Base Salary
Base salary is intended to provide a fixed, baseline level of compensation that is not contingent upon Align’sour performance. Consistent with our pay-for-performance philosophy, base salaries generally represent a modest proportion of the total compensation opportunity for our executive officers.senior management. In January 2015,2020, the Compensation Committee reviewed the base salaries of our NEOs, comparing these salaries to the base salary levels at theof companies in our peer group, as well as considering the roles and responsibilities and potential performance of the NEOs and their positioning for other elements of their compensation. After this review, the Compensation Committee made the adjustments to base salary set forth in the table below. Mr. Relic’s 15% increase
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| Name | | 2019 Base Salary | | 2020 Base Salary | | Percentage Increase |
| Joseph M. Hogan | | $ | 1,130,000 | | | $ | 1,175,000 | | | 4.0% |
| John F. Morici | | $ | 500,000 | | | $ | 540,000 | | | 8.0% |
| Simon Beard | | $ | 440,000 | | | $ | 520,000 | | | 18.2% |
| | | | | | |
Julie Tay(1) | | $ | 495,000 | | | $ | 520,000 | | | 5.1% |
| Raj Pudipeddi | | $ | 465,000 | | | $ | 490,000 | | | 5.4% |
(1) Ms. Tay's annual base salary is payable in Singapore dollars. Values in the table are converted into U.S. dollars based on the exchange rate in effect as of each pay date. As of December 31, 2020, as a result of fluctuations in exchange rates, Ms. Tay's actual salary in 2020 was made in connection with his strong individual performance as well as closing a significant gap between his salary and the salary of other members of the executive management team and moving it to more closely approximate the market 50th percentile.$533,157.
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| Name | | 2014 Base Salary | | 2015 Base Salary | | Percentage Increase over 2014 |
| Joseph M. Hogan | | N/A | | $950,000 | | N/A |
| Thomas M. Prescott | | $650,000 | | $675,000 | | 3.8% |
| David L. White | | $407,000 | | $424,000 | | 4.2% |
| Raphael S. Pascaud | | $350,000 | | $369,000 | | 5.4% |
| Zelko Relic | | $310,000 | | $358,000 | | 15% |
| Roger E. George | | $354,000 | | $370,000 | | 4.5% |
Mr. Hogan’sThe base salary of $950,000 was basedeach NEO reflects our significant growth and the role of each NEO in that achievement. For Mr. Beard, his increase is primarily a reflection of his increased responsibilities as Senior Vice President and Managing Director, Americas which required him to relocate to the United States in September 2019 on a reviewthree year employment assignment away from his family. Ms. Tay's increase includes the impact of peerexchange rates between her local currency, the Singapore dollar, and our reporting currency, the U.S. dollar. In the case of Mr. Hogan, his base salary reflects his position as our most senior executive officer, his vigorous leadership since joining Align as our CEO, compensation, as well as pay packages for recently hired CEOs as discussed above under “CEO Transition”.our strong performance during his tenure, and recognition of the salary that someone with his proven ability and track record could command in the competitive market.
Annual Cash Incentive Compensation
Annual Cash Incentive Plan. Align usesWe use a cash incentive compensation plan to reward senior management, including all of our NEOs, for achieving and surpassing pre-established financial goals. In December 2019, the Compensation Committee conducted its annual review of our Annual Cash Incentive Award plan ("Bonus Plan"). Based on its review, the Compensation Committee determined that the pool of funds available to pay out awards to our senior management for performance in 2020 would continue to be based on the extent to which we met or exceeded predetermined goals under selected financial metrics. Consistent with prior years, the Compensation Committee selected two financial metrics, weighted as identified below, for purposes of funding the overall Bonus Plan pool for 2020:
•Revenue - 60%
•Operating Income - 40%
Considered in the aggregate, the Compensation Committee believes these metrics are strong indicators of our overall performance and our ability to a lesser extentcreate stockholder value. These measures balance propelling growth while encouraging efficiency and are aligned with our strategic priorities of international expansion, GP adoption, patient demand and conversion and orthodontist utilization. In determining actual bonuses to be awarded to each member of senior management, bonus amounts are adjusted, either up or down, based on her or his overall performance and contribution to the achievement of key strategic measures, which are expected to increase stockholder value. All of our NEOs participated in the executive bonus plan. Bonus determinations for fiscal 2015 performance were calculated using the following formula:goals.
The Individual and Company Multipliers are each derived based on performance and are equally weighted.
Target Bonus Percentage.The target award opportunity is the amount of cash incentive compensation that our NEOseach member of senior management could expect to earn if Align’swe achieved our financial and strategic performance goals for the year are achieved. Each executive officer is assigned a target award opportunity of 60% of his or her base salary, except for Mr. Hogan who is assigned a target award opportunity of 150% of his base salary. Prior to his retirement, Mr. Prescott’s target award opportunity was 100% of his base salary.year. The incentive targets for members of the NEOssenior management were set by the Compensation Committee based on the scope and significance of their roles as theour leaders, of Align, with theour CEO receiving the highest target due to his greater responsibilities. The target awards as a percent of base salary for each member of senior management (other than our CEO) was 70% of base salary in 2020, consistent with 2019. Mr. Hogan's 2020 target award opportunity also remained unchanged at 150% of his base salary. In addition, in order to appropriately encourage and reward a range of acceptable performance and contributions in fiscal year 2020, our awards arewere structured so that the actual payout under an executive officer’s award canto a member of senior management could be as low as 0% of target or up to a maximum award of 240% of target.
As a result of the significant impact of the COVID-19 pandemic on our business in the first half of 2020, our Compensation Committee performed a mid-year review and reassessment of our 2020 Bonus Plan performance goals. Following this review and reassessment, the Compensation Committee determined not to redesign the Bonus Plan, but instead to simply reset the original annual performance targets under both of the financial metrics to focus solely on second half of 2020 recovery efforts based on revised, mid-year internal estimates. In so doing, the Compensation Committee also reduced by half the potential target payout amounts, from 100% to 50%, and reduced the maximum amount payable under the Bonus Plan to members of senior management from 240% to 120% of their bonus award opportunity. Had the Compensation Committee not made this mid-year revision, there would have been no payments to senior management under the full-year Bonus Plan. Please see the further discussion below under "Impact of the COVID-19 Pandemic on the 2020 Annual Cash Incentive Plan" for a more detailed discussion of the mid-year adjustments to our 2020 Bonus Plan performance goals.
Individual Multiplier.Factor. The Individual MultiplierFactor reflects each executive’s individual performance and is determined at the Compensation Committee’s discretion based on the recommendationCommittee's assessment of the CEO. Thisspecific performance appraisal process is largely subjective, with much discretion exercised by our CEO andof each member of senior management in light of the Committee.achievement of her or his individual goals. There is no specific weight given to any one individual goal or performance criterion. The Compensation Committee considers each executive officer’s performance in lightthe views of that individual’s achievement of his or her individual goals. The assessment is based on our CEO and Compensation Committee’s determinations regarding how well the executiveeach performed hisher or herhis job, and such assessment is qualitative, not quantitative, in nature. The CEO does not provide input to the Compensation Committee onregarding his own performance. Individual performance that meets expectations yields a 100% multiplier, with a maximum rating of 200%.multiplier.
Company Multiplier.The Company Multiplier is the same for all executive officers. The Company Multipliermembers of senior management. It is determined based on pre-established goals under selected financial targets. The Compensation Committee reviewed the structure of the Bonus Plan and key company strategic objectives. While managementselected two financial metrics that focused on (1) growth and (2) profitability for purposes of funding the overall pool. Management typically recommends the performance targets for bonus pool funding the Bonus Pool based on our Annual Operating Plan,annual operating plan as well as reference to historical performance and revenue and operating profit growth rates at select comparable medical device companies, but the targets are ultimately approved by the Compensation Committee and reviewed by the BoardBoard. For 2020, the Compensation Committee originally established 100% Bonus Pool funding based on revenue of Directors. At$2,862.0 million and operating income of $636.0 million or 22.2% of revenues. These targets were later reset (and the beginningbonus opportunity reduced by 50%) to focus solely on performance objectives for the second half of 2015,2020 of $1,451.0 million and $298.0 million for revenue and operating income, respectively, or 20.5% of revenues. Please see the Committee reviewed the structurediscussion below under "Impact of the executive bonus plan and determined that it was appropriateCOVID-19 Pandemic on the 2020 Annual Cash Incentive Plan" for a further discussion of the mid-year adjustments to continue to focus on (1) growth, (2) profitability, and (3) the achievement of critical strategic priorities.our 2020 Bonus Plan performance goals.
The following table below shows the performance metrics used in 20152020 and our level of performance with respect to these metrics:metrics.
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Measure/Weight/ Calculates | | Why do we use this measure? | | Original Target (2020) (in millions) | | Achievement (2020) (in millions) (1) | | Revised Target (2H 2020) (in millions) | | Achievement (2H 2020) (in millions) (1) | | Level of Achievement vs Revised Target | | (2H 2020) Impact on
Company
Multiplier |
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Revenues (1) (2) (3) (60%) | | Improvement in this measure aligns with our overall growth strategy | | $2,862 | | $2,472 | | $1,343 | | $1,564 | | 116.4% | | 304% |
Operating income (1) (2) (3) (40%) | | Directly links incentive payments to profitability and provides incentives to employees (including management) to share in our profitability. Because profitability encompasses both revenue and expense management, the Compensation Committee believes this measure encourages a balanced, holistic approach to managing our business. The Compensation Committee considers operating profit before taxes because management cannot predict or directly affect our taxes or our tax rate. | | $636 | | $387 | | $262 | | $387 | | 147.7% | | 447% |
| COMPANY MULTIPLIER: | | | | | | | | | | | | 120% |
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Measure/Weight/ Calculated | | Why do we use this measure? | | Target (in millions) | | Achievement (in millions) | | Level of Achievement of Target | | Impact on Company Multiplier |
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Revenue (1)(2) (40%) | | Improvement in this measure aligns with our overall growth strategy. | | $881.6 | | $880.4 | | 99.9% | | | 39.8% | |
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Adjusted Non-GAAP Operating income (1) (2) (30%) | | Directly links incentive payments to Company profitability and we want our employees (including our executives) to share in our profitability. Because profitability encompasses both revenue and expense management, the Compensation Committee believes this measure encourages a balanced, holistic approach by our executives to manage our business. The Compensation Committee considers operating profit before taxes because our executives cannot predict or directly affect our taxes or our tax rate. | | $264.6 | | $268.2 | | 101.4% | | | 33.1% | |
Roadmap Elements (30%)
Delivering key elements of Company roadmap projects or initiatives, including meeting delivery dates and feature set requirements. (4) | | Critical to our achievement of our multi-year strategic corporate priorities, specifically, increased adoption and frequency of use by our customers, the orthodontist and general practitioner dentist and increased consumer demand. (3) | | 100% | | | 92.4% | | | 92.4% | | | 27.7% | |
| COMPANY MULTIPLIER: | | | | | | | | 100.6% | |
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(1)(1)During the second half of 2020, revenue and operating income achievement were adjusted downwards by $5.0 million and $4.0 million, respectively. The adjustments were due to a 0.8% benefit in foreign exchange compared to the assumptions made in our revised second half operating plan. On a full year basis there would not have been a similar adjustment as the impact from foreign exchange was below the minimum threshold required for adjustment. The Compensation Committee had previously approved adjustments (upwards or downwards) to our full-year 2020 Bonus Plan results in the event the impact of foreign exchange was above 4.7 percentage points. No other adjustments were made to either the target or the level of achievement.
| The threshold performance and the level of performance at which the funding for that particular financial performance measure will be capped as follows: |
(2)The target performance and the level of performance at which the funding for that particular financial performance measure will be capped as follows:
•A rating of zero if achievement is below 90%. of target. Company performance below target automatically reduces only the payout related to that goal, not the other goals,goal, as we want executivessenior management to have the same incentive to achieve other financial goals as well as their individual performance goals even if our performance tracks below the target during the course of the year;
•A rating ranging from 60%90% to 100% if achievement meets or exceeds the minimum performance level but does not achieve the target performance level; and
•A rating of 101% to 200%and above if achievement meets or exceeds the target performance level. Each individual financial metric is uncapped; however, once the Company Multiplier reaches 240% in the aggregate, which was reduced to 120% based on the Compensation Committee's mid-year review and reassessment of the performance goals as a result of the impact of the COVID-19 pandemic on our business, the adjusted the Bonus Pool is fully funded. Therefore, in the aggregate, as originally approved the Bonus Pool for senior management could not exceed 240% funding, which was later reduced to 120%. Please see the discussion below under "Impact of the COVID-19 Pandemic on the 2020 Annual Cash Incentive Plan" for a further discussion of the mid-year adjustments to our 2020 Bonus Plan performance goals.
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(2)(3)The Compensation Committee has the discretion to exclude the following items from Revenues and Operating Income: (a)significant and/or extraordinary items that are not indicative of our core operating performance that are separately stated on our financial statements; (b)items identified as non-GAAP in our quarterly earnings announcements; and (c)other discrete items as necessary that may result in unintended gain or loss under the bonus plan.
| Adjusted Non-GAAP Operating Income was adjusted to exclude stock based compensation expense. The Compensation Committee also has the discretion to exclude the following items from Revenue and Operating Income: |
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(a) | significant and/or extraordinary items that are not indicative of our core operating performance that are separately stated on our financial statements; |
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(b) | items identified as non-GAAP in the Company’s quarterly earnings announcements; and |
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(c) | other discrete items as necessary that may result in unintended gain or loss under the bonus plan. |
The Compensation Committee believes that the items listed in (a) through (c) above are not indicative of our core operating performance. Appendix AThe only adjustment made to this proxy statement includes a reconciliation of adjusted Non-GAAP operating income and Revenue achievement to the most comparable GAAP measures.our 2020 bonus plan results is described in note (1) above.
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| Management believes, and the Committee concurs, that the specific strategic initiatives and performance goals established for each of these strategic priorities represent confidential business information, the disclosure of which would result in meaningful competitive harm. |
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(4)
| For each strategic performance measure, a rating ranging from 0% to 150% based on relative achievement of the particular measure. |
The Compensation Committee believes that the financial metrics performance objectives originally established for the financial and key strategic objectives representrepresented meaningful improvements over 2019 annual performance for the organization and therefore, are reasonably difficult to attain which isthat the revised objectives would incentivize a swift and significant rebound after the unanticipated COVID-19-related material declines in line with our pay-for-performance philosophy.the first half of 2020. Finally, the Compensation Committee reserves the right to apply judgment in the final determination of cash incentive awards and can adjust actual results (up or down) to reflect the impact of certain extraordinary items or events to more accurately reflect the overall performance of the management team.
In addition, the Board of Directors retains authority to pay additional discretionary bonuses outside the executive bonus planBonus Plan if warranted by performance not measured under the plan. In 2015,2020, neither the Board nor the Compensation Committee did not authorizeauthorized any such discretionary bonus payments outsideto our NEOs.
Impact of the executive bonus planCOVID-19 Pandemic on the 2020 Annual Cash Incentive Plan. The COVID-19 pandemic significantly affected our business and the business of our customers throughout fiscal year 2020. Beginning in the first quarter and continuing into the second quarter, we experienced a rapid and unanticipated downturn in sales initially in Asia, particularly in China. As the virus spread beyond China, into Europe and thereafter the Americas in early March, sales quickly decelerated as the practices of many of our customers were severely curtailed or completely closed. By mid-March 2020, most governments in EMEA and North America had begun to our NEOs, except with respect to Mr. Hogan who received a one-time cash bonus payment in connection with commencing employmentclose or already had closed non-essential businesses and initiated stay at home orders, with the Company.vast majority of dental practices completely shut down or severely restricting patient visits. As a result, our sales fell sharply and rapidly.
As the COVID-19 pandemic response evolved during the second quarter of 2020, dental practices began to reopen such that by the end of the second quarter practices across every region had largely reopened and were beginning to again see patients, although at varying capacities and the vast majority below pre-pandemic levels of operations. Despite the re-openings, our key financial metrics for the first half of 2020 materially trailed our results for the first half of 2019. For the six months ended June 30, 2020, we recorded net revenues of $903.3 million, a decrease of 21.4%compared to the same period in 2019.
As reported in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, we anticipated that, at least in the short term, our business could continue to be particularly susceptible to the impact of the COVID-19 pandemic. We believed that all or a material portion of our products could be viewed as discretionary purchases and therefore more susceptible to any global or regional recession resulting from efforts to prevent or delay the spread of the virus. Moreover, we expected that efforts to slow or prevent a recurrence of the spread of the virus were likely to continue causing disruptions and uncertainties in the markets and require significant costs and efforts on the part of our customers to ensure the health and safety of their patients resulting in curtailed operations by our customers and decreased patient visits for an indeterminate period of time. The uncertain scope and duration of the pandemic, and the uncertain timing of the global recovery and economic normalization, was so unprecedented and made internal forecasting so difficult that we discontinued providing quarterly financial guidance.
Due to the impact caused by the COVID-19 pandemic on our business performance and the uncertainties expected to continue, including lower than expected sales of our Invisalign clear aligners and iTero intraoral scanners, our Compensation Committee performed a mid-year review and reassessment of our 2020 Bonus Plan performance goals to determine whether the original metrics and performance goals continued to appropriately incentivize employees in light of revised 2020 financial performance estimates. The result of this review and reassessment being the Compensation Committee's decision to reset our
performance targets to the second half of 2020. In addition,setting the revised targets, the Compensation Committee utilized the same methodologies it used when setting the original 2020 annual performance goals other than restricting the performance targets to the six month period of the second half of 2020. The Compensation Committee also reduced the potential target payout amounts by 50% and similarly reduced the maximum amount payable to members of senior management by half, from 240% to 120%.
In revising the financial metric targets and potential bonus awards, the Compensation Committee determined that the revised goals were reasonable and justifiable based on several factors, including the following:
•although the performance targets were revised for employees and senior management, the revised targets for senior management were higher than those of other employees and therefore required higher achievements for senior management;
•rebounding from the material declines in connectionthe first half of 2020 to achieve strong financial performance amidst the significant uncertainties in the broader macroeconomic and societal environments caused by the COVID-19 pandemic should be appropriately encouraged;
•the changes to the performance targets were due to global factors outside the control of senior management and were implemented to motivate and incentivize them to quickly recover from an unprecedented and evolving global health crisis; and
•the revised goals were set at levels that, if met, would likely increase shareholder value and the Company's valuation.
The Compensation Committee believes the mid-year goal and performance achievement revisions were necessary and appropriate to incentivize and align the interests of senior management with Mr. Prescott’s retirement, he receivedtwo principal drivers of shareholder value and consistent with our internal business plan and our overall compensation philosophy. The Compensation Committee furthermore believed that this approach better incented senior management and aligned their interests with those of the shareholders than alternatives. For instance, the Compensation Committee could have chosen to leave the goals unchanged and make discretionary awards at the end of 2020. The Compensation could have also granted one-time awards but it did not. The Company also did not implement any salary reductions, employment furloughs or layoffs in a $25,000 cash payment intendedshort-term effort to assist with post-termination medical care costs (in lieuimprove operating income.
Without the mid-year adjustments, there would have been no payouts under the Bonus Plan based on our actual results for 2020 despite our strong recovery in the second half. Under the revised performance goals, the 2020 payouts under the Bonus Plan to senior management were 120% of any reimbursementtheir target award opportunity. The Compensation Committee believes that our strong operating results and stock performance in 2020 validate the soundness of COBRA premiums).their decision-making as reflected in the summary and discussion above under the heading "Executive Summary" and subheading "2020 Business Highlights," which include our one-year and three-year TSR of 91.5% and 140.5%, respectively.
For 2021, the Compensation Committee has once again selected the same financial metrics (i.e., revenue and operating income) and set annual targets similar to the approach it has used in previous years.
Awards to the NEOs. The Compensation Committee awarded the cash incentive awards set forth below to the NEOs for 20152020 performance. The amounts payable to the NEOs were confirmed by the Compensation Committee after review of our 2020 annual and second half results on January 26, 2021 and the payments were made to our U.S. based NEOs in accordance with our normal payroll practices on February 5, 2021 and on February 19, 2021 for Ms. Tay who is based in Singapore. These awards are also set forth below in the Summary Compensation Table on page 51 under the heading “Non-Equity"Non-Equity Incentive Plan Compensation.”Compensation." Consistent with our philosophy of linking pay to performance and the reduction in the maximum payout potential, our NEOs received cash payouts of 120% of target.
