock Options orNon-Qualified Stock Options; and
(iv) Determine the terms and conditions of such Options, which terms and conditions shall not be inconsistent with the terms of the Plan.Participant.
(b) Upon the selection of an Employee or Consultant to be granted an Option the Administrator shall instruct the Secretary of the Company to issue the Option and may impose such conditions on the grant of the Option as it deems appropriate. (c) Any Incentive Stock Option granted under the Plan may be modified by the Administrator, with the consent of the Holder, to disqualify such Option from treatment as an “incentive stock option” under Section 422 of the Code.
4.5Granting of Options toNon-Employee DirectorPrice Defined. The Administrator shall from time to time, in its discretion, and subject to applicable limitations of the Plan:
(a) Select from among theNon-Employee Directors (includingNon-Employee Directors who have previously received Awards under the Plan) such of them as in its opinion should be granted Options;
(b) Subject to Section 2.4, determine the number of shares to be subject to such Options granted to the selectedNon-Employee Directors; and
(c) Determine the terms and conditions of such Options, which terms and conditions shall not be inconsistent with the terms of the Plan.
ARTICLE V.
TERMS OF OPTIONS
5.1Option Price. Thepurchase price per share of Common Stock subject(the “Option Price”) to eachbe paid by a Participant upon the exercise of the Participant’s Option granted to Employees,Non-Employee Directors and Consultantson the Date of Exercise for an Offering Period shall be set byequal to 85% of the Administrator;provided, however,that:
(a) Such price shall not be less than 100% oflesser of: (1) the Fair Market Value of a share of Common Stock on the date the Option is granted;Date of Exercise for such Offering Period and
(b) In the case of Incentive Stock Options granted to an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary Corporation or parent corporation thereof (as defined in Section 424(e) of the Code), such price shall not be less than 110% of (2) the Fair Market Value of a share of Common Stock on the date the Option is granted (or the date the Option is modified, extended or renewedDate of Grant for purposes of Section 424(h) of the Code).
5.2Option Term. The term of an Option granted to an Employee,Non-Employee Director or Consultant shall be set by the Administrator in its discretion;provided, however,that the term shall not be more than seven (7) years from the date the Option is granted, or five (5) years from the date the Option is granted if the Option is an Incentive Stock Option granted to an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary Corporation or parent corporation thereof (as defined in Section 424(e) of the Code).
5.3Option Vesting.
(a) The period during which the right to exercise, in whole or in part, an Option vests in the Holder shall be set by the Administrator and the Administrator may determine that an Option may not be exercised in whole or in part for a specified period after it is granted. At any time after grant of an Option, the Administrator may, in its discretion and subject to whatever terms and conditions it selects, accelerate the period during which an Option vests.
(b) No portion of an Option granted to an Employee,Non-Employee Director or Consultant which is unexercisable at Termination of Service shall thereafter become exercisable, except as may be otherwise provided by the Administrator either in the Award Agreement or by action of the Administrator following the grant of the Option.such Offering Period.
(c) ToBook Entry/Share Certificates. As soon as practicable after the extent that the aggregate fair market value of stock with respect to which “incentive stock options” (within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code) are exercisable for the first time by a Holder during any calendar year under the Plan, and all other plans of the Company and any Subsidiary Corporation or parent corporation thereof (as defined in Section 424(e) of the Code) exceeds $100,000, the Options shall be treated asNon-Qualified Stock Options to the extent required by Section 422 of the Code. The rule set forth in the preceding sentence shall be applied by taking Options and other “incentive stock options” into account in the order in which they were granted. For purposes of this Section 5.3(c), the fair market value of stock shall be determined as of the time the Option or other “incentive stock options” with respect to such stock is granted.
5.4Substitute Awards. Notwithstanding the foregoing provisions of this Article V to the contrary, in the case of an Option that is granted upon the assumption of, or in substitution for, outstanding equity awards previously granted by a company or other entity in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock, the price per share of the shares subject to such Option may be less than the Fair Market Value per share on the date of grant,provided, that the excess of: (a) the aggregate Fair Market Value (as of the date such Substitute Award is granted) of the shares subject to the Substitute Award, over (b) the aggregate exercise price thereof does not exceed the excess of: (x) the aggregate fair market value (as of the time immediately preceding the transaction giving rise to the Substitute Award, such fair market value to be determined by the Administrator) of the shares of the predecessor entity that were subject to the grant assumed or substituted for by the Company, over (y) the aggregate exercise price of such shares, as determined in compliance with Section 409A of the Code.
ARTICLE VI.
EXERCISE OF OPTIONS
6.1Partial Exercise. An exercisable Option may be exercised in whole or in part. However, an Option shall not be exercisable with respect to fractional shares and the Administrator may require that, by the terms of the Option, a partial exercise be with respect to a minimum number of shares.
6.2Manner of Exercise. All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following to the Secretary of the Company, or such other person or entity designated by the Administrator, or his, her or its office, as applicable:
(a) A written notice complying with the applicable rules established by the Administrator stating that the Option, or a portion thereof, is to be exercised. Such rules may provide that for administrative convenience or compliance with applicable laws an Option may not be exercised during such period as is specified in advance by the Administrator.
(b) Such representations and documents as the Administrator, in its discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act and any other federal, state or foreign securities laws or regulations. The Administrator may, in its discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised pursuant to Section 11.1 by any person or persons other than the Holder, appropriate proof of the right of such person or persons to exercise the Option; and
(d) Full cash payment for the shares with respect to which the Option, or portion thereof, is exercised. However, the Administrator may, in its discretion, allow such payment to be made, in whole or in part, (i) through the delivery (actual or constructive through attestation)purchase of shares of Common Stock with a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; (ii) through the surrender of shares of Common Stock then issuable upon exercise of the Option having a Fair Market Value on the date of Option exercise equal to the aggregate exercise price of the Option or exercised portion thereof; (iii) through the delivery of property of any kind which constitutes good and valuable consideration; (iv) through the delivery of a notice that the Holder has placed a market sell order with a broker with respect to shares of Common Stock then issuable upon exercise of the Option, and the broker timely pays a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; or (v) through any combination of the consideration provided in the foregoing subparagraphs (i), (ii), (iii) and (iv);provided, however,that the payment in the manner prescribed in the preceding paragraphs shall not be permitted to the extent that the Administrator determines that payment in such manner shall result in an extension or maintenance of credit, an arrangement for the extension of credit, or a renewal or an extension of credit in the form of a personal loan to or for any Director or executive officer of the Company that is prohibited by Section 13(k) of the Exchange Act or other applicable law.
6.3Conditions to Issuance of Stock Certificates. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of any Option or portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges and quotation systems on which such class of stock is then listed or traded;
(b) The completion of any registration or other qualification of such shares under any local, state, federal or foreign law, or under the rulings or regulations of the Securities and Exchange Commission or any other local, state, federal or foreign governmental regulatory body which the Administrator shall, in its discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any local, state, federal or foreign governmental agency which the Administrator shall, in its discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the exercise of the Option as the Administrator may establish from time to time for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares, including payment of any applicable withholding tax, which in the discretion of the Administrator may be in any of the permissible forms of consideration specified under Section 6.2(d).
6.4Rights as Stockholders. Holders shall not be, nor have any of the rights or privileges of, stockholders of the Company in respect of any shares purchasable upon the exercise of any part of an Option unless and until certificates representing such shares have been issued by the Company to such Holders.
6.5Ownership and Transfer Restrictions. The Administrator, in its discretion, may impose such restrictions on the ownership and transferability of the shares purchasable upon the exercise of an Option as it deems appropriate. Anyby a Participant on the Date of Exercise for an Offering Period and subject to Section 17, the Company shall issue the shares of Stock to such restrictionParticipant and such shares shall be held in the custody of the Company, or if applicable, the Agent, for the benefit of the Participant. The Company or the Agent shall make an entry on its books and records indicating that the shares of Stock purchased in connection with such exercise have been duly issued as of that date to such Participant. A Participant shall have the right at any time to request in writing a certificate or certificates for all or a portion of the whole shares of Stock purchased hereunder. Following receipt of a Participant’s written request for any such certificate and subject to Section 17, the Company shall (or shall cause the Agent to) deliver any such certificate to the Participant.