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| Name | | Target Incentive Award (as % of Base Salary) | | Target Incentive Award | | Company Multiplier | | Individual Multiplier | | Actual Incentive Award | | Actual Award as % of Target |
| Joseph M. Hogan | | 150% | | $ | 1,762,500 | | | 120% | | 100% | | $ | 2,115,000 | | | 120% |
| John F. Morici | | 70% | | $ | 378,000 | | | 120% | | 100% | | $ | 453,600 | | | 120% |
| Simon Beard | | 70% | | $ | 364,000 | | | 120% | | 100% | | $ | 436,800 | | | 120% |
Julie Tay (1) | | 70% | | $ | 364,000 | | | 120% | | 100% | | $ | 447,000 | | | 120% |
| Raj Pudipeddi | | 70% | | $ | 343,000 | | | 120% | | 100% | | $ | 411,600 | | | 120% |
(1) Ms. Tay's annual base salary is payable in Singapore dollars. Values in the Actual Incentive Award column are calculated after conversion of her base salary into U.S. dollars after taking into account fluctuation in the exchange rate as of each executive officer's total cash compensation increasedpay date throughout 2020. Ms. Tay's base pay was initially established at $520,000. As of December 31, 2020, as a result of fluctuations in 2015, reflecting the Company Multiplier having increased from 95%exchange rates, Ms. Tay's actual salary in 2014 to 100.6% in 2015. In addition, the Compensation Committee (with input from our CEO, other than with respect to himself) also performed a full evaluation of the individual performance component for each NEO2020 was $533,157 and determined that each NEO should receive an Individual Performance Multiplier of between 106% to 131%,her Actual Incentive Award is based on their respective contributions to the Company in their respective divisional or functional capacities.this amount.
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| Name | | Target Incentive Award (as % of Base Salary) | | Target Incentive Award (in 000s) | | Company Multiplier | | Individual Multiplier | Actual Incentive Award (in 000s) | | Actual Award as % of Target |
| Joseph M. Hogan | | 150% | | $831 (1) | | 100.6% | | 115% | $960 | | 115.6% |
| Thomas M. Prescott | | 100% | | $281(1) | | 100.6% | | 110% | $310 | | 110.6% |
| David L. White | | 60% | | $208 | | 100.6% | | 105% | $268.7 | | 105.6% |
| Raphael S. Pascaud | | 60% | | $238 | | 100.6% | | 130% | $311.3 | | 130.8% |
| Zelko Relic | | 60% | | $215 | | 100.6% | | 115% | $248.5 | | 115.7% |
| Roger E. George | | 60% | | $222 | | 100.6% | | 110% | $245.7 | | 110.7% |
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(1)
| The awards for Mr. Hogan and Mr. Prescott were pro rated based on the number of months they were employed by the Company in 2015. |
Long-Term, Equity-Based Incentive Awards
We use equity compensation to align our named executive officers’NEOs' interests with those of our stockholders and to attract and retain high-caliber executives through recognition of anticipated future performance. We determine appropriate grant amounts, if any, by reviewing competitive market data, individual performance assessments and business objectives with the Compensation Committee at least annually.
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| Award Type | Rationale for 2015 portfolio |
| 2020 Portfolio |
| Why RSUs? | We believe RSUs reward retention (even in the event of a decline in Align’s share price)the price of our stock) and provide an incentive to grow the value of Align’sour stock. In addition, RSUs enable our executivessenior management to accumulate stock ownership in Align, which reinforces the Company. |
| alignment of their objectives with those of our stockholders. |
| Why MSUs? | We believe MSUs provide a vehicle that has more consistent value delivery compared to stock options which also aligns the long-term interests of our executive officerssenior management and stockholders by rewarding executivessenior management for Align’s performance measured in relation to other companies over a specified period. The actual number of shares of our common stock issuable under MSUs varies based on over-orover- or under-performance of Align’sour stock price compared to the NASDAQ Composite Index during the three-year performance period. If Align under-performs the NASDAQ Composite Index, the percentage at which the MSUs convert into shares of Alignour stock will be reduced from 100%, at a rate of twothree to one (two-percentage-point(three-percentage-point reduction in units for each percentage point of under-performance), with a minimum percentage of 0%. This means that no shares will vest if Align underperformswe underperform the NASDAQ Composite by 50approximately 33 percentage points. If Align outperformswe outperform the NASDAQ Composite Index, the percentage at which the MSUs convert to shares will be increased from 100%, at a rate of twothree to one (two-percentage-point(three-percentage-point increase in units for each percentage point of over-performance), with a maximum percentage of 150%250%. This means that if Align outperformswe outperform the NASDAQ Composite by 2550 percentage points, the maximum number of shares that will vest is 150%250% of the award amount. For example, if the NASDAQ Composite index increased by 10% over the performance period and our stock price increased by 30% over the performance period, then the number of shares issuable under the MSUs would be 140%160% of target or (130%-110%)*2=140%3=160%. |
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| Award Type | Vesting Detail |
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| RSUs | Typically vests over four-years with 1/425% vesting annually. |
| annually |
| MSUs | Three yearThree-year performance period beginning February 2015 and ending February 2018with vesting, in full, part or not at all, at the end of year three |
Awards in 2015.2020. ConsistentIn 2020, our Compensation Committee reviewed our MSU program design and concluded that the program design was generally aligned with our ongoing efforts to align pay for performance, we continue to emphasizemarket. For awards made in 2020, the Compensation Committee set the percentage of "performance-based" equity awards granted to our executive officerssenior management at 67%. The Compensation Committee calculated the target values for equity awards to achieve this desired mix using a look back price that are tied directly to performance measured in relation to other companies over a specified period. In 2015, half ofwas based on the value of the equity-based awards30-trading day average closing price of our NEOs were designated as “performance-based.” In making these awards,common stock for the Compensation Committee again consideredperiod ending February 15, 2020. Based on this price per share, the market data, as well as the other competitive positioning factors described above. Under the employment agreement entered into with Mr. Hogan in connection with his appointment as CEO, hetotal desired number of targeted shares was granted a sign-on award consisting of 111,000 restricteddetermined, then split between time-based RSUs 33% and performance-based market stock units and 111,000 market stock units. The RSUs granted to Mr. Hogan vested 25% on December 31, 2015, with an additional 25% vesting on each December 31 thereafter for full vesting on December 31, 2018. The MSUs granted to Mr. Hogan will vest at the end of a three-year performance period which commenced on June 1, 2015.67%.
The table below sets forth the equitytarget value and number of shares awarded to the NEOs forin fiscal 2015:2020:
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| Name | | RSUs | | Target MSUs (1) |
| Joseph M. Hogan | | 111,000 | | 111,000 |
| Thomas M. Prescott | | 49,000 | | 49,000 |
| David L. White | | 11,500 | | 11,500 |
| Raphael S. Pascaud | | 12,000 | | 12,000 |
| Zelko Relic | | 12,000 | | 12,000 |
| Roger E. George | | 10,700 | | 10,700 |
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| Name | | Target Value (RSUs) | | RSU (Shares) | | Target Value (MSUs) (1) | | Target MSUs (1) (Shares) |
| Joseph M. Hogan | | $ | 2,970,000 | | | 10,864 | | | $ | 6,030,000 | | | 22,057 | |
| John F. Morici | | $ | 660,000 | | | 2,415 | | | $ | 1,340,000 | | | 4,902 | |
| Simon Beard | | $ | 594,000 | | | 2,173 | | | $ | 1,206,000 | | | 4,412 | |
| Julie Tay | | $ | 594,000 | | | 2,173 | | | $ | 1,206,000 | | | 4,412 | |
| Raj Pudipeddi | | $ | 594,000 | | | 2,173 | | | $ | 1,206,000 | | | 4,412 | |
(1) The number of MSUs set forth in this column represents the Target Shares; however, the actual number of shares that may be earned, if any, is determined based on the formula set forth in the MSU Agreement up to a maximum of 250% of the amount of the Target Shares.
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(1)
| The number of MSUs set forth in this column represents the Target Shares; however, the actual number of MSUs to be earned, if any, is determined based on the formula set forth in the Market Stock Unit Agreement up to a maximum of 150% of the amount of the Target Shares. |
Severance and Change of Control Arrangements
Employment Agreements. Each NEO is eligible to receive benefits under certain conditions in accordance with their respective employment agreement. Each such agreement provides for benefits to the executive officer upon:
•a change of control; and
•termination without cause or for convenience.
In adopting the change of control provisions in these agreements, the Compensation Committee’sCommittee's primary objective was to ensure that our executivesmembers of senior management have sufficient security such that they are not biased against selling the CompanyAlign in the
event a stockholder favorable merger and acquisition transaction is presented to the Company.presented. If Align were towe pursue a change of control transaction beneficial to Alignour stockholders, the Compensation Committee believes that our executive officers’senior management's active support of the transaction through closing would be critical into ensuring the success of such a transaction.
Change of Control Only. Though the cash severance amounts payable to our executivesMessrs. Hogan and Beard and Ms. Tay in connection with a change of control are subject to a “double trigger”"double trigger" (meaning to get paid out the cash portion of their change of control arrangement, first there has to be a change of control and then the executiveindividual must be terminated without cause or for convenience within 12 monthsa specified period of time of such change of control), the Compensation Committee adopted a “single trigger”"single trigger" for all executive officersthese individuals whereby the vesting of equity awards is accelerated by one year immediately upon a change of control.
Previously, our former CEO, had
With respect to Messrs. Morici and Pudipeddi (as well as any other individual who joins Align or is promoted to a “single trigger” pursuant to which 100% of his equity would vest immediately upon a change of control. With the hiring of Mr. Hogan, however,senior management position after September 2016), the Compensation Committee determined to eliminate thiseliminated all single trigger severance and equity acceleration provisions. Rather, severance payments and equity acceleration for these members of 100% of the CEOs equity awards. Rather, Mr. Hogan’s employment agreement contains a single trigger provision equivalentsenior management are subject to the protection given to our other NEOs whereby the vesting of equity awards is accelerated only by one year immediately upon"double trigger" arrangements that require both a change of control.in control plus a qualifying termination event before any cash payments are paid or any equity acceleration occurs.
Termination within 12 Months ofFollowing a Change of Control. In the event the executive iseither Messrs. Hogan or Beard or Ms. Tay are terminated without cause or for convenience within 12 months of a change in control (“double trigger”(18 months in the case of Mr. Hogan) ('double trigger'), 100% of his or herall remaining unvested equity awards are accelerated and a cash severance payment is made. The CEO would receiveMessrs. Morici and Pudipeddi (as well as any individual who joins Align or is promoted to a senior management position after September 2016) receives a cash severance payment and 100% of her or his unvested equity awards wouldwill accelerate in the event she or he is terminated without cause or for convenience within 18 months of the change of control (“("double trigger”)trigger" for both cash payment and equity acceleration).
Termination Unrelated to a Change of Control. For termination without cause or for convenience unrelated to a change of control, the vesting of equity awards held by an NEO (except for the CEO)Ms. Tay and Mr. Beard, is immediately accelerated by one year and a cash severance payment will be made. Our CEO wouldMessrs. Hogan, Morici and Pudipeddi (as well as any individual who joins Align or is promoted to a senior management position after September 2016), receive only receive a cash severance payment (no equity acceleration). if terminated without cause or for convenience unrelated to a change of control.
Death or Disability. In the event Mr. Hogan's employment terminates as a result of his death or disability, he (or his estate) will immediately vest in 100% of all outstanding equity awards.
The cash severance benefits are intended to provide consideration for the employee’ssenior management's service to Align and the expected length of time until subsequent employment is secured. The severance provisions also assist in recruiting executivesmembers of senior management given that executivetheir roles tend to carry higher risks. The amounts that each of our current NEOs would have been entitled to if one of the termination or change of control events mentioned above occurred on December 31, 20152020 are set forth in “-PaymentsPotential Payment Upon Termination or Change of Control.”Control” below.
Other Compensation Arrangements
Welfare and Other Employee Benefits. We have establishedmaintain a tax-qualified Section 401(k) retirement plan and a Companycompany match for all U.S. employees, including our executive officers.members of senior management.
In addition, we provide health and welfare benefits to our executive officerssenior management on the same basis as all of our full-time employees in the country in which they are resident. These benefits include medical, dental and vision benefits, medical and dependent care flexible spending accounts, short-term and long-term disability insurance, accidental death, basic life insurance coverage, and our employee stock purchase plan. We design our employee benefits programs to be affordable and competitive in relation to the market, as well as compliant with applicable laws and practices. We adjust our employee benefits programs as needed based upon regular monitoring of applicable laws and practices and the competitive market.
Perquisites and Other Personal Benefits. Mr. Pascaud, who has his primary residence in the United Kingdom,Senior management is provided with a car in accordance with customary local practice as well as a housing allowance. In addition, executive officers are reimbursed for travel by a non-employee companion (eg.(e.g., spouse) to customer events and certain other Companycompany events where appropriate and it is appropriate and in our interest that the interestmember of the Company for the executive tosenior management have a companion join himher or her.him. See "Summary"Summary Compensation Table"Table" below for more information concerning these perquisites. In the future, we may provide perquisites or other personal benefits in limited circumstances, such as where we believe it is appropriate to assist an individual executive officermember of senior management in the performance of hisher or herhis duties, to make
our executive officers her or him more efficient and effective, and for recruitment, motivation, or retention purposes. All future practices with respect to perquisites or other personal benefits will be approved and subject to periodic review by the Compensation Committee.
Annual Cash Incentive Award.
In March 2016, the Compensation Committee conducted a review of our Annual Cash Incentive Award plan and adopted the following formula for 2016. The pool of available funds to pay out awards to our executive officers will be based on the extent to which the Company meets or exceeds predetermined goals under selected financial metrics. Beginning in 2016, the Compensation Committee discontinued the use of key strategic initiatives as a key metric, believing that successful implementation of key strategic initiatives helped drive revenue growth and ultimately operating income which are measured separately. Consequently, the Compensation Committee selected two financial metrics, weighted as identified below, for purposes of funding the overall pool:
Revenue - 60%
Operating Income - 40%
Considered in the aggregate for 2016, these metrics are strong indicators of our overall performance and our ability to create stockholder value. These measures were balanced among propelling growth while encouraging efficiency and are aligned with our business strategies. The Committee also determined to eliminate the individual multiplier. In determining actual bonuses to be awarded to each individual NEO, bonus amounts will be adjusted upward or downward based on an executive officer's overall performance and his or her contribution to the achievement of our performance goals.
Corporate Tax Deduction on Compensation in Excess of $1 Million a Year
The Compensation Committee is responsible for addressing issues associated with
Section 162(m) of the U.S. Internal Revenue Code. Section 162(m)Code, as amended by the Tax Cuts and Jobs Act of 2017, generally disallows a deduction for federal tax deductionpurposes to public companiesany publicly traded corporation for compensationany remuneration in excess of $1 million$1,000,000 paid in any taxable year to theits CEO, or any of theCFO and up to three other members of senior management who are among our five most highly compensated officers other than the CFO. Performance-based compensation arrangements may qualify for an exemption fromexecutive officers. Prior to amendment, qualifying “performance-based compensation” was not subject to the deduction limitlimitation if they satisfy variousspecified requirements were met. Under the Tax Cuts and Jobs Act, the performance-based exception has been repealed with respect to federal income taxes. The new rules generally apply to taxable years beginning after December 31, 2017, but do not apply to compensation provided pursuant to a written binding contract in effect on November 2, 2017 that is not modified in any material respect after that date. While we consider the deductibility of awards in determining compensation payable to senior management, we also reserve the Compensation Committee’s flexibility to provide one or more covered executive officers with the opportunity to earn compensation that is nondeductible under Section 162(m). Although Align considers the impact of this rule when developing and implementing its executive compensation programs, Align believes that factors other than tax deductibility are important in the design of executive compensation programs and that it is important to preserve flexibility in designing such programs. Accordingly, Align has not adopted a policy that all compensation must qualify as deductible under Section 162(m). While the Compensation Committee believes that stock options granted pursuantsuch compensation is appropriate to the Incentive Plan qualify as “performance-based,” other awards permitted by the terms of the Incentive Planattract and certain other amounts paid under Align’s compensation programs (such as salary) may not qualify for exemption from Section 162(m)’s deduction limitation. For 2015, approximately $1,075,421 of Mr. Hogan’s compensation was not deductible under 162(m). The 2015 compensation for all of the other NEOs was fully deductible under 162(m) as the elements of compensation that are included under Section 162(m) did not exceed $1 million for the “covered employees” described above.retain executive talent.
COMPENSATION COMMITTEE OF THE BOARD REPORT
The following is the report of the Compensation Committee of the Board with respect to the year ended December 31, 2015.2020. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included in this proxy statement with management. Based on the Compensation Committee’sCommittee's review and discussion with management, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.
|
| |
| THE COMPENSATION COMMITTEE |
| George J. Morrow, Chair |
David C. NagelAnne M. Myong |
| Andrea L. Saia |
| Greg J. Santora |
SUMMARY COMPENSATION TABLE FOR FISCAL YEAR ENDED 2015DECEMBER 31, 2020
The following Summary Compensation Table sets forth certain information regarding the compensation of (i) our President and Chief Executive Officer, (ii) our Chief Financial Officer, (iii) our former President and Chief Executive Officer, and (iv)(iii) our three next most highly compensated executive officers as ofduring fiscal 2015.2020. Information is provided for 20142019 and 20132018 for each NEO who was also a NEO during those years.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal
Position | | Year | | Salary
($) | | Bonus ($) (1) | | Stock Awards ($) (2) | | Non-Equity
Incentive Plan
Compensation
($) | | All Other
Compensation
($) | | Total
($) |
| Joseph M. Hogan, | | 2020 | | 1,171,539 | | | — | | | 11,621,453 | | | 2,115,000 | | | 614,297 | | | 15,522,289 | |
| President and Chief Executive Officer | | 2019 | | 1,125,769 | | | — | | | 13,901,609 | | | 3,220,500 | | | 21,261 | | | 18,269,139 | |
| 2018 | | 1,069,231 | | | — | | | 36,778,283 | | | 3,870,000 | | | 40,824 | | | 41,758,338 | |
| | | | | | | | | | | | | | |
| John F. Morici, | | 2020 | | 536,923 | | | — | | | 2,582,931 | | | 453,600 | | | 9,948 | | | 3,583,402 | |
| Chief Financial Officer and Senior Vice President, Global Finance | | 2019 | | 496,923 | | | — | | | 2,780,400 | | | 698,000 | | | 9,502 | | | 3,984,825 | |
| 2018 | | 457,539 | | | — | | | 2,170,410 | | | 718,000 | | | 9,234 | | | 3,355,183 | |
| | | | | | | | | | | | | | |
Simon Beard, Senior Vice President, Managing Director, Americas | | 2020 | | 517,692 | | | — | | | 2,324,581 | | | 436,800 | | | 76,334 | | | 3,355,407 | |
| Julie Tay, | | 2020 | | 533,157 | | | — | | | 2,324,581 | | | 447,000 | | | 49,594 | | | 3,354,332 | |
| Senior Vice President and Managing Director, Asia Pacific | | 2019 | | 501,891 | | | — | | | 2,471,513 | | | 661,967 | | | 43,172 | | | 3,678,543 | |
| | | | | | | | | | | | | | |
| Raj Pudipeddi, | | 2020 | | 488,077 | | | — | | | 2,324,581 | | | 411,600 | | | 10,292 | | | 3,234,550 | |
| Senior Vice President, and Chief Product, Innovation & Marketing Officer | | 2019 | | 402,404 | | | 10,000 | | | 2,351,716 | | | 618,000 | | | 98,648 | | | 3,480,768 | |
(1)Amount reflects a one-time signing bonus for Mr. Pudipeddi.
(2)The amounts shown in this column reflect the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. Assumptions used in the calculations of these amounts are included in Note 1 - Summary of Significant Accounting Policies, Stock-Based Compensation and Note 12 - Stockholders' Equity (collectively, "Notes 1 and 12") to our audited financial statements for the year ended December 31, 2020 included in our Annual Report on Form 10-K filed with the SEC on February 26, 2021. This same method was used for the years ended December 31, 2019 and 2018.
The grant date fair value of the MSU awards reflected in the Stock Awards column and the tables below is computed based on the probable outcome of the performance conditions as of the grant date. This amount is consistent with the estimate of aggregate compensation cost we expect to recognize over the three-year performance period of the award determined as of the grant date under FASB ASC Topic 718. Refer to Notes 1 and 12 for the assumptions used to value the RSU and MSU awards. The amounts shown in the Stock Awards Column and the tables below exclude the impact of estimated forfeitures and there can be no assurance that the grant date fair value amounts will ever be realized.
| | | | | | | | | | | | | | |
| Name | | Fiscal Year 2020 RSUs | | Fiscal Year 2020 MSUs |
| Joe Hogan | | $ | 2,960,331 | | | $ | 8,661,122 | |
| John Morici | | $ | 658,063 | | | $ | 1,924,868 | |
| Simon Beard | | $ | 592,121 | | | $ | 1,732,460 | |
| Julie Tay | | $ | 592,121 | | | $ | 1,732,460 | |
| Raj Pudipeddi | | $ | 592,121 | | | $ | 1,732,460 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | | Year | | Salary ($) | | Bonus ($) (2) | | Stock Awards ($) (3) | | Option Awards ($)(3) | | Non-Equity Incentive Plan Compensation ($) | | All Other Compensation ($) | | Total ($) |
Joseph Hogan, President & Chief Executive Officer (1) | | 2015 | | 548,077 |
| | 1,500,000 |
| | 14,330,100 |
| | | | 960,000 |
| | 44,822 |
| | 17,382,999 |
|
| | | | | | | | | | | | | | | | | |
Thomas M. Prescott,
Former President & Chief Executive Officer (1) | | 2015 | | 705,000 |
| | 25,000 |
| | 5,564,440 |
| | — |
| | 310,000 |
| | 86,405 |
| | 6,690,845 |
|
| | 2014 | | 645,962 |
| | — |
| | 7,948,800 |
| | — |
| | 585,000 |
| | 10,464 |
| | 9,190,226 |
|
| | 2013 | | 615,000 |
| | — |
| | 4,406,900 |
| | — |
| | 900,000 |
| | 11,355 |
| | 5,933,255 |
|
| | | | | | | | | | | | | | | | | |
David L. White Chief Financial Officer | | 2015 | | 438,346 |
| | — |
| | 1,305,940 |
| | — |
| | 268,700 |
| | 9,090 |
| | 2,022,076 |
|
| | 2014 | | 406,192 |
| | — |
| | 1,645,480 |
| | — |
| | 241,700 |
| | 9,268 |
| | 2,302,640 |
|
| | 2013 | | 153,846 |
| | — |
| | 3,239,864 |
| | — |
| | 159,656 |
| | 4,978 |
| | 3,558,344 |
|
| | | | | | | | | | | | | | | | | |
| Raphael S. Pascaud | | 2015 | | 374,317 |
| | — |
| | 1,362,720 |
| | — |
| | 311,300 |
| | 2,298 |
| | 2,050,635 |
|
| Chief Marketing Portfolio and Business Development Officer | | 2014 | | 334,007 |
| | 125,453 |
| | 2,371,593 |
| |
| | 228,600 |
| | 43,278 |
| | 3,102,931 |
|
| | 2013 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | | |
| Zelko Relic | | 2015 | | 366,231 |
| | — |
| | 1,362,720 |
| | — |
| | 248,500 |
| | 9,090 |
| | 1,986,541 |
|
| Vice President, Research and Development | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Roger E. George | | 2015 | | 382,368 |
| | — |
| | 1,215,092 |
| | — |
| | 245,700 |
| | 9,090 |
| | 1,852,250 |
|
| Vice President, Legal & Corporate Affairs | | 2014 | | 351,699 |
| | — |
| | 2,324,904 |
| | — |
| | 212,000 |
| | 8,667 |
| | 2,897,270 |
|
| | 2013 | | 335,183 |
| | — |
| | 1,724,193 |
| | — |
| | 372,790 |
| | 8,367 |
| | 2,440,533 |
|
| | | | | | | | |
(1)
Name | Mr. Prescott retired as CEO and Mr. | Value of Fiscal Year 2020 MSUs Assuming Maximum Performance |
Joe Hogan was appointed as CEO in June 2015. As a result, Mr. Hogan's salary and non-equity incentive plan compensation are pro rated based on the number of months he was employed by Align in the capacity of CEO. Pursuant to Mr. Prescott's Transition Agreement, he received seven month's salary continuation through December 31, 2015 for an aggregate of $393,750. His non-equity incentive plan compensation, however, was prorated based on the number of months (5/12) that he acted as our President and CEO. |
| $ | 15,025,644 | |
(2)
John Morici | Amounts reflect (i) a one-time signing bonus for Mr. Hogan, (ii) a one-time bonus of $25,000 intended to assist Mr. Prescott with post-termination medical care cost (in lieu of any reimbursement of COBRA premiums); and (iii) a special retention bonus paid to Mr. Pascaud in connection with our previous VP, International, Richard Twomey's departure. |
| $ | 3,339,365 | |
(3)
Simon Beard | The amounts shown in this column reflect the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. Assumptions used in the calculations of these amounts are included in Note 9 to our audited financial statements for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 25, 2016. This same method was used for years ended December 31, 2014 and 2013. There can be no assurance that the grant date fair value amounts will ever be realized. | $ | 3,005,565 | |
| Julie Tay | | $ | 3,005,565 | |
| Raj Pudipeddi | | $ | 3,005,565 | |
Total Compensation. TotalMr. Hogan's decrease in total compensation as reported in the Summary Compensation table2020 compared to 2019 was primarily due to a lower grant date fair value of his equity awards and decreased significantly from 2014 to 2015 for listed officers (other than our new CEO),cash bonus largely due to the one-time, special recognitionimpact of the COVID-19 pandemic in the second quarter of 2020, partially offset by an increase in compensation related to his required relocation to Arizona in conjunction with relocation of our corporate headquarters to Tempe, Arizona. Total compensation for each of Messrs. Morici and Pudipeddi and Ms. Tay in 2020 primarily decreased as a result of lower grant date fair values of their equity awards grantedand decreased cash bonuses largely due to the impact of the COVID-19 pandemic in 2014 to reward contributions towards our record-setting 2013 results and strengthen retention. Total cash compensation, increased morethe second quarter of 2020.
modestly which is consistent with our philosophy of linking pay to performance and reflects the Company Multiplier described above having increased in 2015 to 100.6% from 95% in 2014. For additional information regarding the amounts included in the Summary Compensation Table, see “—Compensation"Compensation Discussion and Analysis”Analysis" above.
Stock Awards.Stock awards include time-based RSUs that typically vest over a four yearfour-year vesting period, as well as MSUs which are earned based on a comparison of Align’sour stock price performance to the NASDAQ Composite index over a 3-yearthree-year performance period.
Option Awards. We did not grant any options inperiod and vest at the past three years.end of the third year.
Non-Equity Incentive Plan Compensation. The amounts shown in this column represent employee annual incentive award payments and are reported for the year in which they were earned, though they were paid in the following year. The material terms of the performance payment plan are described under "“Compensation Discussion and Analysis –Annual– Annual Cash Incentive (Bonus) Compensation.”Compensation" above.
All Other Compensation.The amounts shown in this column and detailed in the table below represent the aggregate dollar amount for each NEO for a Company 401(k) matching program, life insurance and accidental death and dismemberment premiums, our 401(k) matching program (retirement plan in the case of Ms. Tay), as well as employee discount programs for our products which are available to all employees, including our NEOs. TheNEOs, reimbursements for automobiles and medical expenses and foreign assignment and relocation expenses.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Dollar
Value of
Life
Insurance
Premiums | | Matching
contributions
under our
401(k) Plan (or retirement plan) | | Employee Discount Program | | Automobile Reimbursement | | Medical Expense Reimbursement Plan |
| Mr. Hogan | | $ | 1,296 | | | $ | 8,550 | | | $ | — | | | $ | — | | | $ | 1,333 | |
| Mr. Morici | | $ | 1,190 | | | $ | 8,550 | | | $ | 208 | | | $ | — | | | $ | — | |
| Mr. Beard | | $ | 1,146 | | | $ | 8,550 | | | $ | — | | | $ | — | | | $ | — | |
| Ms. Tay | | $ | — | | | $ | 13,116 | | | $ | — | | | $ | 29,953 | | | $ | 6,525 | |
| Mr. Pudipeddi | | $ | 1,080 | | | $ | 8,550 | | | $ | — | | | $ | — | | | $ | 662 | |
Foreign Assignment and Relocation Expenses. In addition to the amounts set forth in the table above, for Mr. Beard, who was asked to relocate to the United States in September 2019 on a three year employment assignment in connection with a change in his role and responsibilities to Senior Vice President and Managing Director, Americas from a similar role in EMEA and whose family remains residing in the United Kingdom, the amounts in the All Other Compensation column also include expenses related to Mr. Beard’s expatriate assignment, including (a) commuting travel expense, cost of living allowances, housing allowancesallowance, car allowance, goods and airfareservices and tax prep fees of approximately $195,712 and (b) tax equalization payments pursuant to the Company’s tax equalization policy for travel companion, relocation as well as accrued vacation upon retirementemployees on expatriate assignment. The amount shown includes the net total of tax equalization payments for Mr. Beard received by the Company, or that became fixed and determinable, during 2020 of approximately $129,074. This net amount is attributable to aggregated U.S. tax payments made by the Company of $1,284,903, UK tax payments of $924,120 offset by tax withholdings from Mr. Beard of $2,338,097. Due to time lags in tax determinations, differences in taxable periods between jurisdictions, the availability of foreign tax credits or refunds and the potential receipt by the Company of credits or refunds in subsequent years, there may be significant differences in tax equalization payments from year to year.
Also in addition to the amounts in the table above, for Mr. Hogan, who was required to move to Arizona in connection with the move of our CEO.corporate headquarters to Tempe, Arizona in January 2021, the amounts in the All Other Compensation
column also include employment relocation expenses of $603,118. The foregoing amount includes $284,615 for costs incurred by Mr. Hogan in relocating his residence with the remainder provided to him to make his relocation expenses tax neutral.
|
| | | | | | | | | | | | | | | | | | | | |
| Name | | Dollar Value of Life Insurance Premiums | | Matching contributions under Align’s 401(k) Plan | | | Airfare for travel companion | | Accrued Vacation Payout | Relocation |
| Mr. Hogan | | $ | 1,078 |
| | $ | 7,125 |
| | | $ | 26,562 |
| | — |
| $ | 10,057 |
|
| Mr. Prescott | | $ | 570 |
| | $ | 7,950 |
| | | — |
| | $ | 77,884 |
| — |
|
| Mr. White | | $ | 1,140 |
| | $ | 7,950 |
| | | — |
| | — |
| — |
|
| Mr. Pascaud | | $ | 2,298 |
| | — |
| | | — |
| | — |
| — |
|
| Mr. Relic | | $ | 1,140 |
| | $ | 7,950 |
| | | — |
| | — |
| — |
|
| Mr. George | | $ | 1,140 |
| | $ | 7,950 |
| | | — |
| | — |
| — |
|
GRANTS OF PLAN-BASED AWARDS FOR FISCAL YEAR ENDED 20152020
The following table shows all plan-based awards granted to the NEOs during 2015,2020 including:
•cash amounts that could have been received in 20152020 by our NEOs under the terms of our performance-based cash incentive plan (CIP); and
•time-vested RSUs and performance-based MSUs awards granted by the Compensation Committee to our NEOs in 20152020 reflected on an individual grant basis.
20152020 Grants of Plan-Based Awards
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Type of Award | | Grant Date | | Approval Date | | Estimated Future Payouts Under Non-Equity Incentive Awards | | Non-equity Incentive | | Estimated Future Payouts Under Equity Incentive Awards | | All Other Stock Awards: Number of Shares of Stock or Units (#) | | Grant Date Fair value of Options and Awards ($) |
| Name | Target ($) | | Maximum ($) | | Target (#) | | Maximum (#) | |
| Joseph M. Hogan | CIP | | | | | | $ | 831,300 |
| | 1,995,120 |
| | | | | | | | |
| | RSU | | 6/1/2015 | | 3/21/2015 | | | | | | | | | | 111,000 |
| | $ | 6,853,140 |
|
| | MSU | | 6/1/2015 | | 3/21/2015 | | | | | | 111,000 |
| | 166,500 |
| | | | $ | 7,476,960 |
|
| Thomas M. Prescott | CIP | | | | | | $ | 281,300 |
| | 675,120 |
| | | | | | | | |
| RSU | | 2/20/2015 | | 2/2/2015 | | | | | | | | | | 49,000 |
| | $ | 2,783,690 |
|
| | | | | | | | | | | | | | | | | |
| MSU | | 2/20/2015 | | 2/2/2015 | | | | | | 49,000 |
| | 73,500 |
| | | | $ | 2,780,750 |
|
| David L. White | CIP | | | | | | $ | 254,000 |
| | 609,600 |
| | | | | | | | |
| RSU | | 2/20/2015 | | 2/2/2015 | | | | | | | | | | 11,500 |
| | $ | 653,315 |
|
| | | | | | | | | | | | | | | | | |
| MSU | | 2/20/2015 | | 2/2/2015 | | | | | | 11,500 |
| | 17,250 |
| | | | $ | 652,625 |
|
| Raphael S. Pascaud | CIP | | | | | | $ | 238,000 |
| | 571,200 |
| | | | | | | | |
| RSU | | 2/20/2015 | | 2/2/2015 | | | | | | | | | | 12,000 |
| | $ | 681,720 |
|
| | | | | | | | | | | | | | | | | |
| MSU | | 2/20/2015 | | 2/2/2015 | | | | | | 12,000 |
| | 18,000 |
| | | | $ | 681,000 |
|
| Zelco Relic | CIP | | | | | | $ | 215,000 |
| | 516,000 |
| | | | | | | | |
| | | | | | | | | | | | | | | | | |
| RSU | | 2/20/2015 | | 2/2/2015 | | | | | | | | | | 12,000 |
| | $ | 681,720 |
|
| | | | | | | | | | | | | | | | | |
| MSU | | 2/20/2015 | | 2/2/2015 | | | | | | 12,000 |
| | 18,000 |
| | | | $ | 681,000 |
|
| Roger E. George | CIP | | | | | | $ | 222,000 |
| | 532,800 |
| | | | | | | | |
| RSU | | 2/20/2015 | | 2/2/2015 | | | | | | | | | | 10,700 |
| | $ | 607,867 |
|
| | | | | | | | | | | | | | | | | |
| MSU | | 2/20/2015 | | 2/2/2015 | | | | | | 10,700 |
| | 16,050 |
| | | | $ | 607,225 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Type
of
Award | | Grant
Date | | Approval
Date | | Estimated
Future
Payouts
Under
Non-Equity
Incentive Plan
Awards | | Non-equity Incentive | | Estimated Future
Payouts Under
Equity Incentive Plan
Awards | | All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(#) | | Grant Date
Fair value
of Awards ($) |
| Name | | Target
($) | | Maximum ($) | | Target
(#) | | Maximum
(#) | |
| Joseph M. Hogan | | CIP | | | | | | 1,762,500 | | | 4,230,000 | | | | | | | | | |
| RSU | | 2/20/2020 | | 1/28/2020 | | | | | | | | | | 10,864 | | | 2,960,331 | |
| MSU | | 2/20/2020 | | 1/28/2020 | | | | | | 22,057 | | | 55,142 | | | | | 8,661,122 | |
| John F. Morici | | CIP | | | | | | 378,000 | | | 907,200 | | | | | | | | | |
| RSU | | 2/20/2020 | | 1/28/2020 | | | | | | | | | | 2,415 | | | 658,063 | |
| MSU | | 2/20/2020 | | 1/28/2020 | | | | | | 4,902 | | | 12,255 | | | | | 1,924,868 | |
| Simon Beard | | CIP | | | | | | 364,000 | | | 873,600 | | | | | | | | | |
| RSU | | 2/20/2020 | | 1/28/2020 | | | | | | | | | | 2,173 | | | 592,121 | |
| MSU | | 2/20/2020 | | 1/28/2020 | | | | | | 4,412 | | | 11,030 | | | | | 1,732,460 | |
| Julie Tay | | CIP | | | | | | 364,000 | | | 873,600 | | | | | | | | | |
| RSU | | 2/20/2020 | | 1/28/2020 | | | | | | | | | | 2,173 | | | 592,121 | |
| MSU | | 2/20/2020 | | 1/28/2020 | | | | | | 4,412 | | | 11,030 | | | | | 1,732,460 | |
| Raj Pudipeddi | | CIP | | | | | | 343,000 | | | 823,200 | | | | | | | | | |
| RSU | | 2/20/2020 | | 1/28/2020 | | | | | | | | | | 2,173 | | | 592,121 | |
| | MSU | | 2/20/2020 | | 1/28/2020 | | | | | | 4,412 | | | 11,030 | | | | | 1,732,460 | |
Approval Date.For each NEO equity grant, except for Mr. Hogan, the Compensation Committee met on February 2, 2015January 28, 2020 to finalize the grant of annual equity awards. Upon approval of the RSU and MSU awards, for each NEO, the Compensation Committee determined that the actual date of grant would be February 20, 2015.2020. This grant date was chosen in order to allow sufficient time for the CEO to notify each NEO and other members of the management team of the grant. In connection with Mr. Hogan joining Align as President and CEO, the Compensation Committee approved his new hire grant on March 21, 2015, with the actual date of grant of June 1, 2015.
Estimated Future Payouts under Non-Equity Incentive Plan Awards.The amounts shown under this column represent the possible dollar payouts the NEOs could have earned for 20152020 at target.target prior to the Compensation Committee's mid-year reassessment and revision of the Bonus Plan for senior management. For 2015,2020, the target cash incentive award for each NEO (other than the CEO and former CEO) was 60%70% of his base salary. For our CEO and former CEO, the target cash incentive award was 150% and 100% of his base salary, respectively, and was pro-rated based on the number of months each individual was acting in the capacity of our CEO.salary.
For a description of the performance objectives applicable to the receipt of these payments, see “"Compensation Discussion and Analysis –Annual Cash Incentive Awards.”" The actual amount paid to each NEO for 20152020 performance is set forth in the Summary Compensation Table above in the column "“Non-Equity Incentive Plan Compensation.”"
•Threshold. There is no threshold performance level. Rather, the Company'sAlign's financial performance below a specific target automatically reduces only the payout related to that specific goal, not the other goals, because we want executivessenior management to have the same incentive to achieve strategic priorities as well as their individual performance goals even if our financial performance tracks below the target during the course of the year.
•Target. The target amounts assume a corporate performance percentage of 100% and that the NEO received 100% of her or his target.
•Maximum. Although each financial objective isThe maximum amount a NEO can receive was initially capped at 200%240% of their target award opportunity when the Compensation Committee established goals and objectives at the beginning of 2020. That amount was later
reduced to 120% of their target award opportunity when the Compensation Committee reassessed our annual cash incentive plan mid-year. Please see the discussion above under "Impact of the COVID-19 Pandemic on the 2020 Annual Cash Incentive Plan" for fundinga further discussion of the total pool available for distribution, there is no maximum amount that an NEO could receive.mid-year adjustments to our 2020 Bonus Plan performance goals.
Estimated Future Payouts under Equity Incentive Plan Awards.Awards:
•Focal Awards Granted February 2020. The amounts shown under this columnfor MSU awards granted in February 2020 represent potential share payouts with respect to MSUs. Each MSU vests over a three-year performance period, with 100% vesting inas of February 2018.2023. The actual number of MSUsshares eligible to vest will be determined based on a comparison of Align’sour stock price performance relative to the performance of the NASDAQ Composite index over the three-year performance period, up to a maximum of 150%250% of the number of target shares. If Align under-performswe under-perform the NASDAQ Composite index, the percentage at which the MSUs convert into shares of Alignour stock will be reduced from 100%, at a rate of twothree to one (two-percentage-point(three-percentage-point reduction in units for each percentage point of under-performance), with a minimum percentage of 0%. This means that no shares will vest if Align underperformswe underperform the NASDAQ Composite index by 50%approximately 33%. If Align outperformswe outperform the NASDAQ Composite index, the percentage at which the MSUs convert to shares will be increased from 100%, at a rate of twothree to one (two-percentage-point(three-percentage-point increase in units for each percentage point of over-performance), with a maximum percentage of 150%250%. This means that if Align outperforms the NASDAQ Composite index by 25%approximately 50%, the maximum number of shares that will vest is 150%250% of the award amount.