(d) Pro Rata Allocations. If the total number of shares of Stock for which Options are to be exercised on any date exceeds the number of shares of Stock remaining unsold under the Plan (after deduction for all shares of Stock for which Options have theretofore been exercised), the Committee shall make a pro rata allocation of the available remaining shares of Stock in as nearly a uniform manner as shall be practicable and the balance of the amount credited to the Account of each Participant which has not been applied to the purchase of shares of Stock shall be paid to such Participant in one lump sum in cash within thirty days after the Date of Exercise, without any interest thereon. (e) Information Statement. The Company shall provide each Participant whose Option is exercised with an information statement in accordance with Section 6039(a) of the Code and the Treasury Regulations thereunder. The Company shall maintain a procedure for identifying certificates of shares of Stock sold upon the exercise of Options in accordance with Section 6039(b) of the Code. 5. Withdrawal from the Plan. (a) Withdrawal Election. A Participant may withdraw from participation in an Offering Period at any time, except as otherwise determined by Committee and set forth in the respective Award Agreement and may be referredterms of the applicable Offering. A Participant electing to onwithdraw from the certificates evidencing such shares. The Holder shall givePlan must deliver to the Company prompt(or an Agent) a notice of any dispositionwithdrawal in a form approved by the Committee (the “Withdrawal Election”), not later than five business days before the Date of shares of Common Stock acquiredExercise for such Offering Period, except as otherwise determined by exercise of an Incentive Stock Option within (a) two years fromCommittee and set forth in the date of granting (including the date the Option is modified, extended or renewed for purposes of Section 424(h)terms of the Code) such Option to such Holder,applicable Offering. Upon receipt of a Participant’s Withdrawal Election, the Company or (b) one year afterSubsidiary Corporation employing the transfer of such shares to such Holder. 6.6Additional Limitations on Exercise of Options. Holders may be required to comply with any timing or other restrictions with respectParticipant shall pay to the settlement or exercise of an Option, including a window-period limitation, as may be imposedParticipant the amount credited to the Participant’s
Account in the discretion of the Administrator. ARTICLE VII.
AWARD OF RESTRICTED STOCK
7.1Eligibilityone lump sum payment in cash, without any interest thereon (unless otherwise required by Applicable Law). Subject to Section 2.3 and, as applicable, Section 2.4, Restricted Stock may be awarded to any Employee,Non-Employee Director17, upon the Participant’s request, or Consultant whoat the Administrator determines should receive such an Award.
7.2Award of Restricted Stock.
(a) The Administrator may from time to time, in its discretion:
(i) Select from among the Employees,Non-Employee Directors or Consultants (including Employees,Non-Employee Directors or Consultants who have previously received Awards under the Plan) such of them as in its opinion should be awarded Restricted Stock;
(ii) Subject to Section 2.3, and, as applicable, Section 2.4, determine the number of shares to be subject to such Restricted Stock awards granted to the selected Employees,Non-Employee Directors or Consultants; and
(iii) Determine the terms and conditions applicable to such Restricted Stock, which terms and conditions shall not be inconsistent with the terms of the Plan.
(b) The Administrator shall establish the purchase price, if any, and form of payment for Restricted Stock;provided, however, that such purchase price shall be no less than the par value of the Common Stock to be purchased, unless otherwise permitted by applicable law. In all cases, legal consideration shall be required for each issuance of Restricted Stock.
(c) Upon the selection of an Employee,Non-Employee Director or Consultant to be awarded Restricted Stock, the Administrator shall instruct the Secretaryelection of the Company, following such withdrawal the Company shall (or shall cause the Agent to) deliver to issue such Restrictedthe Participant certificates for any whole shares of Stock and may impose such conditions on the issuance of such Restricted Stock as it deems appropriate.
7.3Rights as Stockholders. Subject to Section 7.4, the Holder shall have, unless otherwise providedpreviously purchased by the Administrator, all the rightsParticipant and credited to Participant through book entry under Section 4(c), as promptly as practicable following such Participant’s withdrawal. Upon receipt of a stockholderParticipant’s Withdrawal Election by the Company (or an Agent), the Participant shall cease to participate in the Plan and the Participant’s Option for such Offering Period shall terminate.
(b) Eligibility following Withdrawal. A Participant who withdraws from the Plan with respect to said shares, subjectan Offering Period, and who is still an Eligible Employee, may elect to participate again in the Plan for any subsequent Offering Period by delivering to the restrictions in his or her Award Agreement, includingCompany (or an Agent) an Authorization pursuant to Section 3(d). 6. Termination of Employment. (a) General. If the right to receive all dividends and other distributions paid or made with respect to the shares;provided, however,that, in the discretionemployment of the Administrator, any extraordinary distributions with respect to the Common Stock shall be subject to the restrictions set forth in Section 7.4. Notwithstanding anything herein to the contrary, any dividends payable in connection with an Award of Restricted Stock shall be credited or accumulated as determined by the Administrator while the Award remains unvested, but payment shall not be made unless and until the underlying Award vests, and any such dividends shall therefore be subject to the same risk of forfeiture as the underlying Award. 7.4Restriction. All shares of Restricted Stock issued under the Plan (including any shares received by Holders thereof with respect to shares of Restricted Stock as a result of stock dividends, stock splits or any other form of recapitalization) shall, in the terms of each individual Award Agreement, be subject to such restrictions as the Administrator shall provide, which restrictions may include, without limitation, restrictions concerning voting rights and transferability and restrictions based on duration of employment, directorship or consultancyParticipant with the Company or a Designated Subsidiary Company performance and individual performance;provided, however,terminates for any reason, other than by action taken after the Restricted Stock is issued, the Administrator may, on such terms and conditions as it may determine to be appropriate, remove any or allreason of the restrictions imposed byParticipant’s death, the terms of the Award Agreement. Restricted Stock may not be sold or encumbered until all restrictions are terminated or expire. If no purchase price was paid by the Holder upon issuance, a Holder’s rights in unvested Restricted Stock shall lapse, and such Restricted Stock shall be surrendered to the Company without consideration, upon Termination of Service;provided, however,that the Administrator in its discretion may provide that such rights shall not lapseParticipant’s participation in the event of a Termination of Service following a Change in Control or because of the Holder’s retirement, death or disability or termination without cause, or otherwise.
7.5Repurchase of Restricted Stock. The AdministratorPlan automatically shall provide in the terms of each individual Award Agreement that the Company shall have the right to repurchase from the Holder the Restricted Stock then subject to restrictions under the Award Agreement immediately upon a Termination of Service at a cash price per share equal to the price paid by the Holder for such Restricted Stock;provided, however,that the Administrator in its discretion may provide that such rights shall not lapse in the event of a Termination of Service following a Change in Control or because of the Holder’s retirement, death or disability or termination without cause, or otherwise.
7.6Escrow. The Secretary of the Company or such other escrow holder as the Administrator may appoint shall retain physical custody of any certificate representing Restricted Stock until all of the restrictions imposed under the Award Agreement with respect to the shares evidenced by such certificate expire or shall have been removed.
7.7Certificates for Restricted Stock. Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Administrator shall determine. Certificates or book entries evidencing shares of Restricted Stock must include an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock.
7.8Legend. In order to enforce the restrictions imposed upon shares of Restricted Stock hereunder, the Administrator shall cause certificates or book entries evidencing shares of Restricted Stock to include one or more legends or notations referring to the terms, conditions, and restrictions applicable to such Restricted Stock.
7.9Section 83(b) Election. If a Holder makes an election under Section 83(b) of the Code, or any successor section thereto, to be taxed with respect to the Restricted Stockterminate as of the date of transferthe termination of the Restricted Stock rather thanParticipant’s employment, unless otherwise required by Applicable Law. In the event of a Participant’s death, the Option may be exercised by the Participant’s estate if the Option is transferred by will or the laws of descent and distribution, in accordance with Section 7, and after such exercise, the Participant’s participation in the Plan shall terminate. If the Participant’s Option is not transferred to the Participant’s estate by will or the laws of descent and distribution, then Participant’s participation in the Plan shall terminate as of the date or dates upon whichof Participant’s death. As soon as practicable after the Holder would otherwise be taxable under Section 83(a)termination of the Code,Participant’s participation in the HolderPlan, the Company or Designated Subsidiary employing the Participant shall deliver a copy of such electionpay to the Participant (or the Participant’s estate, if applicable) the amount credited to the Participant’s Account in one lump sum payment in cash, if applicable, without any interest thereon (unless otherwise required by Applicable Law), and subject to Section 17, the Company immediately after filing such election withshall (or shall cause the Internal Revenue Service.
Agent to) deliver to the Participant (or the Participant’s estate, if applicable) certificates for any whole shares of Stock purchased by the Participant, if applicable. On a Participant’s termination of employment or death covered by this subsection, the Participant’s Authorization and Option under the Plan shall terminate.ARTICLE VIII.