•Stock Awards. Stock awards represent grants of RSUs under our 2005 Incentive Plan. Since RSUs are taxable to each NEO when they vest, the number of shares we issue to each named executive officer will be net of applicable withholding taxes which we will be paid by Alignpay on behalf of each NEO. The RSUs will result in payment to the NEO only if the vesting criteria are met.is met and the NEO then sells the stock that has vested. Each RSU granted to our NEOs vestvests over a four-year period with 25% of the shares subject to the RSU vesting each anniversary of the date of grant, with full vesting in four years.
Grant Date Fair Value. The amounts shown in this column reflect the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 of awards of RSUs and MSUs.MSUs, excluding the effect of estimated forfeitures. Assumptions used in the calculations of theseMSUs amounts are included in Note 9Notes 1 and 12 to our audited financial statements for the year ended December 31, 20152020 included in the Company’sour Annual Report on Form 10-K filed with the SEC on February 26, 2016.2021. There can be no assurance that the grant date fair value amounts will ever be realized. The RSUs are time based awards and are not subject to performance conditions. Amounts for MSUs represent the estimate of the aggregate compensation cost to be recognized over the three-year performance period determined as of the grant date under FASB ASC Topic 718, excludingdate. For MSU awards granted in February 2020, the effect of estimated forfeitures. The actual number of shares that arewill be paid out will depend on Align’sour stock price performance relative to the performance of the NASDAQ Composite index over the three-year performance period, up to a maximum of 150%250% of the number of target shares.
Timing of Equity Grants. The Compensation Committee, in consultation with management, our independent auditors and legal counsel, has adopted the following practices on equity compensation awards:
Align does•We do not plan to time, nor has ithave we timed, the release of material non-public information for the purpose of affecting the exercise price of itsany stock options;options should we decide to grant stock options again in the future;
| |
• | consistent with the policy described in the bullet point above, all awards of equity compensation for new employees (other than new executive officers described in the next bullet point) are made on the first day of the month for those employees who started during the period between the 16th day of the month that is two months prior to the grant date and the 15th day of the month prior to the month of the grant date. For example, May 1, 2016 grants will cover new hires starting between March 16, 2016 and April 15, 2016; and
|
annual•Consistent with the policy described in the bullet point above, all awards of equity compensation for new employees (other than new members of senior management) are made on the first day of the month for those employees who started during the period between the 16th day of the month that is two months prior to the grant date and the 15th day of the month prior to the month of the grant date. For example, May 1, 2020 grants will cover new hires starting between March 16, 2020 and April 15, 2020; and
•Annual incentive grants are made on or about the same day for all employees (including executive officers)members of senior management); in each of 2015, 20142020, 2019, and 20132018 such date was February 20. The Compensation Committee sets the actual grant date approximately one week following approval of the size of each grant in order to provide Align managersmanagement with adequate time to inform each employee individually of their grant.
OUTSTANDING EQUITY AWARDS AT FISCAL 20152020 YEAR END
The following table sets forth information regarding outstanding equity awards as of December 31, 20152020 for each NEO. All vesting is contingent upon their continued employment with Align. Market values and payout values in this table are calculated based on the closing market price of our common stock of $534.38 per share, as reported on the NASDAQ Global Market on December 31, 2015,2020, which was $65.85 per share.the last trading day of the year.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Stock Awards |
| Number of Shares or Units of Stock That Have Not Vested
(#) | | F
o
o
t
n
o
t
e | | Market Value of Shares or Units of Stock That Have Not
Vested
($) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that have Not Vested
(#) | | F
o
o
t
n
o
t
e | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($) |
| Joseph M. Hogan | | 6,250 | | | (1) | | 3,339,875 | | | | | | | |
| | 4,800 | | | (2) | | 2,565,024 | | | | | | | |
| | 10,046 | | | (3) | | 5,368,381 | | | | | | | |
| | 10,864 | | | (4) | | 5,805,504 | | | | | | | |
| | | | | | | | 19,200 | | | (5) | | 10,260,096 | |
| | | | | | | | 43,100 | | | (6) | | 23,031,778 | |
| | | | | | | | 26,789 | | | (7) | | 14,315,506 | |
| | | | | | | | 22,057 | | | (8) | | 11,786,820 | |
| John F. Morici | | 1,750 | | | (1) | | 935,165 | | | | | | | |
| | 1,573 | | | (9) | | 840,580 | | | | | | | |
| | 1,150 | | | (2) | | 614,537 | | | | | | | |
| | 2,009 | | | (3) | | 1,073,569 | | | | | | | |
| | 2,415 | | | (4) | | 1,290,528 | | | | | | | |
| | | | | | | | 4,500 | | | (5) | | 2,404,710 | |
| | | | | | | | 5,358 | | | (7) | | 2,863,208 | |
| | | | | | | | 4,902 | | | (8) | | 2,619,531 | |
| Simon Beard | | 1,500 | | | (1) | | 801,570 | | | | | | | |
| | 900 | | | (2) | | 480,942 | | | | | | | |
| | 1,674 | | | (3) | | 894,552 | | | | | | | |
| | 2,173 | | | (4) | | 1,161,208 | | | | | | | |
| | | | | | | | 3,700 | | | (5) | | 1,977,206 | |
| | | | | | | | 4,465 | | | (7) | | 2,386,007 | |
| | | | | | | | 4,412 | | | (8) | | 2,357,685 | |
| Julie Tay | | 1,550 | | | (1) | | 828,289 | | | | | | | |
| | 900 | | | (2) | | 480,942 | | | | | | | |
| | 1,785 | | | (3) | | 953,868 | | | | | | | |
| | 2,173 | | | (4) | | 1,161,208 | | | | | | | |
| | | | | | | | 3,700 | | | (5) | | 1,977,206 | |
| | | | | | | | 4,763 | | | (7) | | 2,545,252 | |
| | | | | | | | 4,412 | | | (8) | | 2,357,685 | |
| | | | | | | | | | | | |
| Raj Pudipeddi | | 6,697 | | | (10) | | 3,578,743 | | | | | | | |
| | 2,173 | | | (4) | | 1,161,208 | | | | | | | |
| | | | | | | | 4,412 | | | (8) | | 2,357,685 | |
(1)RSUs vest at a rate of 25% of the total number of shares on the first year, second year, third year and fourth year anniversary of the date of grant for vesting on February 20, 2018, February 20, 2019, February 20, 2020 and February 20, 2021.
(2)RSUs vest at a rate of 25% of the total number of shares on the first year, second year, third year and fourth year anniversary of the date of grant for vesting on February 20, 2019, February 20, 2020, February 20, 2021, and February 20, 2022
(3)RSUs vest at a rate of 25% of the total number of shares on the first year, second year, third year and fourth year anniversary of the date of grant for vesting on February 20, 2020, February 20, 2021, February 20, 2022, and February 20, 2023.
(4)RSUs vest at a rate of 25% of the total number of shares on the first year, second year, third year and fourth year anniversary of the date of grant for vesting on February 20, 2021, February 20, 2022, February 20, 2023, and February 20, 2024.
(5)MSUs vest 100% on February 20, 2021.
(6)MSUs vest 100% on June 20, 2021.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | Option Awards | | Stock Awards |
Number of securities underlying unexercised options (#) Exercisable | | Number of securities underlying unexercised options (#) Unexercisable | | F o o t n o t e | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | Option Exercise Price ($) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | | F o o t n o t e | | Market Value of Shares or Units of Stock That Have Not Vested ($) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that have Not Vested (#) | | F o o t n o t e | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) |
| Joseph M. Hogan | | | | | | | | | | | | | 83,250 |
| | (1 | ) | | 5,482,013 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | 111,000 |
| | (2) | | 7,309,350 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Thomas M. Prescott | 13,125 |
| | | | (3 | ) | | | | 20.79 |
| | 2/18/2018 | | | | | | | | | | | | |
| | | | | | | | | | | | | 15,625 |
| | (4 | ) | | 1,028,906 |
| | | | | | |
| | | | | | | | | | | | | | 27,500 |
| | (5 | ) | | 1,810,875 |
| | | | | | |
| | | | | | | | | | | | | | 30,000 |
| | (8 | ) | | 1,975,500 |
| | | | | | |
| | | | | | | | | | | | | | 20,000 |
| | (8 | ) | | 1,317,000 |
| | | | | | |
| | | | | | | | | | | | | | 49,000 |
| | (13 | ) | | 3,226,650 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | 75,000 |
| | (6 | ) | | 4,938,750 |
|
| | | | | | | | | | | | | | | | | | | | 90,000 |
| | (10 | ) | | 5,926,500 |
|
| | | | | | | | | | | | | | | | | | | | 49,000 |
| | (14 | ) | | 3,226,650 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| David White | | | | | | | | | | | | | 36,824 |
| | (7 | ) | | 2,424,860 |
| | | | | | |
| | | | | | | | | | | | | | 5,625 |
| | (8 | ) | | 370,406 |
| | | | | | |
| | | | | | | | | | | | | | 8,000 |
| | (9 | ) | | 526,800 |
| | | | | | |
| | | | | | | | | | | | | | 11,500 |
| | (13 | ) | | 757,275 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | 15,500 |
| | (10 | ) | | 1,020,675 |
|
| | | | | | | | | | | | | | | | | | | | 11,500 |
| | (14 | ) | | 757,275 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Raphael S. Pascaud | 5,400 |
| | | | (15 | ) | | | | 20.79 |
| | 2/18/2018 | | | | | | | | | | | | |
| | | | | | | | | | | | | 1,000 |
| | (4 | ) | | 65,850 |
| | | | | | |
| | | | | | | | | | | | | | 3,750 |
| | (5 | ) | | 246,938 |
| | | | | | |
| | | | | | | | | | | | | | 2,500 |
| | (11 | ) | | 164,625 |
| | | | | | |
| | | | | | | | | | | | | | 17,392 |
| | (12 | ) | | 1,145,263 |
| | | | | | |
| | | | | | | | | | | | | | 7,350 |
| | (8 | ) | | 483,998 |
| | | | | | |
| | | | | | | | | | | | | | 1,000 |
| | (9 | ) | | 65,850 |
| | | | | | |
| | | | | | | | | | | | | | 12,000 |
| | (13 | ) | | 790,200 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | 5,900 |
| | (10 | ) | | 388,515 |
|
| | | | | | | | | | | | | | | | | | | | 12,000 |
| | (14 | ) | | 790,200 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Zelco Relic | | | — |
| | | | | | | | | | 15,550 |
| | (16 | ) | | 1,023,968 |
| | | | | | |
| | | | | | | | | | | | | 750 |
| | (8 | ) | | 49,388 |
| | | | | | |
| | | | | | | | | | | | | | 1,000 |
| | (9 | ) | | 65,850 |
| | | | | | |
| | | | | | | | | | | | | | 12,000 |
| | (13 | ) | | 790,200 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | 2,000 |
| | (10 | ) | | 131,700 |
|
| | | | | | | | | | | | | | | | | | | | 12,000 |
| | (14 | ) | | 790,200 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Roger E. George | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | 4,125 |
| | (4 | ) | | 271,631 |
| | | | | | |
| | | | | | | | | | | | | | 12,824 |
| | (5 | ) | | 844,460 |
| | | | | | |
| | | | | | | | | | | | | | 10,575 |
| | (8 | ) | | 696,364 |
| | | | | | |
| | | | | | | | | | | | | | 7,800 |
| | (9 | ) | | 513,630 |
| | | | | | |
| | | | | | | | | | | | | | 10,700 |
| | (13 | ) | | 704,595 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | 25,650 |
| | (6 | ) | | 1,689,053 |
|
| | | | | | | | | | | | | | | | | | | | 21,900 |
| | (10 | ) | | 1,442,115 |
|
| | | | | | | | | | | | | | | | | | | | 10,700 |
| | (14 | ) | | 704,595 |
|
| |
(1) | Restricted stock unit vest at a rate of 25% on December 31, 2015, December 31, 2016, December 31, 2017 and December 31, 2018. |
| |
(2) | Performance stock units vest on June 1, 2018. |
| |
(3) | Fully vested on February 20, 2015. |
| |
(4) | Restricted stock units vest at a rate of 25% of the total number of shares subject to the restricted stock unit on the first year, second year, third year and fourth year anniversary of the date of grant for vesting on February 20, 2013, February 20, 2014, February 20, 2015 and February 20, 2016. |
| |
(5) | Restricted stock units vest at a rate of 25% of the total number of shares subject to the restricted stock unit on the first year, second year, third year and fourth year anniversary of the date of grant for vesting on February 20, 2014, February 20, 2015, February 20, 2016 and February 20, 2017. |
| |
(6) | Market stock units vest at a rate of 100% on February 20, 2016 for full vesting at the end of the three-year performance cycle. |
| |
(7) | Restricted stock units vest at a rate of 25% of the total number of shares subject to the restricted stock unit on the first year, second year, third year and fourth year anniversary of the date of grant for vesting on August 20, 2014, August 20, 2015, August 20, 2016, and August 20, 2017. |
| |
(8) | Restricted stock units vest at a rate of 25% of the total number of shares subject to the restricted stock unit on the first year, second year, third, fourth year anniversary of the date of grant for vesting on February 20, 2015, February 20, 2016, February 20, 2017, and February 20, 2018. |
| |
(9) | Restricted stock units vest at the rate of 50% on February 20, 2016 and 50% on February 20, 2017. |
| |
(10) | Market stock units vest at a rate of 100% on February 20, 2017 for full vesting at the end of three-year performance cycle. |
| |
(11) | Restricted stock units vest at a rate of 25% of the total number of shares subject to the restricted stock unit on the first year, second year, third and fourth year anniversary of the date of grant for vesting on November 20, 2014, November 20, 2015, November 20, 2016, and November 20, 2017. |
| |
(12) | Restricted stock units vest at a rate of 25% of the total number of shares subject to the restricted stock unit on the first year, second year, third year and fourth year anniversary of the date of grant for vesting on January 20, 2015, January 20, 2016, January 20, 2017, and January 20, 2018. |
| |
(13) | Restricted stock units vest at a rate of 25% of the total number of shares subject to the restricted stock unit on the first year, second year, third year, and fourth year anniversary of the date of grant for vesting on February 20, 2016, February 20, 2017, February 20, 2018 and February 20, 2019. |
| |
(14) | Performance stock units vest at a rate of 100% on February 20, 2018 |
| |
(15) | Fully vested December 1, 2014. |
| |
(16) | Restricted stock units vest at a rate of 25% of the total number of shares subject to the restricted stock unit on the first year, second year, third and fourth year anniversary of the date of grant for vesting on December 20, 2014, December 20, 2015, December 20, 2016, and December 20, 2017. |
(7)MSU vest 100% on February 20,2022.
(8)MSUs vest 100% on February 20, 2023.
(9)RSUs vest at a rate of Contents25% of the total number of shares on the first year, second year, third year and fourth year anniversary of the date of grant for vesting on September 20, 2018, September 20, 2019, September 20, 2020, and September 20, 2021.
(10)RSUs vest at a rate of 25% of the total number of shares on the first year, second year, third year and fourth year anniversary of the date of grant for vesting on March 20, 2020, March 20, 2021, March 20, 2022 and March 20, 2023.
OPTION EXERCISES AND STOCK VESTED DURING FISCAL YEAR ENDED 20152020
The following table provides information concerning each exercise of stock options, and eachthe vesting of restricted stock units,Stock Awards for each NEO during the fiscal year ended December 31, 2015. 2020:
| | | | | | | | | | | | | | | | | | |
| | | | Stock Awards |
| Name | | | | | | Number of Shares Acquired on Vesting (1) | | Value Realized on Vesting (2) |
| Joseph M. Hogan | | | | | | 95,499 | | | $ | 26,022,523 | |
| John F. Morici | | | | | | 23,276 | | | $ | 7,237,740 | |
| Simon Beard | | | | | | 16,633 | | | $ | 4,532,326 | |
| Julie Tay | | | | | | 17,246 | | | $ | 4,699,363 | |
| Raj Pudipeddi | | | | | | 2,233 | | | $ | 323,383 | |
(1)For each NEO, such number of shares represents the gross number of shares acquired by the NEO on the vesting date; however, because RSUs and MSUs are taxable to the individuals when they vest, the number of shares we issue to each of our NEOs is net of applicable withholding taxes which are paid by us on their behalf.
(2)The value realized on vesting equals the closing price per share of our common stock as reported on the NASDAQ Global Market on the vesting date multiplied by the gross number of shares acquired on vesting as described above in note 1.
|
| | | | | | | | | | | | | | |
| | | Option Awards | | Stock Awards |
| Name | | Number of Shares Acquired on Exercise | | Value Realized Upon Exercise (1) | | Number of Shares Acquired on Vesting (2) | | Value Realized on Vesting (3) |
| Joseph M. Hogan | | — |
| | $ | — |
| | 27,750 |
| | $ | 1,827,338 |
|
| Thomas M. Prescott | | — |
| | $ | — |
| | 133,125 |
| | $ | 7,562,831 |
|
| David L. White | | — |
| | $ | — |
| | 20,288 |
| | $ | 1,174,841 |
|
| Raphael S. Pascaud | | — |
| | $ | — |
| | 12,373 |
| | $ | 712,580 |
|
| Zelco Relic | | — |
| | $ | — |
| | 8,025 |
| | $ | 513,047 |
|
| Roger E. George | | 2,563 |
| | $ | 97,138 |
| | 38,813 |
| | $ | 2,204,967 |
|
| |
(1)
| The value realized on exercise equals the difference between (a) either (i) the actual sales price of our common stock underlying the options exercised if the shares were immediately sold or (ii) the closing price per share of our common stock as reported on the NASDAQ Global Market on the date of exercise if the shares were held and (b) the applicable exercise price of such stock options. |
| |
(2)
| For each NEO, such number of shares represents the gross number of shares acquired by the NEO on the vesting date; however, because RSUs and MSUs are taxable to the individuals when they vest, the number of shares we issue to each of our NEOs is net of applicable withholding taxes which are paid by us on their behalf. |
| |
(3)
| The value realized on vesting equals the closing price per share of our common stock as reported on the NASDAQ Global Market on the vesting date multiplied by the gross number of shares acquired on vesting as described above in note (2). |
POTENTIAL PAYMENT UPON TERMINATION OR CHANGE OF CONTROL
Named Executive Officers (Other than the CEO)
We enter into employment agreements with each of our executive officers. Each employment agreement with our NEOs (other than the CEO) contains substantially the same terms and conditions. Each employment agreement sets forth the base salary, bonus opportunity, stock options, benefits and the responsibilities of each position in effect at the time of execution of the agreement. In addition, each agreement requires Align to provide compensation to these officerstables in the event of termination of employment or a change of control of Align. The compensation due in the event of the termination of each employment agreement varies depending on the nature of the termination. What is meant by the terms “cause”, “good reason” and “change of control” is described more fully at the end of this section under the heading “Employment Agreement Definitions”. The information below does not include our former CEO as he was no longer employed by Align as of December 31, 2015.