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS, DEFERRED STOCK, STOCK PAYMENTS, RESTRICTED STOCK UNITS
8.1Eligibility(b) Leave of Absence. Subject to Section 2.3,the discretion of the Committee, if a Participant is granted a paid leave of absence, payroll deductions on behalf of the Participant will continue and as applicable, Section 2.4, one or more Performance Awards, Dividend Equivalent awards, Deferred Stock awards, Stock Payment awards, and/or Restricted Stock Unit awardsany amounts credited to the Participant’s Account may be used to purchase shares of Stock as provided under the Plan. If a Participant is granted to any Employee, Non-Employee Director or Consultant whom the Administrator determines should receive such an Award.
8.2Performance Awards.
(a) Any Employee,Non-Employee Director or Consultant selected by the Administrator may be granted one or more Performance Awards. The valueunpaid leave of such Performance Awards may be linked to any one or moreabsence, payroll deductions on behalf of the Performance Criteria orParticipant will be discontinued and no other specific performance criteria determined appropriate by the Administrator, in each case on a specified date or dates or over any period or periodsContributions will be permitted (unless otherwise determined by the Administrator. In making such determinations,Committee or required by Applicable Law), but any amounts then credited to the Administrator shall consider (among such other factors as it deems relevantParticipant’s Account may be used to purchase shares of Stock on the next applicable Date of Exercise. Notwithstanding anything in lightthis subsection (b) to the contrary, where a Participant’s period of leave exceeds three months and the Participant’s right to reemployment is not guaranteed by statute or by contract, for purposes of the specific typePlan, the Participant’s employment relationship will be deemed to have terminated three months and one day following the commencement of award) the contributions, responsibilities and other compensationsuch leave.
(c) Transfer of the particular Employee,Non-Employee Director or Consultant. (b) Without limiting Section 8.2(a), the Administrator may grant Performance Awards to any Covered Employee in the form of a cash bonus payable upon the attainment of objective Performance Goals which are established by the Administrator, in each case on a specified date or dates or over any period or periodsEmployment. Unless otherwise determined by the Administrator. Any such bonuses paid to Covered Employees shall be based upon objectively determinable bonus formulas establishedCommittee, a Participant whose employment transfers or whose employment terminates with an immediate rehire (with no break in accordance with the provisions of Section 3.2. The maximum aggregate amount that can be earned under all Performance Awards denominated in cash and granted to a Covered Employee under this Section 8.2(b) during any calendar year shall not exceed the Award Limit.
8.3Dividend Equivalents. Any Employee,Non-Employee Directorservice) by or Consultant selected by the Administrator may be granted Dividend Equivalents based on the dividends declared on Common Stock, to be credited as of dividend payment dates, during the period between the dateCompany or a Full Value Award is granted andDesignated Subsidiary will not be treated as having terminated employment for purposes of participating in the datePlan or an Offering; however, if a Participant transfers from a Section 423 Offering to aNon-423 Offering, the Full Value Award vests, is exercised, is distributed or expires, as determined byexercise of the Administrator. Dividend Equivalents shallParticipant’s Option will be converted to cash or additional shares of Common Stock by a formula, at a time, and subject toqualified under the limitations the Administrator may determine. In addition, dividends or Dividend Equivalents with respect to a Full Value Award with performance or service-based vesting shallSection 423 Offering only be paid out to the Holder to the extent that the vesting conditions are satisfied and the Full Value Award vests. Notwithstanding the foregoing, in no event shall Dividend Equivalents be payable with respect to Options or Stock Appreciation Rights.
8.4Stock Payments. Any Employee,Non-Employee Director or Consultant selected by the Administrator may receive Stock Payments in the manner determined from time to time by the Administrator. The number of shares shall be determined by the Administrator and may be based upon the Performance Criteria or other specific performance criteria determined appropriate by the Administrator, determined on the date such Stock Payment is made or on any date thereafter.
8.5Deferred Stock. Any Employee,Non-Employee Director or Consultant selected by the Administrator may be granted an award of Deferred Stock in the manner determined from time to time by the Administrator. The number of shares of Deferred Stock shall be determined by the Administrator and may be linked to the satisfaction of one or more Performance Goals or other specific performance goals as the Administrator determines to be appropriate at the time of grant, in each case on a specified date or dates or over any period or periods determined by the Administrator. Common Stock underlying a Deferred Stock award will not be issued until the Deferred Stock award has vested, pursuant to a vesting schedule or performance criteria set by the Administrator. Unless otherwise provided by the Administrator, a Holder of Deferred Stock shall have no rights as a Company stockholder with respect to such Deferred Stock until such time as the Award has vested and the Common Stock underlying the Award has been issued.
8.6Restricted Stock Units. Any Employee,Non-Employee Director or Consultant selected by the Administrator may be granted an award of Restricted Stock Units in the manner determined from time to time by the Administrator. The Administrator is authorized to make awards of Restricted Stock Units in such amounts and subject to such terms and conditions as determined by the Administrator. The Administrator shall specify the date or dates on which the Restricted Stock Units shall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate, and may specify that such Restricted Stock Units become fully vested and nonforfeitable pursuant to the satisfaction of one or more Performance Goals or other specific performance goals as the Administrator determines to
be appropriate at the time of the grant, in each case on a specified date or dates or over any period or periods determined by the Administrator. The Administrator shall specify the distribution dates applicable to each award of Restricted Stock Units which shall be no earlier than the vesting dates or events of the award and may be determined at the election of the Employee,Non-Employee Director or Consultant, subject to complianceexercise complies with Section 409A423 of the Code. On the distribution dates, the Company shall issueIf a Participant transfers from aNon-423 Offering to the Holder one unrestricted, fully transferable share of Common Stock for each Restricted Stock Unit distributed.
8.7Term. The term of a Performance Award, Dividend Equivalent award, Deferred Stock award, Stock Payment award and/or Restricted Stock Unit award shall be set by the Administrator in its discretion.
8.8Exercise or Purchase Price. The Administrator may establishSection 423 Offering, the exercise or purchase price of a Performance Award, shares of Deferred Stock, shares distributed as a Stock Payment award or shares distributed pursuant to a Restricted Stock Unit award;provided, however,that such pricethe Participant’s Option will remainnon-qualified under theNon-423 Offering.
7. Restriction upon Assignment. An Option granted under the Plan shall not be less than the par value of a share of Common Stock, unless otherwise permitted by applicable state law. 8.9Exercise upon Termination of Service. A Performance Award, Dividend Equivalent award, Deferred Stock award, Stock Payment award and/or Restricted Stock Unit award is exercisable or distributable only while the Holder is an Employee, Consultant orNon- Employee Director, as applicable;provided, however, that the Administrator in its discretion may provide that the Performance Award, Dividend Equivalent award, Deferred Stock award, Stock Payment award and/or Restricted Stock Unit award may be exercised or distributed subsequent to a Termination of Service following a “change of control or ownership” (within the meaning ofSection 1.162-27(e)(2)(v) or any successor regulation thereto) of the Company; and,provided, further,that, except with respect to Awards granted to Covered Employees, the Administrator in its discretion may provide that Performance Awards, Dividend Equivalent awards, Deferred Stock awards, Stock Payment awards and/or Restricted Stock Unit awards may be exercised or paid following a Termination of Service or following a Change in Control, or because of the Holder’s retirement, death or disability, or otherwise, including in accordance with a deferral election.
8.10Form of Payment. Payment of the amount determined under Section 8.2, 8.3 or 8.6 above shall be in cash, in Common Stock or a combination of both, as determined by the Administrator. To the extent any payment under this Article VIII is effected in Common Stock, it shall be made subject to satisfaction of all provisions of Section 6.3.
ARTICLE IX.
STOCK APPRECIATION RIGHTS
9.1Grant of Stock Appreciation Rights. A Stock Appreciation Right may be granted to any Employee,Non-Employee Director or Consultant selected by the Administrator. A Stock Appreciation Right may be granted: (a) in connection and simultaneously with the grant of an Option, or (b) independent of an Option. A Stock Appreciation Right shall be subject to such terms and conditions not inconsistent with the Plan as the Administrator shall impose and shall be evidenced by an Award Agreement.
9.2Coupled Stock Appreciation Rights.
(a) A Coupled Stock Appreciation Right (“CSAR”) shall be related to a particular Option and shall be exercisable only when and to the extent the related Option is exercisable.
(b) A CSAR may be granted to the Holder for no more than the number of shares subject to the simultaneously granted Option to which it is coupled.
(c) A CSAR shall entitle the Holder (or other person entitled to exercise the Option pursuant to the Plan) to surrender to the Company unexercised a portion of the Option to which the CSAR relates (to the extent then exercisable pursuant to its terms) and to receive from the Company in exchange therefore an amount determined by multiplying (i) the difference obtained by subtracting the exercise price per share of the CSAR from (ii) the Fair Market Value of a share of Common Stock on the date of exercise of the CSAR by the number of shares of Common Stock with respect to which the CSAR shall have been exercised, subject to any limitations the Administrator may impose.
9.3Independent Stock Appreciation Rights.
(a) An Independent Stock Appreciation Right (“ISAR”) shall be unrelated to any Option and shall have a term set by the Administrator but in no event longer than seven (7) years following the grant date. An ISAR shall
be exercisable in such installments as the Administrator may determine. An ISAR shall cover such number of shares of Common Stock as the Administrator may determine. The exercise price per share of Common Stock subject to each ISAR shall be set by the Administrator;providedthat such exercise price per share shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date the ISAR is granted. An ISAR is exercisable only while the Holder is an Employee,Non-Employee Director or Consultant;provided,that the Administrator may determine that the ISAR may be exercised subsequent to Termination of Service or following a Change in Control, or because of the Holder’s retirement, death or disability, or otherwise.
(b) An ISAR shall entitle the Holder (or other person entitled to exercise the ISAR pursuant to the Plan) to exercise all or a specified portion of the ISAR (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount determined by multiplying (i) the difference obtained by subtracting the exercise price per share of the ISAR from the Fair Market Value of a share of Common Stock on the date of exercise of the ISAR by (ii) the number of shares of Common Stock with respect to which the ISAR shall have been exercised, subject to any limitations the Administrator may impose.
9.4Payment and Limitations on Exercise.
(a) Payment of the amounts determined under Section 9.2(c) and 9.3(b) above shall be in cash, shares of Common Stock (based on its Fair Market Value as of the date the Stock Appreciation Right is exercised), or a combination of both, as determined by the Administrator. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock issuable upon the exercise of any Stock Appreciation Right prior to fulfillment of the conditions set forth in Section 6.3 above.
(b) Holders of Stock Appreciation Rights may be required to comply with any timing or other restrictions with respect to the settlement or exercise of a Stock Appreciation Right, including a window-period limitation, as may be imposed in the discretion of the Administrator.
ARTICLE X.
ADMINISTRATION
10.1Compensation Committee. The Compensation Committee (or another committee or a subcommittee of the Board assuming the functions of the Committee under the Plan) shall consist solely of two or moreNon-Employee Directors appointed by and holding office at the pleasure of the Board, each of whom is intended to qualify as both a“non-employee director” as defined by Rule16b-3 and an “outside director” for purposes of Section 162(m) of the Code. Appointment of Committee members shall be effective upon acceptance of appointment. Committee members may resign at any time by delivering written notice to the Board. Vacancies in the Committee may be filled by the Board.
10.2Duties and Powers of Committee. It shall be the duty of the Committee to conduct the general administration of the Plan in accordance with its provisions. The Committee shall have the power to interpret the Plan and the Award Agreements, and to adopt such rules for the administration, interpretation and application of the Plan as are not inconsistent therewith, to interpret, amend or revoke any such rules, to delegate authority in accordance with Section 10.5, and to amend any Award Agreement provided that the rights or obligations of the Holder of the Award that is the subject of any such Award Agreement are not affected adversely. Any such grant or award under the Plan need not be the same with respect to each Holder. Any such interpretations and rules with respect to Incentive Stock Options shall not be inconsistent with the provisions of Section 422 of the Code. In its discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan except with respect to matters which under Rule16b-3 or Section 162(m) of the Code, or any regulations or rules issued thereunder, are required to be determined in the discretion of the Committee. Notwithstanding the foregoing, the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to Awards granted toNon-Employee Directors.
10.3Majority Rule; Unanimous Written Consent. The Committee shall act by a majority of its members in attendance at a meeting at which a quorum is present or by a memorandum or other written instrument signed by all members of the Committee.
10.4Compensation; Professional Assistance; Good Faith Actions. Members of the Committee shall receive such compensation, if any, for their services as members as may be determined by the Board. All expenses and liabilities which members of the Committee incur in connection with the administration of the Plan shall be borne by the Company. The Committee may employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Committee, the Company and the Company’s officers and Directors shall be entitled to rely upon the advice, opinions or valuations of
any such persons. All actions taken and all interpretations and determinations made by the Committee or the Board in good faith shall be final and binding upon all Holders, the Company and all other interested persons. No members of the Committee or Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or Awards, and all members of the Committee and the Board shall be fully protected by the Company in respect of any such action, determination or interpretation.
10.5Delegation of Authority to Grant Awards.
(a) The Board or Committee may, but need not, delegate from time to time some or all of its authority to grant Awards under the Plan to one or more committees consisting of one or more members of the Board or Committee, respectively, subject to Section 10.5(c).
(b) The Board also may, but need not, delegate from time to time some or all of its authority to grant rights or Options under the Plan to one or more committees consisting of one or more officers of the Company, subject to Section 10.5(c) and compliance with applicable law.
(c) Notwithstanding anything to the contrary in this Section 10.5, the authority to grant Awards to the following individuals may not be delegated: (i) individuals who are subject on the date of the grant to the reporting rules under Section 16(a) of the Exchange Act, (ii) individuals who are Covered Employees, and (iii) individuals who are officers of the Company who are delegated authority by the Committee hereunder.
(d) Any delegation pursuant to this Section 10.5 shall be subject to the restrictions and limits that the Board or Committee specifies at the time of such delegation of authority and may be rescinded at any time by the Board or Committee authorizing such delegation. At all times, any committee appointed under this Section 10.5 shall serve in such capacity at the pleasure of the Board or Committee appointing such committee.
ARTICLE XI.
MISCELLANEOUS PROVISIONS
11.1Transferability of Awards.
(a) Except as otherwise provided in Section 11.1(b):
(i) No Award under the Plan may be sold, pledged, assigned or transferred in any mannertransferable, other than by will or the laws of descent and distribution, and is exercisable during the Participant’s lifetime only by the Participant. Other than the transfer of an Option by will or subjectthe laws or descent and distribution, the Company shall not recognize and shall be under no duty to the consentrecognize any assignment or alienation of the Administrator, pursuant to a DRO, unless and until such Award has been exercised, orParticipant’s interest in the shares underlying such Award have been issued, and all restrictions applicable to such shares have lapsed;
(ii) No Award or interest or right therein shall be liable forPlan, the debts, contracts or engagements of the Holder or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, hypothecation, encumbrance, assignmentParticipant’s Option or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence; and
(iii) During the lifetime of the Holder, only the Holder may exercise an Option or other Award (or any portion thereof) granted to himrights under the Plan, unless it has been disposedParticipant’s Option. But, in the event of pursuant to a DRO; after the death of a Participant, the Holder, any exercisable portionCompany may recognize the transfers of an Option or other Award may, prior to the time when such portion becomes unexercisablegranted under the Plan or the applicable Award Agreement, be exercised by his personal representative or by any person empoweredright to do so under the deceased Holder’s will or under the then applicable laws of descent and distribution.
(b) Notwithstanding Section 11.1(a), the Administrator, in its discretion, may determine to permit a Holder to transfer aNon-Qualified Stock Option to any one or more Permitted Transferees (as defined below), subjectapply pursuant to the following terms and conditions: (i)operation of aNon-Qualified Stock Option transferred to a Permitted Transferee shall not be assignable or transferable by the Permitted Transferee other than by will or the laws of descent and distribution; (ii) anyNon-Qualifiedor distribution.
8. No Rights of Stockholders until Shares Issued. With respect to shares of Stock subject to an Option, which is transferred to a Permitted TransfereeParticipant shall continuenot be deemed to be subject to all the terms and conditions of theNon-Qualified Stock Option as applicable to the original Holder (other than the ability to further transfer theNon-Qualified Stock Option); and (iii) the Holder and the Permitted Transferee shall execute any and all documents requested by the Administrator, including, without limitation documents to (A) confirm the status of the transferee as a Permitted Transferee, (B) satisfy any requirements for an exemption for the transfer under applicable federal, state and foreign securities laws and (C) evidence the transfer. For purposes of this Section 11.1(b), “Permitted Transferee” shall mean, with respect to a Holder, any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,mother-in-law,father-in-law,son-in-law,daughter-in-law,brother-in-law, orsister-in-law, including adoptive relationships, any person sharing the Holder’s household (other than a tenant or employee), a trust in which these persons (or the Holder) control the management of assets, and any other entity in which these persons (or the Holder) own more than fifty percent of the voting interests, after taking into account any federal, state, local and foreign tax and securities laws applicable to transferable Non-Qualified Stock Options.