The following table describes the potential payments upon termination or a change of control for each of our NEOs (other than the CEO):
|
| | | | | | | | | | | | | |
| Name | Type of Payment | | Payments Upon Involuntary or Good Reason Termination Unrelated to Change of Control | | Payments Upon Involuntary or Good Reason Termination Related to a Change of Control | | Change of Control Only |
| David L. White | Severance Payment | | $ | 932,800 |
| | $ | 932,800 |
| | — |
|
| | Equity | | | | | | |
| | RSUs | | $ | 1,788,618 |
| | $ | 4,079,342 |
| | $ | 1,788,618 |
|
| | MSUs | | $ | 1,277,608 |
| | $ | 2,666,925 |
| | $ | 1,277,608 |
|
| | Health and Welfare Benefits | | $ | 19,017 |
| | $ | 19,017 |
| | — |
|
| | Total | | $ | 4,018,043 |
| | $ | 7,698,084 |
| | $ | 3,066,226 |
|
| | | | | | | | |
| Raphael S. Pascaud | Severance Payment | | $ | 873,400 |
| | $ | 873,400 |
| | — |
|
| | Equity | | | | | | |
| | RSUs | | $ | 1,045,237 |
| | $ | 2,962,723 |
| | $ | 1,045,237 |
|
| | MSUs | | $ | 702,929 |
| | $ | 1,768,073 |
| | $ | 702,929 |
|
| | Health and Welfare Benefits | | | | | | — |
|
| | Total | | $ | 2,621,566 |
| | $ | 5,604,196 |
| | $ | 1,748,166 |
|
| | | | | | | | |
| Zelko Relic | Severance Payment | | $ | 787,600 |
| | $ | 787,600 |
| | — |
|
| | Equity | | | | | | |
| | RSUs | | $ | 758,921 |
| | $ | 1,929,405 |
| | $ | 758,921 |
|
| | MSUs | | $ | 463,694 |
| | $ | 1,382,850 |
| | $ | 463,694 |
|
| | Health and Welfare Benefits | | $ | 24,963 |
| | $ | 24,963 |
| | — |
|
| | Total | | $ | 2,035,178 |
| | $ | 4,124,818 |
| | $ | 1,222,615 |
|
| | | | | | | | |
| Roger E. George | Severance Payment | | $ | 814,000 |
| | $ | 814,000 |
| | — |
|
| | Equity | | | | | | |
| | RSUs | | $ | 1,358,979 |
| | $ | 3,030,680 |
| | $ | 1,358,979 |
|
| | MSUs | | $ | 4,065,424 |
| | $ | 5,753,644 |
| | $ | 4,065,424 |
|
| | Health and Welfare Benefits | | $ | 24,963 |
| | $ | 24,963 |
| | — |
|
| | Total | | $ | 6,263,366 |
| | $ | 9,623,287 |
| | $ | 5,424,403 |
|
NEOs. All amounts in the table above are estimated based on an assumed triggering date of December 31, 20152020 and the closing salessale price of our common stock of $534.38, on the NASDAQ Global Market on December 31, 2015 of $65.852020, which was the last trading day of the year. In addition, the MSU calculation is based on the performance of Align stock relative to the NASDAQ Composite index assuming the performance period ended December 31, 2015.
Termination Unrelated to a Change of Control. A termination unrelated to a change of control is a termination that occurs either before or 12 months after the change of control date. Each employment agreement with our NEOs (other than the CEO)
provides that in the event the executive’s employment is terminated without cause or if the executive resigns for good reason, such executive will:
(1) immediately vest in an additional number of shares under all outstanding option and RSU awards as if the executive had performed 12 additional months of service;
(2) in the case of MSUs, the performance period shall be deemed to end upon the NEO’s employment termination date for the purpose of determining the percentage amount that Align has over or underperformed the NASDAQ Composite index (the “Performance Multiplier”). The Performance Multiplier is calculated as follows:
| |
(i) | if Align under-performs the NASDAQ Composite index, the percentage at which the MSUs convert into shares of Align stock will be reduced from 100% at a rate of two to one (two-percentage-point reduction in units for each percentage point of under-performance); and |
| |
(ii) | if Align outperforms the index, the percentage at which the MSUs convert to shares will be increased from 100% at a rate of two to one (two-percentage-point increase in units for each percentage point of over-performance). |
The executive will then vest in that number of market stock units equal to A/36*X*Y with (A) representing the number of months (including partial months) that have elapsed from the commencement of the performance period through the date of the termination of employment and (X) representing the total number of MSUs subject to the award and (Y) representing the Performance Multiplier. With respect to the MSU awards, from the beginning of the performance period in each of February 2014, 2013 and 2012 until the assumed December 31, 2015 termination date, Align had outperformed the NASDAQ Composite Index by more than 25% which resulted in a Performance Multiplier of 150% in the calculations set forth in the above table.
(3)such executive is also entitled to receive a lump sum payment equal to:
| |
(i) | the then current annual base salary; |
| |
(ii) | the then current year’s target bonus, prorated for the number of days such executive has been employed during the year; and |
| |
(iii) | the greater of the then current year’s target bonus or the prior year’s actual bonus. |
Each employment agreement also provides that Align will pay the NEO's monthly premium under COBRA until the earliest of 12 months (18 months in the case of the CEO) following the termination of employment if terminated without cause or resignation for good reason or the date upon which the executive commences new employment.
Change of Control Only. Each employment agreement with our named executive officers provides that in the event of a change of control the executive will immediately vest in an additional number of shares under all outstanding stock option and RSU awards as if he or she had performed 12 additional months of service. For the purposes of determining the number of MSUs that will vest:
the performance period shall be deemed to end upon the closing of the change of control in order to determine Align’s stock price performance relative to the NASDAQ Composite index for the purpose of calculating the amount that Align has over or underperformed the NASDAQ Composite index (with the MSUs converting into shares of Align stock either being reduced from 100% (in the case of underperformance) or increased from 100% (in the case of overperformance) at a rate of two to one (the “Performance Multiplier”); and
Align’s stock price performance will be based on the per share value of the Company’s common stock paid to its stockholders in connection with the change of control.
On the date of the change of control, the executive will vest in that number of MSUs equal to A/36*X*Ywith (A) representing the number of months (including partial months) that have elapsed from the commencement of the performance period through the date of the change of control and (X) representing the total number of MSUs subject to the award and (Y) representing the Performance Multiplier.
A Termination Related to a Change of Control. A termination related to a change of control is a termination that occurs within 12 months from the change of control date. Each employment agreement with our named executive officers (other than the CEO) provides that, if, within 12 months of a change of control either the executive’s employment is terminated without cause or the executive resigns for good reason then the executive will:
| |
(1) | immediately vest in all outstanding equity awards; and |
| |
(2) | be entitled to a payment (payable in a lump sum) equal to: |
| |
(i) | executive’s then current annual base salary; |
| |
(ii) | executive’s then current year’s target bonus prorated for the number of days employed during the year, and |
| |
(iii) | the greater of the then current year’s target bonus or the prior year’s actual bonus. |
Each employment agreement also provides that Align will pay the NEOs monthly premium under COBRA until the earliest of 12 months following the termination of employment if terminated without cause or resignation for good reason or the date upon which the executive commences new employment.
Conditions to Payment. Prior to receiving any payments upon termination of employment, the executive officer must execute a general release of all known and unknown claims that such officer may have against Align and agree not to prosecute any legal action or other proceedings based upon any of such claims. In addition, each executive has agreed, for a period of one year following termination, not to solicit employees of Align and has further agreed to be bound by the terms of a confidentiality agreement with Align.
Chief Executive OfficerMr. Hogan
Mr. Hogan serves as our President and Chief Executive OfficerCEO pursuant to an employment agreement entered into on April 17,16, 2015. The employment agreement provides that Mr. Hogan is entitled to an annual target bonus of 150% of his base salary based upon the attainment of performance objectives agreed upon in each fiscal year and established by the Board.
The following table describes the potential payments upon termination or a change of control for our Chief Executive Officer. Note that all amounts are estimated based on an assumed triggering date of December 31, 2015 and the closing sale price of our common stock on the NASDAQ Global Market on December 31, 2015 of $65.85, which was the last trading day of the year.Mr. Hogan:
| | | Name | Type of Payment | | Payments Upon Involuntary or Good Reason Termination Unrelated to Change of Control | | Payments Upon Involuntary or Good Reason Termination Related to a Change of Control | | Change of Control Only | | Death or Disability | Name | | Type of Payment | | Payments Upon Involuntary or Good Reason Termination Unrelated to
Change of Control | | Payments Upon Involuntary or Good Reason Termination Related to a Change of Control | | Change of
Control
Only | | Death or Disability |
| Joseph M. Hogan | Severance Payment | | $ | 5,462,500 |
| | $ | 5,462,500 |
| | $ | — |
| | $ | — |
| Joseph M. Hogan | | Severance Payment | | $ | 7,333,000 | | | $ | 7,333,000 | | | $ | — | | | $ | — | |
| | Equity | | | | | | | | | |
| | RSUs | | | | $ | 5,482,013 |
| | $ | 1,827,338 |
| | $ | 5,482,013 |
| | RSUs | | — | | | 17,078,785 | | | 7,863,224 | | | 17,078,785 | |
| | MSUs | | | | $ | 10,964,025 |
| | $ | 2,131,894 |
| | $ | 10,964,025 |
| | MSUs | | — | | | 149,552,506 | | | 103,587,621 | | | 149,552,506 | |
| | Health and Welfare Benefits | | $ | 1,304 |
| | $ | 1,304 |
| | $ | 1,304 |
| | $ | — |
| | Health and Welfare Benefits | | 1,485 | | | 1,485 | | | — | | | — | |
| | Total | | $ | 5,463,804 |
| | $ | 21,909,842 |
| | $ | 3,960,536 |
| | $ | 16,446,038 |
| | Total | | $ | 7,334,485 | | | $ | 173,965,776 | | | $ | 111,450,845 | | | $ | 166,631,291 | |
Termination Unrelated to a Change of Control.A termination unrelated to a change of control is a termination that occurs either before or 18 months after the change of control date. In the event Mr. Hogan is terminated other than for cause, death or disability or he resigns for good reason, Mr. Hogan is entitled to a payment (payable in a lump sum) equal to:
| |
(1) | twice his then current annual base salary; |
| |
(2) | the then current year’s target bonus, prorated for the number of days Mr. Hogan has been employed during the year; and |
| |
(3) | the greater of 150% of the then current year’s target bonus or the prior year’s actual bonus. |
(1)twice his then current annual base salary;
(2)the then current year’s target bonus, prorated for the number of days Mr. Hogan has been employed during the year; and
(3)the greater of 150% of the then current year’s target bonus or the prior year’s actual bonus.
Mr. Hogan's employment agreement also provides that Align will pay his monthly premium under COBRA until the earliest of 18 months following the termination of employment if terminated without cause or resignation for good reason or the date upon which Mr. Hogan commences new employment.
Change of Control Only.In the event of a change of control, Mr. Hogan will immediately vest in an additional number of shares under all outstanding stock option and RSU awards as if he had performed 12 additional months of service. For the purposes of determining the number of MSUs that will vest:
•the performance period shall be deemed to end upon the closing of the change of control in order to determine Align’sour stock price performance relative to the NASDAQ Composite index for the purpose of calculating the amount that Align haswe have over or underperformed the NASDAQ Composite index (with the MSUs converting into shares of Align stock either being reduced from 100% (in the case of underperformance) or increased from 100% (in the case of overperformance) at a rate of two to oneover-performance) (the “Performance Multiplier”"Performance Multiplier"); and
Align’s•our stock price performance will be based on the per share value of the Company’sour common stock paid to itsour stockholders in connection with the change of control.
On the date of the change of control, Mr. Hogan will vest in that number of MSUs equal to A/(A)/36*X*Y(X)*(Y) with (A) representing the number of months (including partial months) that have elapsed from the commencement of the performance period through the date of the change of control and (X) representing the total number of MSUs subject to the award and (Y) representing the Performance Multiplier.
Termination Related to a Change of Control.A termination related to a change of control is a termination that occurs within 18 months fromafter the change of control date. If within 18 months ofafter a change of control either Mr. Hogan’sHogan's employment is terminated other than for cause, death or disability or Mr. Hogan resigns for good reason, he would immediately vest in all outstanding equity awards and receive a payment (payable in a lump sum) equal to:
| |
(1) | twice his then current annual salary; |
| |
(2) | the then current year’s target bonus, prorated for the number of days Mr. Hogan has been employed during the year; and |
| |
(3) | the greater of 150% of the then current year’s target bonus or the prior year’s actual bonus. |
(1)twice his then current annual salary;
(2)the then current year's target bonus, prorated for the number of days Mr. Hogan has been employed during the year; and
(3)the greater of 150% of the then current year's target bonus or the prior year's actual bonus.
Mr. Hogan’sHogan's employment agreement also provides that Alignwe will pay his monthly premium under COBRA until the earliest of 18 months following the termination of employment if terminated without cause or resignation for good reason or the date upon which Mr. Hogan commences new employment.
Death or Disability. In the event Mr. Hogan's employment terminates as a result of his death or disability, Mr. Hogan (or his estate) will immediately vest in 100% of all outstanding equity awards. On the date of the employment termination due to death or disability, the performance period shall be considered closed, and the date of the termination shall be used in order to determine Align'sour stock price performance relative to the NASDAQ Composite index for the purpose of calculating the amount that Align has over or underperformed the NASDAQ Composite index (with the MSUs converting into shares of Align stock either being reduced from 100% (in the case of underperformance) or increased from 100% (in the case of overperformance) at a rate of two to one.index.
Conditions to Payment.Prior to receiving any payments upon termination of his employment, Mr. Hogan must execute a general release of all known and unknown claims that he may have against Align and agree not to prosecute any legal action or other proceedings based upon any of such claims. In addition, Mr. Hoganhe has agreed, for a period of one year following termination, not to solicit employees of Alignour employees and has further agreed to be bound by the terms of a confidentiality agreement with Align.us.
Messrs. Morici and Pudipeddi
Mr. Morici serves as our Chief Financial Officer pursuant to an employment agreement entered into on November 7, 2016 and Mr. Pudipeddi pursuant to a similar agreement entered into on February 4, 2019. In determining the terms of their agreements, the Compensation Committee determined that Messrs. Morici and Pudipeddi (and any individual joining Align or who is promoted to a senior management position after September 2016) would have a similar form of employment agreement with severance and change of control provisions described in the table below. Specifically, these updated forms of employment agreement provide only for one year's base salary upon termination by us for convenience unrelated to a change of control which is a termination that occurs either before or 18 months after the change of control date. In addition, in the event of a change of control, the Compensation Committee has determined that all cash severance and equity acceleration is subject to a double trigger as described below.
The following table describes the potential payments upon termination or a change of control for Messrs. Morici and Pudipeddi:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Type of Payment | | Payments Upon Involuntary or Good Reason Termination Unrelated to Change of Control | | Payments Upon Involuntary or Good Reason Termination Related to a Change of Control | | Change of
Control Only |
| John F. Morici | | Severance Payment | | $ | 540,000 | | | $ | 1,616,000 | | | N/A |
| | RSUs | | — | | | 4,754,379 | | | N/A |
| | MSUs | | — | | | 17,269,665 | | | |
| | Health and Welfare Benefits | | — | | | 28,494 | | | N/A |
| | Total | | $ | 540,000 | | | $ | 23,668,538 | | | |
| | | | | | | | |
| Raj Pudipeddi | | Severance Payment | | $ | 490,000 | | | $ | 1,451,000 | | | N/A |
| | RSUs | | — | | | 4,739,951 | | | N/A |
| | MSUs | | — | | | 5,894,211 | | | |
| | Health and Welfare Benefits | | — | | | 28,494 | | | N/A |
| | Total | | $ | 490,000 | | | $ | 12,113,656 | | | |
Termination Unrelated to a Change of Control. A termination for convenience unrelated to a change of control is a termination that occurs either before or 18 months after the change of control date. Upon such occurrence, the employment agreements of Messrs. Morici and Pudipeddi each provide that if his employment is terminated without cause or if he resigns for good reason, he will receive one year's base salary.
A Termination Related to a Change of Control. A termination related to a change of control is a termination that occurs within 18 months after the date of a change of control. If within 18 months after a change of control the employment of either Messrs. Morici or Pudipeddi is terminated without cause or he resigns for good reason, then he would:
(1)immediately vest in all outstanding equity awards;
(2)receive a lump sum payment equal to:
(a)his then current annual base salary;
(b)his then current year's target bonus, prorated for the number of days he has been employed during the year; and
(c)the greater of his then current year's target bonus or the prior year's actual bonus.
The employment agreement also provides that Align will pay his monthly premium under COBRA until the earliest of 12 months following the termination of employment if terminated without cause or resignation for good reason or the date upon which he commences new employment.
Conditions to Payment. Prior to receiving any payments upon termination of employment, Messrs. Morici and Pudipeddi must each execute a general release of all known and unknown claims that he may have against Align and agree not to prosecute any legal action or other proceedings based upon any of such claims. In addition, each of Messrs. Morici and Pudipeddi have agreed, for a period of one year following termination, not to solicit our employees and has further agreed to be bound by the terms of a confidentiality agreement with us.
Ms. Tay and Mr. Beard
The employment agreement entered into by each of Ms. Tay and Mr. Beard contain substantially the same terms and conditions. Each employment agreement sets forth the base salary, bonus opportunity, stock options, benefits and the responsibilities of each position in effect at the time of execution of the agreement. In addition, each agreement requires we provide compensation to each of Ms. Tay and Mr. Beard in the event of termination of employment or a change of control. The compensation due in the event of the termination of each employment agreement varies depending on the nature of the termination. What is meant by the terms "cause", "good reason" and "change of control" is described more fully at the end of this section under the heading "Employment Agreement Definitions".
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Type of Payment | | Payments Upon Involuntary or Good Reason Termination Unrelated to Change of Control | | Payments Upon Involuntary or Good Reason Termination Related to a Change of
Control | | Change of
Control Only |
| Simon Beard | | Severance Payment | | $ | 1,568,000 | | | $ | 1,568,000 | | | $ | — | |
| | | | | | | | |
| | RSUs | | 1,630,527 | | | 3,338,272 | | | 1,630,527 | |
| | MSUs | | 8,209,068 | | | 14,788,657 | | | 8,209,068 | |
| | Health and Welfare Benefits | | 8,977 | | | 8,977 | | | — | |
| | Total | | $ | 11,416,572 | | | $ | 19,703,906 | | | $ | 9,839,595 | |
| | | | | | | | |
| Julie Tay | | Severance Payment | | $ | 1,542,000 | | | $ | 1,542,000 | | | $ | — | |
| | | | | | | | |
| | RSUs | | 1,677,018 | | | 3,424,307 | | | 1,677,018 | |
| | MSUs | | 8,456,662 | | | 15,186,770 | | | 8,456,662 | |
| | Health and Welfare Benefits | | — | | | — | | | — | |
| | Total | | $ | 11,675,680 | | | $ | 20,153,077 | | | $ | 10,133,680 | |
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Termination Unrelated to a Change of Control. A termination for convenience unrelated to a change of control is a termination that occurs either before or 12 months after the change of control date. Upon such occurrence, these employment agreements provide that in the event the employment of Ms. Tay or Mr. Beard is terminated without cause or if either resigns for good reason, each will:
(1) immediately vest in an additional number of shares under all outstanding option and RSU awards as if she or he had performed 12 additional months of service;
(2) in the case of MSUs, the performance period shall be deemed to end upon her or his employment termination date for the purpose of determining the percentage amount that Align has over or underperformed the NASDAQ Composite index (the "Performance Multiplier"). The Performance Multiplier is calculated as follows:
(i)if we under-perform the NASDAQ Composite index, the percentage at which the MSUs convert into shares of Align stock will be reduced from 100% at a rate of three to one; and
(ii)if we outperform the index, the percentage at which the MSUs convert to shares will be increased from 100% at a rate of three to one.
Each NEO will then vest in that number of MSUs equal to (A)/36*(X)*(Y) with (A) representing the number of months (including partial months) that have elapsed from the commencement of the performance period through the date of the termination of employment and (X) representing the total number of MSUs subject to the award and (Y) representing the
Performance Multiplier. With respect to the MSU awards, from the beginning of the performance period in each of February 2017, 2018, and 2019 until the assumed December 31, 2020 termination date, if we had outperformed the NASDAQ Composite Index by more than 33% for the 2017 grant and 50% for the 2018 and 2019 grants which resulted in a Performance Multiplier of at maximum of 200% (for the 2017 grant) and 250% (for the 2018 and 2019 grants) in the calculations set forth in the above table.
(3)she or he is also entitled to receive a lump sum payment equal to:
(a)her or his then current annual base salary;
(b)her or his then current year's target bonus, prorated for the number of days she or he has been employed during the year; and
(c)the greater of her or his then current year's target bonus or the prior year's actual bonus.
Each employment agreement also provides that we will pay such NEO's monthly premium under COBRA until the earliest of 12 months following the termination of employment if terminated without cause or resignation for good reason or the date upon which each commences new employment.