11.2Amendment, Suspension or Termination of the Plan. Except as otherwise provided in this Section 11.2, the Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board or the Compensation Committee of the Board. However, without approval of the Company’s stockholders given within twelve (12) months before or after the action by the Board or the Compensation Committee of the Board, no action of the Board or the Compensation Committee of the Board may, except as provided in Section 11.3, (i) increase the limits imposed in Section 2.1 on the maximum number of shares which may be issued under the Plan, (ii) take any action in violation of Section 11.6 to decrease the exercise price of any outstanding Option or Stock Appreciation Right granted under the Plan, or (iii) result in a material change in eligibility requirements. Except as provided in Section 11.11, no amendment, suspension or termination of the Plan shall, without the consent of the Holder, adversely alter or impair any rights or obligations under any Award theretofore granted or awarded, unless the Award itself otherwise expressly so provides. No Awards may be granted or awarded during any period of suspension or after termination of the Plan, and in no event may any Award be granted under the Plan after September 11, 2027.
11.3Changes in Common Stock or Assets of the Company, Acquisition or Liquidationstockholder of the Company, and Otherthe Participant shall not have any of the rights or privileges of a stockholder, until such shares have been issued to the Participant following exercise of the Participant’s Option. No adjustments shall be made for dividends (ordinary or extraordinary, whether in cash securities, or other property) or distribution or other rights for which the record date occurs before the date of such issuance, except as otherwise expressly provided herein or by the Committee.
9. Changes in the Stock and Corporate EventsEvents; Adjustment of Options. (a) Subject to Section 11.3(e)9(c), in the event ofthat the Committee, in its sole discretion, determines that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation,split-up,spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, affects the AdministratorStock such that an adjustment is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an Option, then the Committee shall, make proportionate adjustments toin such manner as it may deem equitable, adjust any or all of: (i) The(1) the number and kind of shares of Common Stock (or other securities or property) with respect to which AwardsOptions may be granted or awarded (including, without limitation,but not limited to, adjustments of the limitations in Section 2.12 and Section 3(e) on the maximum number of shares of Stock which may be purchased under the Plan or in an Offering Period),
(2) the number and kind of shares which may be issued under the Plan, adjustments of the Award Limit, and adjustments of the manner in which shares subject to Full Value Awards will be counted); (ii) The number and kind of shares of Common Stock (or other securities or property) subject to outstanding Awards;Options, and
(iii) The grant or exercise price(3) the Option Price with respect to any Award.Option.
(b) Subject to Sections 11.3(c) and 11.3(e)Section 9(c), in the event of any transaction or event described in Section 11.3(a)9(a) or any unusual or nonrecurring transactions or events affecting the Company, any affiliateSubsidiary of the Company, or the financial statements of the Company or any affiliate,Subsidiary, or of changes in applicable laws,Applicable Laws, regulations, or accounting principles, the Administrator,Committee, in its sole discretion, and on such terms and conditions as it deems appropriate, either by the terms of the AwardOption or by action taken prior tobefore the occurrence of such transaction or event and either automatically or upon the Holder’sParticipant’s request, is hereby authorized to take any one or more of the following actions whenever the AdministratorCommittee determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any AwardOption under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles: (i)(1) To provide that all Options outstanding shall terminate without being exercised on such date as the Committee determines in its sole discretion;
(2) To provide that all Options outstanding shall be exercised before the Date of Exercise of such Options on such date as the Committee determines in its sole discretion and such Options shall terminate immediately after such exercises; (3) To provide for either the purchase of any such AwardOption outstanding for an amount of cash equal to the amount that could have been attainedobtained upon the exercise of such Award or realization of the Holder’s rightsOption had such AwardOption been currently exercisable or payable or fully vestedand shares issued thereunder sold, or the replacement of such AwardOption with other rights or property selected by the AdministratorCommittee in its sole discretion; (ii) To provide that the Award cannot vest, be exercised or become payable after such event;
(iii)(4) To provide that such Award shall be exercisable as to all shares covered thereby, notwithstanding anything to the contrary in Section 5.3 or the provisions of such Award;
(iv) To provide that such AwardOption be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; and
(v)(5) To make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding Awards, and/Options, or in the terms and conditions of (including the grant, exerciseoutstanding Options, or purchase price), and the criteria included in, outstanding options, rights and awards and options, rights and awardsOptions which may be granted in the future; and
(vi) To provide that, for a specified period of time prior to such event, the restrictions imposed under an Award Agreement upon some or all shares of Restricted Stock, Restricted Stock Units or Deferred Stock may be terminated, and, in the case of Restricted Stock, some or all shares of such Restricted Stock may cease to be subject to repurchase under Section 7.5 or forfeiture under Section 7.4 after such event.future.
(c) Notwithstanding any other provision of the Plan, in the event of a Change in Control, each outstanding Award shall be assumed or an equivalent Award substituted by the successor corporation or a parent or subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Award, the Administrator may cause any or all of such Awards to become fully exercisable immediately prior to the consummation of such transaction and all forfeiture restrictions on any or all of such Awards to lapse. If an Award is exercisable in lieu of assumption or substitution in the event of a Change in Control, the Administrator shall notify the Holder that the Award shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Award shall terminate upon the expiration of such period. For the purposes of this Section 11.3(c), an Award shall be considered assumed if, following the Change in Control, the Award confers the right to purchase or receive, for each share of Common Stock subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, or other securities or property) received in the Change in Control by holders of Common Stock for each share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares);provided, however,that if such consideration received in the Change in Control was not solely common stock of the successor corporation or its parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Award, for each share of Common Stock subject to an Award, to be solely common stock of the successor corporation or its parent equal in fair market value to the per share consideration received by holders of Common Stock in the Change in Control. (d) Subject to Sections 11.3(e) and 3.2, the Administrator may, in its discretion, include such further provisions and limitations in any Award, agreement or certificate, as it may deem equitable and in the best interests of the Company.
(e) With respect to Awards which are granted to Covered Employees and are intended to qualify as performance-based compensation under Section 162(m)(4)(C), no adjustment or action described in this Section 11.3 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause such Award to fail to so qualify under Section 162(m)(4)(C), or any successor provisions thereto, except as otherwise determined by the Committee. No adjustment or action described in this Section 11.39 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to violatefail to satisfy the requirements of Section 422(b)(1)423 of the Code. Furthermore, no such adjustment or action shall be authorized to the extent such adjustment or action would result in short-swing profits liability under Section 16 of the Exchange Act, or violate the exemptive conditions of Rule I16b-36b-3 unless the AdministratorCommittee determines that the AwardOption is not to comply with such exemptive conditions. The number of shares of Common Stock subject to any Award shall always be rounded down to the next whole number.
(f)(d) The existence of the Plan the Award Agreement and the AwardsOptions granted hereunder shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the
rights thereof orof which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the company,Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. (g)10. Use of Funds; No actionInterest Paid.
All funds received or held by the Company under the Plan shall be takenincluded in the general funds of the Company free of any trust or other restriction and may be used for any corporate purpose, unless otherwise required by Applicable Law. No interest will be paid to any Participant or credited to any Participant’s Account with respect to such funds, unless otherwise required by Applicable Law. 11. Amendment, Suspension or Termination of the Plan. (a) The Board or the Committee may amend, suspend, or terminate the Plan at any time and from time to time, provided that approval by the Company’s stockholders shall be required to amend the Plan: (1) to increase (other than an increase pursuant to Section 9(a)) the number of shares of Stock that may be sold pursuant to Options under thisthe Plan, or (2) in any manner that would cause the Plan to no longer be an “employee stock purchase plan” within the meaning of Section 11.3423(b) of the Code for purposes of Section 423 Offerings hereunder. Without stockholder consent and without regard to whether any Participant rights may be considered to have been “adversely affected,” the Board or the Committee, as applicable, shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Stock for each Participant properly correspond with amounts contributed by the Participant, and establish such other limitations or procedures as the Board or the Committee, as applicable, determines in its sole discretion advisable which are consistent with the Plan and Section 423 of the Code. (b) In the event the Board or the Committee, as applicable, determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board or the Committee, as applicable, may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to: (1) altering, but not reducing, the Option Price for any Offering Period including an Offering Period underway at the time of the change in Offering Price; (2) shortening any Offering Period so that the Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of such action; and (3) allocating shares. Such modifications or amendments shall not require stockholder approval or the consent of any Plan participants. 12. Administration by Committee; Rules and Regulations. (a) Appointment of Committee. The Plan shall be administered by the Committee, which shall causebe composed of members of the Board. Each member of the Committee shall serve for a term commencing on a date specified by the Board and continuing until the member dies, resigns or is removed from office by the Board. The Committee at its option may utilize the services of an AwardAgent and/or employees of the Company to failassist in the administration of the Plan, including establishing and maintaining an individual securities account under the Plan for each Participant. (b) Duties and Powers of Committee. It shall be the duty of the Committee to conduct the general administration of the Plan in accordance with the provisions of the Plan. The Committee shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1) To determine when and how Options shall be granted and the provisions and terms of each Offering Period (which need not be identical), (2) To select Designated Subsidiaries in accordance with Section 13. (3) To construe and interpret the Plan and the terms of the Options and to adopt such rules for the administration, interpretation, and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. The Committee, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effect, subject to Section 423 of the Code and the regulations promulgated thereunder. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan. (c) Non U.S.Sub-Plans. The Committee may adopt rules, procedures, agreements, appendices, orsub-plans (collectively,“Sub-Plans”) applicable to particular Designated Subsidiaries or locations relating to the operation and administration of the Plan to accommodate the specific requirements of local laws, customs and procedures for jurisdictions outside of the United States. The rules of suchSub-Plans may take precedence over other provisions of this Plan, with the exception of Section 2 above, but unless otherwise superseded by the terms of suchSub-Plan, the provisions of this Plan shall govern the operation of suchSub-Plan. To the extent inconsistent with the requirements of Section 423 of the Code, any suchSub-Plan will be considered part of aNon-423 Offering, and Options granted thereunder will not be required by the terms of the Plan to comply with Section 409A423 of the Code orCode. Without limiting the Treasury Regulations thereunder,generality of the foregoing, the Committee may adoptSub-Plans relating to the extentoperation and administration of the Plan to accommodate the specific requirements of Applicable Laws, customs and procedures regarding (i) eligibility to participate, (ii) the definition of Compensation, (iii) the dates and duration of Offering Periods or other periods during which Participants may make Contributions towards the purchase of shares of Stock, (iv) the method of determining the Option Price and the discount from Fair Market Value at which shares of Stock may be purchased, (v) any minimum or maximum amount of Contributions a Participant may make in an Offering Period or other specified period under any applicableSub-Plan, (vi) the handling of payroll deductions, (vii) establishment of bank, building society or trust accounts to such Award.hold Contributions, (viii) payment of interest, (ix) conversion of local currency, (x) obligations to pay payroll tax, (xi) determination of beneficiary designation requirements, (xii) withholding procedures and (xiii) handling of share issuances. (h) In(d) Compensation; Professional Assistance; Good Faith Actions. All expenses and liabilities incurred by members of the Committee in connection with the occurrenceadministration of the Plan shall be borne by the Company. The Committee may employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Committee, the Company and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any Equity Restructuring (as defined below),such persons. All actions taken and notwithstanding anything toall interpretations and determinations made by the contraryCommittee in Sections 11.3(a) and 11.3(b): (i) the number and type of securities subject to each outstanding Award and the exercise price or grant price thereof, if applicable, shall be equitably adjusted; and/or (ii) the Administrator shall make equitable adjustments, if any, as the Administrator, in its sole discretion, may deem appropriate to reflect an Equity Restructuring with respect to the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Article II on the maximum number and kind of shares which may be issued under the Plan, and adjustments of the Award Limit, and adjustments of the manner in which shares subject to Full Value Awards will be counted). The adjustments provided under this Section 11.3(h) shall be nondiscretionary andgood faith shall be final and binding onupon all Participants, the affected HolderCompany and all other interested persons. No member of the Company.Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Options, and all members of the Committee shall be fully protected by the Company in respect to any such action, determination, or interpretation.
(e) Delegation of Authority. To the extent not prohibited by Applicable Law, the Committee may, from time to time, delegate some or all of its authority under the Plan to a subcommittee or subcommittees of the Committee, officers of the Company or other persons or groups of persons as it deems necessary, appropriate or advisable under conditions or limitations that it may set at or after the time of the delegation. For purposes of thisthe Plan, “Equity Restructuring” shall mean shall mean a nonreciprocal transaction betweenreference to the Committee will be deemed to refer to any subcommittee, subcommittees, officers of the Company and its shareholders, suchor other persons or groups of persons to whom the Committee delegates authority pursuant to this Section 12(e). 13. Designation of Subsidiary Corporations. The Board or the Committee shall designate from among the Subsidiary Corporations, as determined from time to time, the Subsidiary Corporation or Subsidiary Corporations whose Employees shall be eligible to be granted Options in either a share dividend, share split,Section 423 Offering orspin-off,Non-423 rights offeringOffering under the Plan. The Board or recapitalization throughthe Committee may designate a large, nonrecurring cash dividend, that affectsSubsidiary Corporation, or terminate the number or kinddesignation of shares (or other securitiesa Subsidiary Corporation, without the approval of the Company)stockholders of the Company. The Board or the share priceCommittee may also terminate participation of Common Stock (or other securities) and causes a changean Affiliate in theper-share value Plan, provided, however, that if such termination of an Affiliate would cause the Plan or an Offering made under the Plan to violate Section 423 of the Common Stock underlying outstanding Awards.Code, the termination may be made only if the Affiliate participates in aNon-423 Offering under the Plan. 11.4Approval14. No Rights as an Employee.
Nothing in the Plan shall be construed to give any person (including any Participant) the right to remain in the employ of Planthe Company, a Parent Corporation, a Subsidiary Corporation or an Affiliate or to affect the right of the Company, any Parent Corporation, any Subsidiary Corporation or any Affiliate to terminate the employment of any person (including any Participant) at any time, with or without cause, which right is expressly reserved. 15. Term; Approval by Stockholders. Subject to approval by the stockholders of the Company in accordance with this Section, the Plan shall be in effect until November 15, 2028, unless sooner terminated in accordance with Section 11. No Option may be granted during any period of suspension of the Plan or after termination of the Plan. The Plan willshall be submitted for the approval of the Company’s stockholders within twelve (12) months after the date of the Board’s adoption of the ResMed Inc. 2009 Incentive Award Plan as Amended and Restated. In addition, ifby the Board determines that Awards other thanBoard. Options or Stock Appreciation Rights which may be granted to Covered Employees should continue tobefore such stockholder approval; provided, however, that such Options shall not be eligible to qualify as performance-based compensation under Section 162(m)(4)(C) ofexercisable before the Code,time when the Performance Criteria must be disclosed to andPlan is approved by the Company’s stockholders no later thanstockholders; and, provided, further, that if such approval has not been obtained by the first stockholder meeting that occurs in the fifth year following the year in which the Company’s stockholdersend of said12-month period, all Options previously approvedgranted under the Plan in the manner required by Section 162(m)(4)(C)shall thereupon terminate without being exercised. 16. Effect upon Other Plans. 11.5Tax Withholding. The Company or any Subsidiary shall have the authority and the right to deduct or withhold, or require a Holder to remit to the Company, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Holder’s FICA or other social security obligation) required by law to be withheld with respect to any taxable event concerning a Holder arising as a result of this Plan. The Administrator may in its discretion and in satisfaction of the foregoing requirement allow a Holder to elect or the Company to decide to have the Company withhold shares of Common Stock otherwise issuable under an Award (or allow the return of shares of Common Stock) having a Fair Market Value sufficient to satisfy the sums required to be withheld. Any shares of Common Stock withheld to cover taxes in excess of the minimum statutory rate with respect to any Full Value Award shall not be returned to the share pool, and any such shares withheld up to the minimum statutory rate will be added back to the share pool in accordance with Section 2.1(b).
11.6Prohibition on Repricing. Subject to Section 11.3, the Administrator shall not without the approval of the Company’s stockholders (a) lower the price per share of an Option or SAR after it is granted, (b) cancel an Option or SAR in exchange for cash or another Award at a time when the Option or SAR has a per share exercise price that is higher than the Fair Market Value of a share of Common Stock (other than in connection with a Change in Control), or (c) take any other action with respect to an Option or SAR that would be treated as a repricing under the rules and regulations of the principal U.S. national securities exchange on which the shares are listed.