Change of Control Only. The employment agreements with each of Ms. Tay and Mr. Beard provide that in the event of a change of control she or he will immediately vest in an additional number of shares under all outstanding stock option and RSU awards as if she or he had performed 12 additional months of service. For the purposes of determining the number of MSUs that will vest:
•the performance period shall be deemed to end upon the closing of the change of control in order to determine our stock price performance relative to the NASDAQ Composite index for the purpose of calculating the amount that we have over or underperformed the NASDAQ Composite index (with the MSUs converting into shares of Align stock either being reduced from 100% (in the case of underperformance) or increased from 100% (in the case of over performance) at a rate of three to one (the "Performance Multiplier"); and
•our stock price performance will be based on the per share value of our common stock paid to our stockholders in connection with the change of control.
On the date of the change of control, each will vest in that number of MSUs equal to (A)/36*(X)*(Y) with (A) representing the number of months (including partial months) that have elapsed from the commencement of the performance period through the date of the change of control and (X) representing the total number of MSUs subject to the award and (Y) representing the Performance Multiplier.
A Termination Related to a Change of Control. A termination related to a change of control is a termination that occurs within 12 months from the change of control date. The employment agreements with each of Ms. Tay, and Mr. Beard provide that, if, within 12 months of a change of control, either her or his employment is terminated without cause or she or he resigns for good reason then she or he will:
(1)immediately vest in all outstanding equity awards; and
(2)be entitled to a payment (payable in a lump sum) equal to:
(a)her or his then current annual base salary;
(b)her or his then current year's target bonus prorated for the number of days employed during the year, and
(c)the greater of her or his then current year's target bonus or the prior year's actual bonus.
Each employment agreement also provides that we will pay their monthly premium under COBRA until the earliest of 12 months following the termination of employment if terminated without cause or resignation for good reason or the date upon which each commences new employment.
Conditions to Payment. Prior to receiving any payments upon termination of employment, Ms. Tay and Mr. Beard must execute a general release of all known and unknown claims that either may have against Align and agree not to prosecute any legal action or other proceedings based upon any of such claims. In addition, each has agreed, for a period of one year following termination, not to solicit our employees and further agreed to be bound by the terms of a confidentiality agreement with us.
Employment Agreement Definitions
Definition of Cause.In each employment agreement described above, cause means any of the following:
•unauthorized use or disclosure of the confidential information or trade secrets of Align;
•any breach of the employment agreement, or the Employee Proprietary Information and Inventions Agreement or the Align Protection Agreement between the executivethem and Align;
•conviction of, or a plea of “guilty” or “no contest” to, a felony under the laws of the United States or any state thereof;
•misappropriation of theour assets of Align or any act of fraud or embezzlement by the executive,them, or any act of dishonesty by the executivethem in connection with the performance of hisher or herhis duties for Alignus that adversely affects itsour business or affairs;
•intentional misconduct; or
•the executive’sindividual's failure to satisfactorily perform hisher or herhis duties after the executivehaving received written notice of such failure and was provided at least thirty (30) days to cure such failure.
Definition of Good Reason.In each employment agreement described above, good reason means the executive’sindividual's resignation within ninety (90) days of the occurrence of any one or more of the following events:
the executive’s•their position, authority or responsibilities being significantly reduced;
the executive•their being asked to relocate her or his principal place of employment such that the commuting distance from hisher or herhis residence prior to the change of control is increased by over thirty-five (35) miles;
the executive’s•their annual base salary or bonus being reduced; or
the executive’s•their benefits being materially reduced.
Definition of Change of Control.In each employment agreement described above, change of control means any of the following:
•a sale of all or substantially all of Align’sour assets;
•the acquisition of more than 50% of theour common stock of Align by any person or group of persons;
•a reorganization of Align wherein the holders of our common stock of Align receive stock in another company (other than a subsidiary of Align), a merger of Align with another company wherein there is a 50% or greater change in the ownership of theour common stock of Align as a result of such merger, or any other transaction in which Alignwe (other than as the parent corporation) isare consolidated for federal income tax purposes or isare eligible to be consolidated for federal income tax purposes with another corporation; or
•in the event that the common stock is traded on an established securities market, a public announcement that any person has acquired or has the right to acquire beneficial ownership of more than 50% of theour then outstanding common stock, or the commencement of or public announcement of an intention to make a tender offer or exchange offer for more than 50% of theour then outstanding common stock.
Other Termination of Employment and Change of Control Arrangements
In addition to the termination of employment and change of control arrangements described above, the Compensation Committee of the Board has the authority as Plan Administrator of the 2005 Incentive Plan (as amended) to accelerate the vesting of outstanding equity immediately upon an acquisition or change in ownership or majority of the Board.
Other Compensation Matters
CEO Pay Ratio
Our compensation and benefits philosophy and the overall structure of our compensation and benefit programs are broadly similar across the organization. Compensation rates are benchmarked and set to be market-competitive in the country in which the jobs are performed. We identified the median employee using our employee population on December 31, 2020. As of that date, we had 18,178 employees, of which 1,582 were employed inside the United States, 13,315 (approximately 73% of our global workforce) were employed in one of our manufacturing and technician operations in Mexico, Costa Rica, China, Germany or Spain, and the remaining 3,281 employees were employed in 36 other countries.
In identifying the median employee, we excluded 838 workers (approximately 4.6% of our workforce) from the following countries: Austria, 7; Baltics (Lithuania and Latvia), 1; Belgium, 10; Croatia, 4; Czechoslovakia, 4; Denmark, 8; Finland, 1; Hong Kong, 44; Hungary, 1; India, 128; Ireland, 4; Luxembourg, 1; New Zealand, 4; Norway, 3; Poland, 370; Portugal, 4; Slovakia, 3; South Korea, 42; Sweden, 4; Taiwan, 43; Thailand, 44; Turkey, 33; United Arab Emirates, 32; and Vietnam, 43. After taking into account the de minimis exemption, 1,582 employees in the United States and 15,759 employees located outside of the United States were considered for identifying the median employee.
We considered actual annual base pay, actual bonus payout, and equity income, for the purposes of determining the median employee. We annualized the salaries for those employees that were hired in 2020. We did not perform adjustments to the compensation paid to part-time employees to calculate what they would have been paid on a full-time basis.
Using this methodology, we determined that our median employee was a CAD Designer 2 working in our treat facility in Costa Rica. In determining the annual total compensation of the median employee, we calculated such employee’s
compensation in accordance with Item 402(c)(2)(x) of Regulation S-K as required pursuant to SEC executive compensation disclosure rules. This calculation is the same calculation used to determine total compensation for purposes of the 2020 Summary Compensation Table with respect to each of the NEOs.
Our median employee compensation for a CAD Designer 2 position in Costa Rica in 2020 as calculated using Summary Compensation Table requirements was $11,961. Our CEO’s compensation as reported in the Summary Compensation Table was $15,522,289. Therefore, our CEO to median employee pay ratio is 1,298 to 1.
This information is being provided for compliance purposes. Neither the Compensation Committee nor management of the Company used the pay ratio measure in making compensation decisions.
CORPORATE SOCIAL RESPONSIBILITY
Our purpose as an organization is to transform smiles and change lives and it is the purpose that is the heart of who we are as an organization; making us critically aware of the role and impact we have on society as a global corporate citizen. Our Board and management realize that for us to fulfill our purpose we must be committed to improving the lives of our employees, customers and their patients, suppliers, stockholders, and the communities in which we live and work. Conducting our business ethically, responsibly, and transparently through open and clear disclosures that allow us and others to hold us accountable is the right thing to do and is just the beginning. In the long run, our efforts will benefit the world in which we live, generate pride and commitment from our employees, strengthen our brand, and ultimately increase value for all our stakeholders.
To further our initiatives, our Board has delegated oversight responsibility to our Nominating and Governance Committee over our environmental, social and governance (ESG) efforts, including those related to corporate social responsibility. Our approach to corporate social responsibility encompasses the following pillars: Philanthropy, Employees, and Sustainability. In 2020, our focus naturally shifted in response to the significant tolls the COVID-19 pandemic placed on people's lives and their financial stability as we worked to secure and promote the health, safety and well-being of our employees, customers and their patients and the communities in which we work and live. Our achievements reflect that focus.
Demonstrating our commitment to these ideals, in 2020 we:
•Global Code of Conduct. We materially revised our Code to emphasize our commitment to deter wrongdoing, promote integrity and ethical conduct, and deliver superior treatment outcomes and experiences to patients
•Global Speak Up Policy. We launched a new Speak Up Policy to show our commitment to conducting business ethically, honestly and legally
•CSR Responsibility. We elevated the role responsible for our corporate social responsibility efforts to vice president; tasked with consolidating and organizing the myriad of worldwide initiatives underway under a common program
Philanthropy. Giving back to has always played an important role in our culture and the COVID-19 pandemic increased the need to support our community significantly in 2020. While we maintained our overall philanthropic philosophy to support organizations whose visions tie closely to our own - transforming smiles, supporting and educating teens, and advancing technology through research and other partnerships with learning institutions and/or foundations - we also focused more specifically on the immediate needs of the community, our employees, customers and their patients and healthcare workers in general. Our efforts included initiatives such as:
•Donations. We launched our Align Foundation in 2020; a platform through which employees are encouraged to contribute their time, talent, and financial resources to worthy causes. The Align Foundation also provides a structured means by which significant donations are directed from a donor-advised fund overseen by Fidelity Charitable, with the flexibility to provide smaller monetary donations, processes to donate our products (the Invisalign System treatment and iTero scanners), and organized ways to involve our employees in giving activities. Align and our employees made significant donations of money, materials and time and effort in 2020.
◦Donated 1 million renminbi to the Chinese Red Cross Foundation to support its COVID-19 prevention and outbreak control efforts
◦Donated $1 million in the fight against COVID-19 to relief efforts around the world
◦Donated personal protective equipment ("PPE") to healthcare workers and patients in the fight against COVID-19, including dedicating a portion of our extensive custom 3-D printing manufacturing facilities to the production of PPE by converting manufacturing and tooling equipment to produce PPE and teaming with public and private organizations globally to reduce the scarcity of parts and materials needed for PPE.
•Operation Smile - We continued our support of Operation Smile, an international medical charity that provides free surgeries to children and young adults in developing countries born with cleft lip, cleft palate or other dental and facial conditions. Consistent with our mission to transform smiles and change lives, it is a partnership that continues to grow and evolve. To date, we have donated almost $1.5 million, enabling the organization to life-saving reconstructive cleft surgeries to tens of thousands of the world's most vulnerable patients, and grow its reach to more than 60 countries.
•America’s ToothFairy - The mission of America's ToothFairy is to ensure underserved children in the United States can access dental care and learn about oral health through nonprofit clinics and community partners. For more than 12 years we have supported the efforts of America’s ToothFairy by providing almost $2 million for the foundation’s operational expenses and children’s oral health programs, and in the process helped more than eight million children and their caregivers learn about preventing tooth decay and gum disease. In 2020, America’s ToothFairy, with Align's help, provided over 600,000 children with oral health education and hygiene instruction.
•Month of Smiles - Month of Smiles is a dedicated month of giving when all employees are encouraged to donate their time and talent to make a difference in the lives of others. In 2020, many of our offices around the world organized community service activities that offered employees the opportunity to contribute to, to work together as teams or individuals to help others. In addition, employees took time to give back to causes that are meaningful to them through volunteer activities, personal donations and intentional acts of kindness. Our collective impact was something of which we are proud - more than 3,000 employees globally volunteered their time, gave more than 5,000 hours back to their communities, and partnered with more than 60 charitable organizations around the world during our 2020 Month of Smiles.
Employees. We believe we are at our best, and that our success is driven by, our openness and willingness to accept those with differing backgrounds, beliefs, perspectives and capabilities in our workforce. We have diversity, inclusion and belonging in our policies and practices, education and events, and executive and community programs, which in 2020 included:
•Employee Survey- Every year we initiate an employee survey to gather feedback from our employees. In 2020, we incorporated additional questions to hear from our employees about their experiences and opinions around inclusion.
•REACH@align - We launched a new employee resource group ("ERG") in the US and Brazil called REACH which stands for Recruitment, Education, Awareness, Cultural-diversity, and High Achievement. This ERG focuses on the professional development and recruitment of minorities, cultural awareness and diversity and inclusion efforts at Align.
•Health and Safety - We implemented policies designed to keep our personnel and their families safe. Our global remote working arrangements for our non-manufacturing teams continue in place in many of our offices, with essential workers allowed into our commercial and development sites on a limited basis. For our large manufacturing workforce for which remote working is impossible, we have implemented, and provided training in the proper use and application of, significant safety protocols.
•Fiscal Security - A major component of protecting the health and safety of our employees was fostering an environment in which they felt secure financially so that they so that they in turn could contribute to the well-being of their families and the economies and communities in which they live. We achieved this by openly committing to our employees at the outset that we would not layoff or furlough any employees. Additionally, we told employees that we would not be seeking pay cuts or deferrals.
•Women in Leadership - Our global women@align chapters offer and encourage networking, professional development, leadership mentoring, and educational projects for all levels of employees.
•Diversity and Inclusion Education and Awareness - We have education and awareness programs, focused on unconscious bias, diversity and inclusion. We also have speakers and facilitated dialogues supporting diversity and inclusion initiatives to further increase empathy and cultural awareness.
•Month of Wellness - The Month of Wellness is a worldwide movement fostering employee health. The Month of Wellness provides employees with a variety of wellness activities and initiatives worldwide to support their overall well-being in areas such as nutrition, fitness, financial planning, and stress management.
•Volunteer and Service Leadership - Our goal is to inspire and develop employees through serving others in the communities where they work and live. We encourage our employees to volunteer through organized company activities or on their own with volunteer time off programs for applicable employees.
In addition to our other achievements in 2020, we were also honored with numerous awards for our positive work environment and culture, most recently the Great Place to Work in Brazil along with others including:
•For the second year in a row, Align was named one of the Best Places to Work in IT by Computerworld who surveyed organizations across the U.S. to identify those that provide the best benefits and amenities for IT professionals. Among the attributes contributing to the award were our training, health insurance, retirement funding, flexible time off policies, and collaborative work environments.
•The Canadian Great Place to Work ("GPTW") program recognized Align as a top workplace in both 2019 and 2020 in the areas of Giving Back, Managed by Women, and in Healthcare. Companies were ranked based on employee responses to the GPTW Trust Index survey.
•For the third year in a row, the Triangle Business Journal ("TBJ") named Align's Raleigh, North Carolina office among the Top 50 Best Places to Work in the Triangle area based on employee feedback to a TBJ survey.
Sustainability. We continue to innovate for a more sustainable future for our planet. In 2020, we remained focused on reducing our impact on the environment and our climate with efforts to reduce product packaging, recycling waste as well as decreasing waste and emissions, and increasing renewable energy usage.
•We continued to open new facilities and other sites that are closer to our customers which helps us decrease carbon emitting activities from shipping our products, including fully opening our new manufacturing facility in Ziyang, China.
•Suppliers are key to all aspects of our business and we chose suppliers that have sustainable business practices to serve our core business processes. Our largest shipping partner, UPS, integrates sustainability into their strategic objectives and business operations designed to reduce their environmental impact, including decreasing their green house gas emissions and waste.
•We've reduced the polymer content used in our aligners by almost 50% in just over five years. In addition, the majority of all scrap/waste generated by our manufacturing processes are used for energy by an incinerator to power its operations; thereby substantially reducing the amount of waste sent to landfills.
•We launched an Invisalign clear aligner recycling program, currently in a pilot phase in the U.S. and Brazil, that encourages customers and their patients to return used and unused aligners which are recycled in partnership with TerraCycle®, an innovative recycling company that has become a global leader in recycling hard-to-recycle materials.
•Our Juarez, Mexico manufacturing site received recognition from the State of Chihuahua for two exemplary environmental efforts; one for environmental best practices and the other for environmental compliance. Both are a reflection of our commitment to sustainable business practices such as water reuse, waste reduction and reduced energy consumption and greenhouse gases by integrating renewable energy sources.
•The use of iTero scanners reduces the need for traditional impressions and the mining of the materials used to make those impressions.
•Globally, we work to reduce the environmental impact of our processes and transportation by using energy efficient building designs and controls (e.g. renewable energy, including solar panels, motion activated lights, LED lighting, etc.) and work to reduce emission from employee transportation by providing car charging stations to promote zero or low emission cars, electric vehicle car fleets, incentives for carpooling, and organizing company sponsored employee transportation. We are also in the process of eliminating single use plastics in our facilities.
Suppliers. We believe in transparent and responsible business practices, including in our relationship with those who work in our supply chain. We expect our supply partners to follow the highest standards in the industry, such as ISO 14001 and we require our suppliers to adhere to responsible sourcing. For instance, we prohibit our suppliers from profiting from the sale of tantalum, tin, tungsten, and gold ("conflict minerals") that funds conflict in the Democratic Republic of the Congo and adjoining countries by requiring them to source such minerals from socially responsible suppliers. Additionally, we participate in organizations focused on conducting operations in a socially and environmentally responsible manner, including organizations that support social, environmental, and ethical responsibility globally.
PRINCIPAL STOCKHOLDERS
Except as otherwise noted in the footnotes to the following table, the information contained in the table below sets forth the beneficial ownership of our common stock as of March 24, 20162021 by:
•each stockholder known by us to own beneficially more than 5% of our common stock;
•each of our named executive officers namedas set forth in the summary compensation table on page 51 of this proxy statement;
•each of our directors; and
•all of our current directors and executive officers as a group.group (15 persons).
Beneficial ownership is determined based on the rules of the SEC. The column captioned “Total"Total Shares Beneficially Owned”Owned" represents the number of shares of our common stock beneficially owned and the number of shares of our common stock subject to options that are currently exercisable or will become exercisable, restricted stock unitsRSUs and market stock unitsMSUs that will vest on or before May 23, 2016.2021. The number of shares subject to options that each beneficial owner has the right to acquire and restricted stock unitsRSUs and MSUs that will vest on or before May 23, 20162021 is listed separately under the column “Number"Number of Shares Underlying Options
Exercisable and RSUs/MSUs vesting on or before May 23, 2016.”2021." These shares are not deemed exercisable or vested for purposes of computing the percentage of shares beneficially owned by any other person. “Percentage"Percentage of Outstanding Shares Beneficially Owned”Owned" is based upon [_____________]79,135,585 shares of our common stock outstanding as of March 24, 2016.2021. The address for those individuals for which an address is not otherwise provided is c/o Align Technology, Inc., 2560 Orchard Parkway, San Jose, California 95131.410 N. Scottsdale Rd. Suite 1300 Tempe, AZ 85281. Unless otherwise indicated, we believe the stockholders listed below have sole voting or investment power with respect to all shares, subject to applicable community property laws.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name and Address | | Number of
Outstanding
Shares
Beneficially
Owned | | Number of Shares Underlying Options Exercisable and RSUs vesting on or before May 23, 2021 (1) | | Total Shares
Beneficially
Owned | | Percentage of
Outstanding
Shares
Beneficially
Owned |
The Vanguard Group (2) | | 7,623,829 | | | — | | | 7,623,829 | | | 9.7 | % |
BlackRock, Inc. (3) | | 5,436,327 | | | — | | | 5,436,327 | | | 6.9 | % |
Gordon Gund, family members and affiliated entities (4) | | 4,710,225 | | | — | | | 4,710,225 | | | 6.0 | % |
Edgewood Management LLC (5) | | 4,613,620 | | | — | | | 4,613,620 | | | 5.9 | % |
Joseph M. Hogan (6) | | 145,432 | | | — | | | 145,432 | | | * |
| John F. Morici | | 9,903 | | | — | | | 9,903 | | | * |
| Simon Beard | | 23,483 | | | — | | | 23,483 | | | * |
| Julie Tay | | 20,764 | | | — | | | 20,764 | | | * |
| Raj Pudipeddi | | 1,452 | | | — | | | 1,452 | | | * |
| Kevin J. Dallas | | 2,337 | | | 1,271 | | | 3,608 | | | * |
| Joseph Lacob | | 154,085 | | | 1,271 | | | 155,356 | | | * |
| C. Raymond Larkin, Jr. | | 32,052 | | | 1,694 | | | 33,746 | | | * |
| George J. Morrow | | 16,478 | | | 1,271 | | | 17,749 | | | * |
| Anne M. Myong | | 1,499 | | | 1,271 | | | 2,770 | | | * |
| Thomas M. Prescott | | 52,858 | | | 1,271 | | | 54,129 | | | * |
| Andrea L. Saia | | 12,487 | | | 1,271 | | | 13,758 | | | * |
| Greg J. Santora | | 11,578 | | | 1,271 | | | 12,849 | | | * |
| Susan E. Siegel | | 3,892 | | | 1,271 | | | 5,163 | | | * |
Warren S. Thaler (7) | | 94,199 | | | 1,271 | | | 95,470 | | | * |
| All current executive officers and directors as a group (15 persons) | | 568,606 | | | 13,133 | | | 581,739 | | | 0.7 | % |
*Less than 1%
(1)Except as otherwise set forth in the footnotes below, represents shares of common stock that can be acquired upon the exercise of stock options and vesting of restricted stock units on or before May 23, 2021. This column includes the full amount of restricted stock units that will vest on or before May 23, 2021, although each executive officer will actually receive the number of shares net of the number of shares necessary to cover any applicable withholding taxes which Align will pay on their behalf.
(2)Based on a filing with the SEC on Schedule 13G/A on February 10, 2021 indicating beneficial ownership as of December 31, 2020. Includes shares held by direct and indirect subsidiaries. The mailing address for The Vanguard Group is 100 Vanguard Blvd., Malvern, PA 19355.
(3)Based on a filing with the SEC on Schedule 13G/A, on January 29, 2021 indicating beneficial ownership as of December 31, 2020. Includes shares held by direct and indirect subsidiaries. The mailing address for BlackRock, Inc. is 55 East 52nd Street, New York, New York 10055.
(4)Based on a filing with the SEC on Schedule 13G/A on February 11, 2021 indicating beneficial ownership as of December 31, 2020. Includes shares held in trust for immediate family members and shares held by immediate family members. The mailing address for Gordon Gund is P.O. Box 3599, Battlecreek, Michigan 49016-3599.
(5)Based on a filing with the SEC on Schedule 13G/A on February 16, 2021 indicating beneficial ownership as of December 31, 2020. Includes shares held by advisory clients of Edgewood Management LLC, none of whom are deemed to beneficially own more than 5% of Align's common stock. The mailing address for Edgewood Management LLC is 535 Madison Avenue, 15th Floor, New York, New York 10022.
(6)Includes 1,500 shares held by a member of the household.
(7) Includes 27,821 shares held by Mr. Thaler and 66,378 shares held by The Thaler Family Trust for the benefit of Contentsfamily members as to which Mr. Thaler disclaims beneficial ownership.
|
| | | | | | | | | | |
| Name and Address | Number of Outstanding Shares Beneficially Owned | | Number of Shares Underlying Options Exercisable and RSUs vesting on or before May 23, 2016 (1) | | Total Shares Beneficially Owned | | Percentage of Outstanding Shares Beneficially Owned |
| Gordon Gund, family members and affiliated entities (2) | 7,017,150 |
| | — |
| | 7,017 |
| | [___]% |
| BlackRock, Inc. (3) | 5,054,469 |
| | — |
| | 5,054,469 |
| | [___]% |
| AllianceBernstein L.P. (4) | 4,815,022 |
| | — |
| | 4,815,022 |
| | [___]% |
| The Vanguard Group (5) | 4,766,319 |
| | — |
| | 4,766,319 |
| | [___]% |
| William Blair Investment Management, LLC (6) | 4,028,313 |
| | — |
| | 4,028,313 |
| | [___]% |
| Joseph M. Hogan | 13,270 |
| | — |
| | | | |
| Thomas M. Prescott | 176,026 |
| | 13,125 |
| | 189,151 |
| | * |
| David L. White | 11,549 |
| | | | 11,549 |
| | * |
| Raphael S. Pascaud | 8,887 |
| | 5,400 |
| | 14,287 |
| | * |
| Zelco Relic | 13,577 |
| | | | 13,577 |
| | * |
| Roger E. George | 30,161 |
| | | | 30,161 |
| | * |
| Joseph Lacob (7) | 644,255 |
| | 45,500 |
| | 689,755 |
| | * |
| C. Raymond Larkin, Jr. | 70,260 |
| | 67,700 |
| | 137,960 |
| | * |
| George J. Morrow | 40,900 |
| | 55,500 |
| | 96,400 |
| | * |
| David C. Nagel | 25,800 |
| | 65,500 |
| | 91,300 |
| | * |
| Andrea L. Saia | 9,067 |
| | 5,500 |
| | 14,567 |
| | * |
| Greg J. Santora | 35,900 |
| | 5,500 |
| | 41,400 |
| | * |
| Warren S. Thaler (8) | 141,684 |
| | 5,500 |
| | 147,184 |
| | * |
| All current executive officers and directors as a group (18 persons) | 1,301,581 |
| | 277,250 |
| | 1,578,831 |
| | [___]% |
| |
(1) | Except as otherwise set forth in the footnotes below, represents shares of common stock that can be acquired upon the exercise of stock options and vesting of restricted stock units on or before May 23, 2016. This column includes the full amount of restricted stock units that will vest on or before May 23, 2016, although each executive officer will actually receive the number of shares that have vested net of the number of shares necessary to cover any applicable withholding taxes which Align will pay on their behalf. |
| |
(2) | Based on a filing with the Securities and Exchange Commission on Schedule 13G/A on February 9, 2016, indicating beneficial ownership as of December 31, 2015. Includes shares held in trust for immediate family members and shares held by immediate family members. The mailing address for Gordon Gund is P.O. Box 449, Princeton, New Jersey 08542. |
| |
(3) | Based on a filing with the Securities and Exchange Commission on Schedule 13G/A on January 25, 2016, indicating beneficial ownership as of December 31, 2015. Includes shares held by direct and indirect subsidiaries. The mailing address for BlackRock, Inc. is 55 East 52nd Street, New York, New York 10055.
|
| |
(4) | Based on a filing with the Securities and Exchange Commission on Schedule 13G on February 16, 2016, indicating beneficial ownership as of December 31, 2015. The mailing address for AllianceBernstein L.P. is 1345 Avenue of the Americas, New York, NY 01015. |
| |
(5) | Based on a filing with the Securities and Exchange Commission on Schedule 13G/A, on February 10, 2016, indicating beneficial ownership as of December 31, 2015. Includes shares held by direct and indirect subsidiaries. The mailing address for The Vanguard Group is 100 Vanguard Blvd., Malvern, PA 19355. |
| |
(6) | Based on a filing with the Securities and Exchange Commission on Schedule 13G on February 9, 2016, indicating beneficial ownership as of December 31, 2015. The address for William Blair Investment Management, LLC is 240 W. Adams St., Chicago, IL 60606. |
| |
(7) | Includes 495,488 shares held by the Joseph S. Lacob Trust and 148,767 shares held by Lacob Children’s Trust. Principal address is 2750 Sand Hill Road, Menlo Park, CA 94025. |
| |
(8) | Includes 53,100 shares held by Mr. Thaler and 88,584 shares held by The Thaler Family Trust, for the benefit of family members, as to which Mr. Thaler disclaims beneficial ownership. |
DELINQUENT SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCEREPORTS
Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of the copies of such forms that we have received, or written representations from reporting persons, we believe that during the year ended December 31, 2015,2020, all executive officers, directors and greater than 10% stockholders complied with all applicable filing requirements.requirements, except as follows: Ms. Jennifer Olson had late Forms 5 which were corrected in a filing on May 22, 2020.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Review, approval or ratification of transactions with related persons
Our Board has adopted a Global Code of Business Conduct and Ethics("Code") that is applicable to all directors, officers and employees of Align, including Align’sour principal executive officer, principal financial officer and controller. TheUnder the Code provides in writing, that Align discourages itsand pursuant to our other policies and procedures, we encourage our directors, officers and employees fromto avoid actual or potential conflicts of interest, including by discouraging conducting company business with a relative or significant other, or with a business in which an employee, a relative or significant other is associated in any significant role (each a “Related Party”"Related Party"). If, however, such a Related Party transaction is unavoidable, the Code provides that all employees (other than theour directors and officers of Align)executive officers) must fully disclose the nature of the relationship and the transaction to their supervisor, and the Chief FinancialLegal and Regulatory Officer must approve in advance the Related Party transaction. If, however:
•you are a director or officermember of Alignsenior management and you desire to enter into a transaction with a Related Party (as defined above); or
•you are an employee (other than a director or officer)member of senior management) and you desire to enter into a transaction with a Related Party that the Chief FinancialLegal and Regulatory Officer (in consultation with legal counsel) has deemed to be material to Align and is reportable under the rules and regulations of the Exchange Act,
the nature of the transaction must be fully disclosed to the Audit Committee of the Board and such interesttransaction must be approved by the Audit Committee.
Related Party Transaction Disclosure:
On February 19, 2021, we entered into a sponsorship agreement with the Golden State Warriors, LLC, pursuant to which the Invisalign brand is the Official Smile Partner of the Golden State Warriors of the National Basketball Association, the Santa Cruz Warriors of the NBA G League and the Golden Guardians, an esports affiliate of the Golden State Warriors. The Company didsponsorship includes an omni-channel activation across television, digital media and social media and a jersey partnership with the Golden Guardians and the Santa Cruz Warriors. Joseph Lacob, a member of our Board, is the Co-Executive Chairman and CEO of Golden State Warriors, LLC. The cost associated with the agreement is in excess of $120,000 per year, but is not an amount that is material to Align.
ALIGN TECHNOLOGY, INC.
410 N. Scottsdale Rd. Suite 1300
Tempe, AZ 85281
_______________________________
PROXY STATEMENT FOR THE
2021 ANNUAL MEETING OF STOCKHOLDERS
__________________________________
GENERAL INFORMATION
Q: Why am I receiving these materials?
A: We have made these materials available to you via the Internet or delivered paper copies to you by mail in connection with our 2021 Annual Meeting of Stockholders ("Annual Meeting"), which will take place online at 10:00 a.m., Pacific Time, on Wednesday, May 19, 2021. As a stockholder, you are invited to participate in the Annual Meeting via live webcast and vote on the items of business described in this proxy statement.
Q: What is included in these materials?
A: The proxy materials include:
•this proxy statement; and
•our 2020 Annual Report on Form 10-K for the fiscal year ended December 31, 2020 ("Annual Report").
If you received a paper copy of these materials by mail, the proxy materials also include a proxy card for the Annual Meeting. If you received a notice of the Internet availability of the proxy materials instead of a paper copy of the proxy materials, see "How do I vote?" below.
Q: What information is contained in these materials?
A: The information in this proxy statement contains important information regarding our Annual Meeting. Specifically, it:
•identifies the proposals on which you are being asked to vote
•provides information regarding voting procedures at the Annual Meeting
•discusses our corporate governance policies and practices
•describes the compensation paid to our directors and certain executive officers and
•discloses other information that we are required to provide to you under applicable laws and regulations
Q: Why did I receive a notice in the mail regarding the Internet availability of the proxy materials instead of a paper copy of the full set of proxy materials?
A: In accordance with rules adopted by the SEC, we are making our proxy materials available over the Internet. Stockholders will not receive printed copies of the proxy materials unless they request them. Instead, the Notice of Internet Availability of Proxy Materials ("Notice") mailed to most of our stockholders describes how you may access and review the proxy materials on the Internet. The Notice also provides instructions as to how you may submit your proxy via the Internet. If you received the Notice by mail and would prefer to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials in the Notice.
Q: How can I access the proxy materials over the Internet?
A: Our proxy materials are available at http://www.viewproxy.com/aligntech/2021 and will be available during the voting period at www.proxyvote.com.
Q: Can I vote my shares by filling out and returning the Notice of Internet Availability of Proxy Materials?
A: No. The Notice only identifies the items to be voted on at the Annual Meeting. You cannot vote by marking the Notice and returning it. The Notice provides instructions as to how to cast your vote.
Q: What is the difference between holding shares directly or as a beneficial owner, in street name?
A: Most of our stockholders hold their shares as beneficial owners through a brokerage firm, bank or other nominee. As summarized below, there are some differences between shares held directly (of record) and those owned beneficially.
Stockholder of Record: If on the Record Date your shares were registered directly in your name with our transfer agent, Computershare Limited, then you are considered the "stockholder of record." As a stockholder of record, you may vote in person at the Annual Meeting or vote by proxy.
Beneficial Owner: If on the Record Date your shares were held on your behalf in an account with a brokerage firm, bank or other nominee, the brokerage firm, bank or other nominee is considered the stockholder of record of your shares and you are considered the beneficial owner of those shares held in "street name." If you are a beneficial owner, these proxy materials are being forwarded to you by the organization considered the stockholder of record of your shares. As a beneficial owner, you may direct your nominee as to how to vote your shares. Your nominee should have enclosed or provided voting instructions for you to use directing it as to how to vote your shares. Please note that as a beneficial owner, you may not vote your shares at the Annual Meeting unless you request and obtain a valid proxy from the organization that is your nominee holding your shares, giving you the right to vote the shares at the Annual Meeting.
VIRTUAL ANNUAL MEETING INFORMATION
Q: How can I participate in the Annual Meeting?
A: Our Annual Meeting will again be an entirely virtual meeting conducted via live webcast. The Annual Meeting webcast will begin promptly at 10:00 a.m., Pacific Time, on Wednesday, May 19, 2021. Online access will begin at 9:30 a.m., Pacific Time, and we encourage you to access the Annual Meeting early.
To be admitted to the Annual Meeting, stockholders as of the Record Date must register in advance at http://viewproxy.com/aligntech/2021/htype.asp
• Registered Stockholders: Stockholders who hold shares in their own name or have received a Notice or proxy card must click "Registration for Registered Holders" and enter their name, phone number, Virtual Control Number (found on your Notice or proxy card) and email address.
• "Street name" or Beneficial Stockholders: Stockholders who hold shares through a bank, broker, or other similar agent, must click "Registration for Beneficial Holders" and enter their name, phone number and email, and click submit. Thereafter, please email a copy of your legal proxy or proof of ownership that you obtain from your bank or broker to Virtualmeeting@viewproxy.com. If you are unable to obtain a legal proxy to vote your shares, you will still be able to attend the 2021 annual meeting (but will not be able to vote your shares) so long as you demonstrate proof of stock ownership. Instructions on how to connect and participate via the Internet, including how to demonstrate proof of stock ownership, are posted at http://viewproxy.com/aligntech/2021/htype.asp.
Q: Why is the Annual Meeting only virtual?
A: For the health and well-being of our stockholders, employees, officers, directors and their families as well as the communities in which we live and work, we have again chosen to conduct the Annual Meeting in a virtual-only meeting format, via live audio webcast. A virtual meeting provides a convenient and efficient means to administer our Annual Meeting while allowing stockholders to safely participate from any related party transactions in 2015.location around the world.
Q: How can I submit questions during the Annual Meeting?
A: During registration and also the Annual Meeting, you may submit questions pertaining to the business of the Annual Meeting according to instructions to be provided either during registration or the Annual Meeting. At the Annual Meeting, each stockholder will be limited to one question. Questions pertinent to the business of the Annual Meeting will be read aloud and answered, subject to time constraints, after the end of the business portion of the Annual Meeting.
Q: What are the rules of procedure for the Annual Meeting?
A: The rules and procedures for the Annual Meeting will be available at http://viewproxy.com/aligntech/2021/htype.asp.
Q: Will the list of Contentsstockholders be available during the Annual Meeting?
A: During the Annual Meeting, the list of our stockholders of record entitled to vote at the Annual Meeting will be available for viewing by stockholders as of the Record Date upon request, for any purpose germane to the Annual Meeting.
Q: What if I have technical difficulties or trouble accessing the Annual Meeting?
A: We will have technicians ready to assist you with any technical difficulties you experience accessing the Annual Meeting. If you encounter any difficulties, please call:
866-612-8937(toll-free)
973-873-7684 (international)
VOTING INFORMATION
Q: Who can vote at the Annual Meeting?
A: If you are a stockholder of record or a beneficial owner who owned our common stock at the close of business on March 24, 2021, the record date for the Annual Meeting ("Record Date"), you are entitled to vote at the Annual Meeting. As of the Record Date, 79,135,585 shares of our common stock were issued and outstanding and no shares of our preferred stock were issued and outstanding.
Q: How do I vote my shares during the Annual Meeting?
A: By logging into the webcast, Registered Stockholders will be able to vote electronically on all proposals to be considered at the Annual Meeting. Please note, Beneficial Stockholders must submit a copy of their legal proxy or proof of ownership in advance toVirtualmeeting@viewproxy.comin order to vote their shares during the Annual Meeting.
Even if you plan to participate in the Annual Meeting online, we recommend that you also vote by proxy as described below so that your vote will be counted if you later decide not to participate.
Q: How can I vote my shares without participating in the Annual Meeting?
A: Internet. You may vote over the Internet by following the instructions on the Notice. Stockholders who receive printed proxy materials may vote over the Internet by following the instructions on the proxy card. Most of Align’s stockholders who hold shares beneficially in street name may vote by accessing the website specified in the voting instructions provided by their broker, bank or other nominee. A number of banks and brokerage firms are participating in a program provided through Broadridge Investor Communication Solutions that offers the means to vote their shares through the Internet. If your shares are held in an account with a participating broker or bank, you may grant a proxy to vote those shares via the Internet by contacting the website shown on the instruction form received from your broker or bank. To be counted at the Annual Meeting, your vote must be received by 8:59 p.m. Pacific Time, on May 18, 2021.
Telephone. Stockholders of record may vote by following the “Vote by Telephone” instructions on their Notice or on their proxy cards until 8:59 p.m. Pacific Time, on May 18, 2021.
Mail. If you requested printed proxy materials, you can submit your vote by completing, signing and dating the proxy card mailed to you and returning it in the accompanying pre-addressed envelope. Proxy cards must be received prior to the closing of the polls at the Annual Meeting in order for the votes to be recorded.
Q: What if I don’t give specific voting instructions?
A: In the election of directors, you may vote “FOR,” “AGAINST” or “ABSTAIN.” If you elect to “ABSTAIN” in the election of directors, the abstention will not impact the election of directors. In tabulating the voting results for the election of directors, only "FOR" and "AGAINST" votes are counted.
For the other items of business, you may vote "FOR", "AGAINST" or "ABSTAIN". For these other items of business, if you elect to abstain, the abstention will have the same effect as an "AGAINST" vote.
If you indicate your choice on your proxy on a particular matter to be acted upon, the shares will be voted as indicated.
If you are a stockholder of record and you return a signed proxy card but do not indicate how you wish to vote, the proxy holders will vote your shares in the manner recommended by the Board on all matters presented in this proxy statement and as the proxy holders may determine in their discretion with respect to any other matters properly presented for a vote at the Annual Meeting. If you do not return the proxy card, your shares will not be voted and will not be deemed present for the purpose of determining whether a quorum exists.
If you are a beneficial owner and the nominee organization holding your shares does not receive instructions from you as to how to vote those shares, under the rules of various national and regional securities exchanges, that organization may exercise discretionary authority to vote on routine proposals (the ratification of the appointment of PricewaterhouseCoopers LLP ("PwC") as our independent public accountants) but may not vote on non-routine proposals (each of the other proposals). We encourage you to provide instructions to your broker regarding the voting of your shares.
If you do not provide voting instructions to your broker and the broker has indicated that it does not have discretionary authority to vote on a particular proposal, your shares will be considered “broker non-votes” with regard to that matter. Broker non-votes will be considered as represented for purposes of determining a quorum but generally will not be considered as entitled to vote with respect to a particular proposal. Broker non-votes are not counted for purposes of determining the number of votes cast with respect to a particular proposal. Thus, a broker non-vote will make a quorum more readily obtainable, but the broker non-vote will not otherwise affect the outcome of the vote on a proposal that requires the affirmative vote of a majority of the shares present and entitled to vote. For proposal 3 which requires 66 2/3% of the Outstanding Shares of Voting Stock to vote "FOR", a broker non-vote will have the same effect as an "AGAINST" vote.
Q: Can I change or revoke my vote?
A: You may change your proxy voting instructions at any time before your votes are cast at the Annual Meeting.