11.7Effect of Plan upon Options and Compensation Plans. The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company, any Parent Corporation, any Subsidiary Corporation or any Subsidiary.Affiliate. Nothing in thethis Plan shall be construed to limit the right of the Company, any Parent Corporation, any Subsidiary Corporation or any Subsidiary:Affiliate to: (a) to establish any other forms of incentives or compensation for Employees, Directors or Consultantsemployees of the Company, any Parent Corporation, any Subsidiary Corporation or any Subsidiary,Affiliate, or (b) to grant or assume options or other rights or awards otherwise than under the Plan in connection with any proper corporate purpose, including, withoutbut not by way of limitation, the grant or assumption of options in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, partnership, limited liability company, firm or association.
11.8Compliance with Laws17. Conditions to Issuance of Stock Certificates.
The Plan,Company shall not be required to issue or deliver any certificate or certificates for shares of Stock purchased upon the grantingexercise of Options before fulfillment of all the following conditions: (a) The admission of such shares to listing on all stock exchanges, if any, on which is then listed; and vesting (b) The completion of Awardsany registration or other qualification of such shares under any state or federal law or under the Planrulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the issuanceCommittee shall, in its absolute discretion, deem necessary or advisable; and delivery (c) The obtaining of shares of Common Stock andany approval or other clearance from any state or federal governmental agency which the payment of money under the Plan or under Awards granted or awarded hereunder are subjectCommittee shall, in its absolute discretion, determine to compliance with all applicable federal, state, local and foreign laws, rules and regulations (including but not limited to federal, state, and foreign securities law and margin requirements) and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisableadvisable; and
(d) The payment to the Company of allTax-Related Items which it is required to withhold under Applicable Law in connection therewith. relation to the Participant’s participation in the Plan; and (e) The lapse of such reasonable period of time following the exercise of the Option as the Committee may from time to time establish for reasons of administrative convenience. 18. Notification of Disposition. Each Participant who is subject to taxation in the United States shall give prompt notice to the Company of any disposition or other transfer of any shares of Stock purchased upon exercise of an Option if such disposition or transfer is made: (a) within two years from the Date of Grant of the Option, or (b) within one year after the transfer of such shares of Stock to such Participant upon exercise of such Option. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by the Participant in such disposition or other transfer. 19. Notices. Any securities deliverednotice to be given under the terms of the Plan to the Company shall be addressed to the Company in care of its Secretary and any notice to be given to any Participant shall be addressed to such Participant at such Participant’s last address as reflected in the Company’s records. By a notice given pursuant to this Section, either party may designate a different address for notices to be given to it, him or her. Any notice which is required to be given to a Participant shall, if the Participant is then deceased, be given to the Participant’s personal representative if such representative has previously informed the Company of his status and address by written notice under this Section. Any notice shall have been deemed duly given if provided through an electronic means such as email or facsimile or if enclosed in a properly sealed envelope or wrapper addressed as aforesaid at the time it is deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service. 20. Additional Restrictions of Rule16b-3. The terms and conditions of options granted hereunder to, and the purchase of shares by, persons subject to Section 16 of the Exchange Act will comply with the applicable provisions of Rule16b-3. This Plan will be deemed to contain, and such options will contain, and the shares issued upon exercise thereof will be subject to, such additional conditions and restrictions as may be required by Rule16b-3 to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. 21. Equal Rights and Privileges. All Eligible Employees of the person acquiring such securities shall, if requestedCompany (or of any Designated Subsidiary) will have equal rights and privileges with respect to each Section 423 Offering under this Plan to the extent required under Section 423 of the Code or applicable Treasury regulations thereunder so that this Plan qualifies as an “employee stock purchase plan” within the meaning of Section 423 of the Code or applicable Treasury Regulations thereunder. With the exception of terms relating toNon-423 Offerings, any provision of this Plan that is inconsistent with Section 423 or applicable Treasury Regulations will, without further act or amendment by the Company provide such assurancesor the Board, be reformed to comply with the equal rights and representations to the Company as the Company may deem necessaryprivileges requirement of Section 423 or desirable to assure compliance with all applicable legal requirements. Treasury Regulations. 22. Electronic Forms. To the extent permitted by applicable state law and in the discretion of the Committee, an Eligible Employee may submit any form or notice as set forth herein by means of an electronic form approved by the Committee (“Electronic Form”). Before the commencement of an Offering Period, the Committee shall prescribe the time limits within which any such Electronic Form shall be submitted to the Committee with respect to such Offering Period in order to be a valid election. 23. Taxes. At any time a Participant incurs a taxable event as a result of his participation in the Plan, a Participant must make adequate provision for anyTax-Related Items. Participants are solely responsible and liable for the satisfaction of allTax-Related Items, and the Company shall not have any obligation to indemnify or otherwise hold any Participant harmless from any or all of suchTax-Related Items. The Company shall have no responsibility to take or refrain from taking any actions in order to achieve a certain tax result for a Participant or any other person. In their sole discretion, the Company or, as applicable, the Designated Subsidiary that employs the Participant may, unless the Committee determines otherwise, satisfy their obligations to withholdTax-Related Items by (a) withholding from the Participant’s compensation or other wages, (b) withholding a sufficient whole number of shares of Stock issued following exercise having an aggregate value sufficient to pay theTax-Related Items, (c) withholding from proceeds from the sale of shares of Stock issued upon exercise, either through a voluntary sale or a mandatory sale arranged by the Company, or (d) any other method deemed acceptable by the Committee. 24. Section 409A of the Code; Tax Qualification. Options to purchase shares of Stock granted under aNon-423 Offering may be subject to Section 409A of the Code and Section 457A of the Code. In furtherance of the foregoing and notwithstanding any provision in the Plan to the contrary, if the Committee determines that an Option granted under the Plan may be subject to Section 409A of the Code or Section 457A of the Code or that any provision in the Plan would cause an Option under the Plan to be subject to Section 409A of the Code or Section 457A of the Code, the Committee may amend the terms of the Plan and/or of an outstanding Option granted under the Plan, or take such other action the Committee determines is necessary or appropriate, in each case, without the Participant’s consent, to exempt any outstanding Option or future Option that may be granted under the Plan from or to allow any such Options to comply with Section 409A of the Code or Section 457A of the Code, but only to the extent any such amendments or action by the Committee would not violate Section 409A of the Code or Section 457A of the Code. Notwithstanding the foregoing, the Company shall not have any obligation to indemnify or otherwise protect the Participant from any obligation to pay any taxes, interest or penalties pursuant to Section 409A of the Code or Section 457A of the Code. The Company makes no representation that the Option to purchase shares of Stock under the Plan is compliant with Section 409A of the Code or Section 457A of the Code. 25. Governing Law; Venue. Except to the extent that provisions of the Plan are governed by applicable provisions of the Code or any other substantive provision of United States federal law, the Plan and Awards granted or awarded hereunder shall be deemed amendedconstrued in accordance with the laws of the State of Delaware, without giving effect to the extent necessaryconflict of laws principles thereof. Any legal action related to conformthe Plan, the Options granted under the Plan or any enrollment form or other instrument or agreement relating to the Plan shall be brought only in a United States federal or state court located in State of California, County of San Diego. 26. Severability. If any provision of the Plan is or becomes or is deemed to be invalid, illegal, or unenforceable for any reason in any jurisdiction or as to any Participant, such invalidity, illegality or unenforceability will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as to such laws, rules and regulations.jurisdiction or Participant as if the invalid, illegal or unenforceable provision had not been included. 11.9Titles. Titles27. Headings.
Headings are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan. 11.10Governing Law
APPENDIX C August 2018 Amendment to the ResMed Inc. 2009 Employee Stock Purchase Plan ResMed Inc., a Delaware corporation, maintains the ResMed Inc. 2009 Employee Stock Purchase Plan, adopted by the board of directors on September 30, 2009, approved by the Company stockholders on November 18, 2009; and most recently amended and restated in an administrative manner, effective on each of August 17, 2017 and August 17, 2018 (the “ESPP”). The Plan and any agreements hereunder shall be administered, interpreted and enforcedpurposes of this Amendment are to: Increase the number of shares of our common stock available for future awards under the internal lawsESPP by 2,000,000 shares; Adjust the term of the State of Delaware without regard to conflicts of laws thereof. 11.11Section 409A. To the extentESPP so that the Administrator determinesESPP will remain in effect until November 15, 2028 (previously September 29, 2019); and
Rename the ESPP the “ResMed Inc. 2018 Employee Stock Purchase Plan.” The changes set forth in this Amendment shall apply to anysub-plan of the ESPP. A.Increase shares. Section 2 “Stock Subject to the Plan,” is replaced in its entirety by the section below: 2. Stock Subject to the Plan. Subject to the provisions of Section 9 hereof (relating to adjustments upon changes in the Stock) and Section 11 hereof (relating to amendments of the Plan), the Stock that any Awardmay be sold pursuant to Options granted under the Plan isshall not exceed in the aggregate 6,200,000 shares of Stock.2 The shares of Stock sold pursuant to Options granted under the Plan may be unissued shares or treasury shares of Stock, or shares reacquired in private transactions or open market purchases. If and to the extent that any right to purchase reserved shares shall not be exercised by any Participant for any reason, or if such right to purchase shall terminate as provided herein, shares that have not been so purchased hereunder shall again become available for the purposes of this Plan, unless this Plan shall have been terminated, but all shares sold under this Plan, regardless of source, shall be counted against the limitation set forth above. 2 The Plan was initially approved with an aggregate of 3,250,000 shares of Stock that were issuable under the Plan, which number of shares was subsequently adjusted to 6,500,000 shares due to a September 2005 stock split. In September 2007, the Board approved a reduction in the number of shares of Stock issuable under the Plan, from 6,500,000 to 500,000. An amendment to the Plan dated September 30, 2009 increased the number of shares by 600,000, for a total of 1,100,000. That total number of shares was adjusted to 2,200,000 due to an October 2012 stock split. An August 2012 amendment increased the number of shares by 2,000,000, to a total of 4,200,000. On August 17, 2018, the Board amended the Plan to increase the number of shares of Stock issuable under the Plan by 2,000,000, to a total of 6,200,000, subject to stockholder approval. B. Adjust Term.Section 409A15 “Term; Approval by Stockholders,” is replaced in its entirety by the section below: 15. Term; Approval by Stockholders. Subject to approval by the stockholders of the Code, the Award Agreement evidencing such Award shall incorporate the terms and conditions required byCompany in accordance with this Section, 409A of the Code. To the extent applicable, the Plan and Award Agreements shall be interpretedin effect until November 15, 2028, unless sooner terminated in accordance with Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that11. No Option may be issued after the Effective Date. Notwithstandinggranted during any provisionperiod of suspension of the Plan toor after termination of the contrary,Plan. The Plan shall be submitted for the approval of the Company’s stockholders within twelve months after the date of the adoption of the Plan by the Board. Options may be granted before such stockholder approval; provided, however, that such Options shall not be exercisable before the time when the Plan is approved by the Company’s stockholders; and, provided, further, that if such approval has not been obtained by the end of said12-month period, all Options previously granted under the Plan shall thereupon terminate without being exercised. C. Rename Plan. The ESPP will be renamed “the ResMed Inc. 2018 Employee Stock Purchase Plan.” This name will be substituted for “the ResMed Inc. 2009 Employee Stock Purchase Plan” in the event that following the Effective Date the Administrator determines that any Award may be subject to Section 409Aintroductory paragraph; section 1. (y) “Definitions… “Plan;”” and all other applicable references. D. No other changes.Except as set forth in this Amendment, all other Articles, Sections, terms and conditions of the CodeESPP shall remain unchanged and related Department of Treasury guidance (including such Department of Treasury guidance as mayin full force and effect. E. Restatement. After stockholder approval, this Amendment will be issued afterincorporated into the Effective Date), the Administrator may adopt such amendments to the PlanESPP and the applicable Award Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions,ESPP will be restated in full. * * * * * I certify that the Administrator determines are necessary or appropriate to (a) exemptResMed Inc. board of directors adopted the Award from Section 409Aamendment above on August 17, 2018. David Pendarvis, secretary * * * * * I certify that the ResMed Inc. stockholders approved the amendment above on November , 2018. Executed on thisday of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (b) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance. November, 2018.David Pendarvis, secretary | | | | | RESMED INC. 9001 SPECTRUM CENTER BLVD. SAN DIEGO, CA 92123 ATTN: AGNES LEEAMY WAKEHAM | | VOTE BY INTERNET - www.proxyvote.com Use the internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. US Eastern Time November 14, 2017.2018. Have your proxy card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form. | | VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. For your vote to be effective, it must be received on or before November 14, 2017.2018. | | VOTE BY PHONE -1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. US Eastern Time November 14, 2017.2018. Have your proxy card in hand when you call and then follow the instructions. | | ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receive all future proxy statements, proxy cards and annual reports electronically viae-mail or the internet. To sign up for electronic delivery, please follow the instructions above to vote using the internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | | | | | | | | | | | M63130-P43056 | | | KEEP THIS PORTION FOR YOUR RECORDS | | | | | | | DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. RESMED INC. | | | | | | | | | | | | | | | | | The Board of Directors recommends you vote FOR the following proposals: Vote on Directors | | | | | | | | | Election of three directors, each to serve until our 20202021 annual meeting. | | | | | | | | | | | | | | Nominees:
| | | | | | | | | | | For | | Against | | | | | | | Nominees: | | For | | Abstain | Against | | | Abstain | | | | | | | | | | 1a. MichaelPeter Farrell | | | ☐ | | ☐ | | ☐ | | | | | | | | 1b. Karen Drexler
| | ☐ | | ☐ | | | | | | | | | 1b. Harjit Gill | | | ☐ | | | | | | | | 1c. Jack Wareham
| | ☐ | | ☐ | | ☐ | | | | | | | | | | | 1c. Ron Taylor | | | ☐ | | | | ☐ | | | | ☐ | | | | | | | | | | | | Vote on Proposals | | For | | | Against | | | Abstain | | | | | | | | | | | 2. | | Ratify our appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2018.2019. | | | ☐ | | ☐ | | ☐ | | | | ☐ | | | | | | | | | | | | 3. | | Approve an amendment to the ResMed Inc. 2009 Incentive AwardEmployee Stock Purchase Plan, which among other things: serves as approval for purposes of section 162(m) of the US Internal Revenue Code; sets a limit on director compensation; and increases the number of shares authorized for issue under the plan by 2.0 million shares, from 4.2 million shares to 6.2 million shares and increasesextends the term of the plan reserve by 6.9 million shares.through November 15, 2028. | | | ☐ | | ☐ | | ☐ | | | | ☐ | | | | | | | | | | | | 4. | | Approve, on an advisory basis, the compensation paid to our named executive officers, as disclosed in this proxy statement. | | | ☐ | | | | ☐ | | ☐ | | | | | | | | | | 1 Year | | 2 Years | | 3 Years | | Abstain | | | | | | | 5.
| | Approve, on an advisory basis, the frequency of futuresay-on-pay votes.
| | ☐ | | ☐ | | | | | | | | | | | ☐ | | ☐
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| | | | | | | | | | | | | | | | | | | | | | Signature [PLEASE SIGN WITHIN BOX] | | Date | | | | Signature (Joint Owners) | | Date | | |
RESMED ANNUAL MEETING OF STOCKHOLDERS | | | | | | | Date: | | Thursday, November 16, 2017, at 3:00 p.m. US Pacific Time; | | | | | Friday, November 17, 2017,15, 2018, at 10:00 a.m. Australian Eastern Time | | | | | Wednesday, November 14, 2018, at 3:00 p.m. US Pacific Time | | | | | | Location: | | ResMed’s Australian corporate office | | | | | 9001 Spectrum Center Blvd.1 Elizabeth Macarthur Drive
San Diego, California 92123
USABella Vista, New South Wales 2153, Australia
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement and Form10-K are available at www.proxyvote.com. M63131-P43056 ResMed Inc. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints David Pendarvis and Brett Sandercock as proxies, each with full power of substitution, to represent and vote as designated on the reverse side, all the shares of common stock of ResMed Inc. held of record by the undersigned on September 19, 2017,17, 2018, as of 4:00 p.m. (US Eastern Time) at the Annual Meeting of Stockholders to be held on Thursday, November 16, 2017,15, 2018, at 10:00 a.m. Australian Eastern Time (Wednesday, November 14, 2018, at 3:00 p.m. US Pacific Time (Friday, November 17, 2017, at 10:00 a.m. Australian Eastern Time) in ResMed’s Australian corporate office, 9001 Spectrum Center Blvd., San Diego, California 92123,1 Elizabeth Macarthur Drive, Bella Vista, New South Wales 2153, Australia, or any adjournment or postponement of the meeting. If no choice is specified, the proxy will be voted“FOR” the nominees in Item 1, and“FOR” Items 2, 3, and 4, and“ONE YEAR” on Item 5.4. (See reverse for voting instructions) | |
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