If you are a stockholder of record, you may either:
•grant a new proxy bearing a later date by following the instructions provided in the Notice or the proxy card, which will automatically revoke the previous proxy;
•provide written notice of the revocation to:
Corporate Secretary
Align Technology, Inc.
410 N. Scottsdale Rd. Suite 1300
Tempe, AZ 85281
prior to the time we take the vote at the Annual Meeting; or
•participate in the Annual Meeting and vote. Your presence at the Annual Meeting will not cause your previously granted proxy to be revoked unless you specifically request that it be revoked.
If you are a beneficial owner of shares held in street name, you may either:
•timely submit new voting instructions to your broker or other nominee; or
•if you have obtained a legal proxy from your broker or other nominee giving you the right to vote your shares during the Annual Meeting, participate in the Annual Meeting and vote online.
Q: What are we voting on and what vote is required to approve each item?
A: The proposals that will be presented at the Annual Meeting, the vote required for passage of each, our Board's voting recommendations, and the way the vote is calculated for the proposals are as follows:
| | | | | | | | | | | | | | | | | | | | |
| PROPOSAL | | Vote Required | | Board's Voting Recommendation | | Broker Discretionary Voting Allowed? |
| Proposal 1 — To Elect 10 Director Nominees | | A nominee must receive more "for" votes than "against" votes and the number of votes "for" must be the majority of the required quorum | | FOR | | NO |
| | |
| Proposal 2 — To Ratify the Appointment of PwC as our Independent Registered Public Accounting Firm for Fiscal Year 2021 | | Majority of Shares Entitled to Vote and Present in Person or Represented by Proxy | | FOR | | YES |
| | |
| Proposal 3 — To Ratify an Amendment of our Bylaws to designate Delaware and the District Courts of the United States as the Exclusive Forums for adjudication of certain disputes | | 66 2/3% of the Outstanding Shares of Voting Stock, meaning Common Shares Outstanding | | FOR | | NO |
| | | | | | |
| Proposal 4 - To Approve the amendment and restatement of our 2010 Employee Stock Purchase Plan | | Majority of Shares Entitled to Vote and Present in Person or Represented by Proxy | | FOR | | NO |
| | | | | | |
| Proposal 5 - To Consider an Advisory Vote to Approve the Compensation of our Named Executive Officers | | Majority of Shares Entitled to Vote and Present in Person or Represented by Proxy | | FOR | | NO |
We will also consider any other business that properly comes before the Annual Meeting. As of [●], we are not aware of any other matters to be submitted for consideration at the Annual Meeting. If any other matters are properly brought before the Annual Meeting, the persons named in the proxy cards will vote the shares they represent using their best judgment.
Q: What constitutes a quorum?
A: A quorum, which is a majority of the outstanding shares of our common stock as of the Record Date, must be present or represented by proxy in order to hold the Annual Meeting and to conduct business. As of the Record Date, 79,135,585 shares of common stock, representing the same number of votes, were outstanding. That means that we need the holders of at least 39,567,793 shares of common stock to be represented for us to have a quorum. Your shares will be counted as present at the Annual Meeting if you attend the Annual Meeting in person. Your shares will be considered present and represented by proxy if you submit a properly executed proxy card or vote via the Internet or by telephone. Under the General Corporation Law of the State of Delaware, abstentions and broker “non-votes” are counted as present and entitled to vote and so are included for purposes of determining whether a quorum is present at the Annual Meeting.
If a quorum is not present at the scheduled time of the Annual Meeting, then either the chairman of the Annual Meeting or the stockholders by vote of the holders of a majority of the stock having voting power present in person or represented by proxy at the Annual Meeting are authorized by our Bylaws to adjourn the Annual Meeting until a quorum is present or represented.
Q: Who will bear the cost of soliciting votes for the Annual Meeting?
A: We will bear the entire cost of proxy solicitation, including the preparation, assembly, printing and mailing of proxy materials, and making the proxy materials and voting options available online and by phone. The original solicitation of proxies by mail may be supplemented by solicitation by telephone and other means by directors, and employees of Align. None of these officers, directors or employees will receive special compensation for such services. In addition, we may reimburse brokerage firms and other custodians for their reasonable out-of-pocket expenses for forwarding these proxy materials to you and establishing and administering the Annual Meeting.
Q: Who will count the vote?
A: We expect a representative from Align will tabulate the proxies and act as inspector of the election.
ADDITIONAL INFORMATION
Q: What is Align’s website address?
A. Our website address is www.aligntech.com. We make this proxy statement, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, available on our website in the Investors section, as soon as reasonably practicable after electronically filing such material with the Securities and Exchange Commission (“SEC”).
This information is also available free of charge at www.sec.gov, an Internet site maintained by the SEC that contains reports, proxy and information statements and other information regarding issuers that are filed electronically with the SEC. Stockholders may obtain free copies of the documents filed with the SEC by contacting our Investor Relations department by sending a written request to Align Technology, Inc., 410 N. Scottsdale Rd. Suite 1300 Tempe, AZ 85281, Attn: Investor Relations or by sending an email to investorinfo@aligntech.com.
Q: Where can I find the voting results of the meeting?
A: We expect to announce preliminary results at the Annual Meeting. The final results will be published in a Current Report on Form 8-K, which we expect to file with the SEC by May 25, 2021.
Q: What if multiple stockholders share the same address?
A: To reduce expenses, we are delivering a single copy of the Notice and, if applicable, the proxy materials to certain stockholders who share a single address, unless otherwise requested by one of the stockholders. A separate proxy card is included in the voting materials for each of these stockholders. To receive a separate copy of the Notice and, if applicable, the proxy materials you may contact us by calling (408) 470-1000 or by writing to us at Align Technology, Inc., 410 N. Scottsdale Rd. Suite 1300 Tempe, AZ 85281, Attn: Investor Relations. You may also contact us by calling or writing if you would like to receive separate materials for future annual meetings.
Q: Is there any information that I should know regarding future annual meetings?
A: Stockholder proposals that timely satisfy the conditions set forth in SEC regulations under Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials may be included in our proxy statement for an annual meeting. For a stockholder proposal to be considered for inclusion in our proxy statement for the 2022 Annual Meeting of Stockholders, we must receive the proposal at our principal executive offices, addressed to the Corporate Secretary, no later than December 6, 2021. A stockholder proposal that is not intended for inclusion in our proxy statement under Rule 14a-8 may be brought before the 2022 Annual Meeting so long as we receive information and notice of the proposal in compliance with the requirements set forth in our Bylaws, addressed to the Corporate Secretary at our principal executive offices, not later than February 19, 2022 nor earlier than January 20, 2022.
OTHER MATTERS
We know of no other matters to be submitted at the Annual Meeting. If any other matters properly come before the Annual Meeting, it is the intention of the persons named in the enclosed proxy card to vote the shares they represent as the Board may recommend or, if the Board has not provided a recommendation, in accordance with their own judgment.
It is important that your shares be represented at the Annual Meeting, regardless of the number of shares that you hold. You are, therefore, urged to mark, sign, date, and return the accompanying proxy card as promptly as possible in the postage-prepaid envelope enclosed for that purpose.
|
| |
| THE BOARD OF DIRECTORS OF |
| ALIGN TECHNOLOGY, INC. |
|
April [__], 2016[●] |
APPENDIX A
Reconciliation Non-GAAP to GAAP page vi and 45 of the Proxy Statement
Reconciliation of GAAP to Non-GAAP Profit from Operations
(in thousands)
|
| | | | | | | | | | | |
| | Year Ended |
| | December 31, 2015 | | December 31, 2014 | | December 31, 2013 |
| GAAP Profit from Operations | $ | 144,020 |
| | $ | 193,576 |
| | $ | 94,212 |
|
Impairment of goodwill (1) | — |
| | — |
| | 40,693 |
|
Impairment of long lived assets (2) | — |
| | — |
| | 26,320 |
|
| Non-GAAP Profit from Operations | $ | 144,020 |
| | $ | 193,576 |
| | $ | 161,225 |
|
|
| | | | | | | | | | | |
| Reconciliation of GAAP to Non-GAAP Net Profit | | | | | |
| (in thousands, except per share amounts) | | | | | |
| | Year Ended |
| | December 31, 2015 | | December 31, 2014 | | December 31, 2013 |
| GAAP Net profit | $ | 144,020 |
| | $ | 145,832 |
| | $ | 64,295 |
|
Impairment of goodwill (1) | — |
| | — |
| | 40,693 |
|
Impairment of long lived assets (2) | — |
| | — |
| | 26,320 |
|
Tax effect on non-GAAP adjustments (3) | — |
| | — |
| | (3,788 | ) |
| Non-GAAP Net profit | $ | 144,020 |
| | $ | 145,832 |
| | $ | 127,520 |
|
| GAAP net profit per diluted share | $ | 1.77 |
| | $ | 1.77 |
| | $ | 0.78 |
|
| Non-GAAP net profit per diluted share | $ | 1.77 |
| | $ | 1.77 |
| | $ | 1.54 |
|
| Shares used in computing diluted GAAP net profit per share | 81,521 |
| | 82,283 |
| | 82,589 |
|
| Shares used in computing diluted non-GAAP net profit per share | 81,521 |
| | 82,283 |
| | 82,589 |
|
| |
(1)
| Impairment of goodwill. This charge represents non-cash write-downs of our goodwill. During the third quarter of 2012, we determined that there were sufficient indicators such as the termination of our distribution agreement with Straumann for iTero intra-oral scanners as well as the market conditions and business trends within our Scanners and Services ("Scanner") reporting unit for an impairment of goodwill. In the first quarter of 2013, changes in the competitive environment for intra-oral scanners, including announcements from our competitors of new low-priced scanners targeted at orthodontists and general practitioner dentists in North America, caused us to lower our expectations for growth and profitability for our Scanner reporting unit which resulted in the impairment of our remaining Scanner goodwill. We remove the impact of these charges to our operating performance to assist in assessing our ability to generate cash from operations. We believe this may be useful information to users of our financial statements and therefore we have excluded these charges for purposes of calculating these non-GAAP measures to facilitate an evaluation of our current operating performance, particularly in terms of liquidity. |
(2 ) Impairment of long lived assets. This charge represents non-cash write downs of our long lived assets. In the first quarter of 2013, changes in the competitive environment for intra-oral scanners, including announcements from our competitors of new low-priced scanners targeted at orthodontists and general practitioner dentists in North America, caused us to lower our expectations for growth and profitability for our Scanner reporting unit which resulted in the impairment of our Scanner intangible assets for $19.3 million and plant and equipment for $7.0 million.
(3) Income tax-related adjustments. Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for discrete tax items and items excluded from GAAP income in calculating the non-GAAP financial measures presented above. Our estimated tax rate on non-GAAP income is determined annually and may be re-calculated during the year to take into account events or trends that we believe materially impact the estimated annual rate.
Reconciliation of 2015 Adjusted Non-GAAP Profit from Operations used for Company Multiplier on page 45 of the Proxy Statement
(in thousands)
|
| | | |
| GAAP Profit from Operations | $ | 144,020 |
|
| Foreign Exchange impact on FY15 operating expenses | 11,000 |
|
| Additional Aligner deferral on FY15 revenues | 14,000 |
|
| Organizational costs on FY15 operating expenses | 4,000 |
|
| Stock-based compensation | 52,943 |
|
Medical Device Excise Tax(4) | (6,800 | ) |
Other one-time adjustment (5) | 4,400 |
|
| Adjusted Non-GAAP Profit from Operations for Company Multiplier | $ | 223,563 |
|
(4) Medical Device Excise tax ("MDET"): During March 2014, it was determined that our Aligners are not subject to the MDET. Prior to this determination, MDET expense was included in our 2014 target for Adjusted Operating Income. As a result, the Compensation Committee determined to exclude the beneficial impact of not paying MDET since it would have resulted in an unintended gain to the Company Multiplier.
(5) Other one-time adjustment: This charge relates to our enterprise resource planning (ERP) software.
ALIGN TECHNOLOGY, INC.
2005 INCENTIVE PLAN
(as amended and restated May 16, 2016)
1.Purposes of the Plan. The purposes of this Plan are:
to attract and retain the best available personnel for positions of substantial responsibility,
to provide incentives to individuals who perform services to the Company, and
to promote the success of the Company’s business.
The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock, SARs, Restricted Stock Units, Performance Units, Performance Shares and other stock or cash awards as the Administrator may determine.
2.Definitions. As used herein, the following definitions will apply:
(a)“Administrator” means the Board or any of its Committees as will be administering the Plan, in accordance with Section 4 of the Plan.
(b)“Affiliate” means any corporation or any other entity (including, but not limited to, partnerships and joint ventures) controlling, controlled by, or under common control with the Company.
(c)“Applicable Laws” means the legal and regulatory requirements relating to the administration of equity-based awards, including but not limited to U.S. federal and state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any non-U.S. country or jurisdiction where Awards are, or will be, granted under the Plan.
(d)“Award” means, individually or collectively, a grant under the Plan of Options, Restricted Stock, SARs, Restricted Stock Units, Performance Units, Performance Shares and other stock or cash awards as the Administrator may determine.
(e)“Award Agreement” means the written or electronic agreement setting forth the terms and provisions applicable to each Award granted under the Plan. The Award Agreement is subject to the terms and conditions of the Plan.
(f)“Board” means the Board of Directors of the Company.
(g)“Change in Control” means the occurrence of any of the following events:
(i)A change in the ownership of the Companywhich occurs on the date that any one person, or more than one person acting as a group (“Person”), acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock of the Company; provided, however, that for purposes of this subsection (i), the acquisition of additional stock by any one Person, who is considered to own more than fifty percent (50%) of the total voting power of the stock of the Company will not be considered a Change in Control. Further, if the shareholders of the Company immediately before such change in ownership continue to retain immediately after the change in ownership, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately prior to the change in ownership, direct or indirect beneficial ownership of fifty percent (50%) or more of the total voting power of the stock of the Company or of the ultimate parent entity of the Company, such event shall not be considered a Change in Control under this subsection (i). For this purpose, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company, as the case may be, either directly or through one or more subsidiary corporations or other business entities; or
(ii)A change in the effective control of the Company which occurs on the date that a majority of members of the Board is replaced during any twelve (12)-month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purposes of this subsection (ii), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control; or
(iii)A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the twelve (12)‑month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this subsection (iii), the following will not constitute a change in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an entity that is controlled by the Company’s shareholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a shareholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a Person described
in this subsection (iii)(B)(3). For purposes of this subsection (iii), gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
For purposes of this definition, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
Notwithstanding the foregoing, a transaction will not be deemed a Change in Control unless the transaction qualifies as a change in control event within the meaning of Code Section 409A, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time.
Further and for the avoidance of doubt, a transaction will not constitute a Change in Control if: (i) its sole purpose is to change the state of the Company’s incorporation, or (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
(h) “Code” means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code or Treasury Regulation promulgated thereunder shall include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(i)“Committee” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board in accordance with Section 4 hereof.
(j)“Common Stock” means the common stock of the Company.
(k)“Company” means Align Technology, Inc., a Delaware corporation, or any successor thereto.
(l)“Consultant” means any natural person, including an advisor, engaged by the Company or a Parent, Subsidiary or Affiliate to render bona fide services to such entity, provided the services (i) are not in connection with the offer or sale of securities in a capital-raising transaction, and (ii) do not directly promote or maintain a market for the Company’s securities, in each case, within the meaning of Form S-8 promulgated under the Securities Act, and provided, further, that a Consultant will include only those persons to whom the issuance of Shares may be registered under Form S-8 promulgated under the Securities Act.
(m)“Determination Date” means the latest possible date that will not jeopardize the qualification of an Award granted under the Plan as “performance-based compensation” under Section 162(m) of the Code.
(n)“Director” means a member of the Board.
(o)“Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided that in the case of Awards other than Incentive Stock Options, the Administrator in its discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Administrator from time to time.
(p)“Employee” means any person, including Officers and Directors, employed by the Company or its Affiliates. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company.
(q)“Exchange Act” means the Securities Exchange Act of 1934, as amended.
(r)“Exchange Program” means a program under which (i) outstanding Awards are surrendered or cancelled in exchange for awards of the same type (which may have higher or lower exercise prices and different terms), Awards of a different type, and/or cash, (ii) Participants would have the opportunity to transfer any outstanding Awards to a financial institution or other person or entity selected by the Administrator, and/or (iii) the exercise price of an outstanding Award is increased or reduced.
(s)“Fair Market Value” means, as of any date, the value of Common Stock as the Administrator may determine in good faith by reference to the price of such stock on any established stock exchange or a national market system on the day of determination if the Common Stock is so listed on any established stock exchange or a national market system. If the Common Stock is not listed on any established stock exchange or a national market system, the value of the Common Stock as the Administrator may determine in good faith.
(t)“Fiscal Year” means the fiscal year of the Company.
(u)“Incentive Stock Option” means an Option that by its terms qualifies and is otherwise intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.
(v)“Inside Director” means a Director who is an Employee.
(w)“Misconduct” means the commission of any act of fraud, embezzlement or dishonesty by the Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Company or its Affiliates, or any other intentional misconduct by such person adversely affecting the business or affairs of the Company or its Affiliates in a material manner. The foregoing definition will not in any way preclude or restrict the right of the Company or its Affiliates to
discharge or dismiss any Participant for any other acts or omissions, but such other acts or omissions will not be deemed, for purposes of the Plan, to constitute grounds for termination for Misconduct.
(x)“Nonstatutory Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.
(y)“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(z)“Option” means a stock option granted pursuant to the Plan.
(aa)“Outside Director” means a Director who is not an Employee.
(ab)“Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.
(ac)“Participant” means the holder of an outstanding Award.
(ad)“Performance Goals” will have the meaning set forth in Section 12 of the Plan.
(ae)“Performance Period” means any Fiscal Year of the Company or such other period as determined by the Administrator in its sole discretion.
(af)“Performance Share” means an Award denominated in Shares which may be earned in whole or in part upon attainment of performance goals or other vesting criteria as the Administrator may determine pursuant to Section 10.
(ag)“Performance Unit” means an Award which may be earned in whole or in part upon attainment of performance goals or other vesting criteria as the Administrator may determine and which may be settled for cash, Shares or other securities or a combination of the foregoing pursuant to Section 10.
(ah)“Period of Restriction” means the period during which the transfer of Shares of Restricted Stock are subject to restrictions and therefore, the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based on the passage of time, continued service, the achievement of target levels of performance, or the occurrence of other events as determined by the Administrator.
(ai)“Plan” means this 2005 Incentive Plan, as may be amended from time to time.
(aj)“Restricted Stock” means Shares issued pursuant to a Restricted Stock award under Section 7 of the Plan, or issued pursuant to the early exercise of an Option.
(ak)“Restricted Stock Unit” means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, granted pursuant to Section 9. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.
(al)“Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.
(am)“Securities Act” means the Securities Act of 1933, as amended.
(an)“Section 16(b)” means Section 16(b) of the Exchange Act.
(ao)“Section 409A” means Section 409A of the Code and the final regulations and any guidance promulgated thereunder, as may be amended from time to time.
(ap)“Service Provider” means an Employee, Director or Consultant.
(aq)“Share” means a share of the Common Stock, as adjusted in accordance with Section 18 of the Plan.
(ar)“Stock Appreciation Right” or “SAR” means an Award, granted alone or in connection with an Option, that pursuant to Section 8 is designated as a SAR.
(as)“Subsidiary” means a “subsidiary corporation,” whether now or hereafter exist-ing, as defined in Section 424(f) of the Code.
3.Stock Subject to the Plan.
(a)Stock Subject to the Plan. Subject to the provisions of Section 18 of the Plan, the maximum aggregate number of Shares that may be awarded and sold under the Plan is 30,398,863 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock.
(b)Full Value Awards. Any Shares subject to Options or SARs will be counted against the numerical limits of this Section 3 as one Share for every Share subject thereto. Any Shares subject to Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units with a per Share or unit purchase price lower than 100% of Fair Market Value on the date of grant that were granted prior to May 16, 2013, will be counted against the numerical limits of this Section 3 as one and one-half (1 ½) Shares for every one (1) Share subject thereto. To the extent that a Share that was subject to an Award that counted as one and one-half (1 ½) Shares against the Plan Share reserve pursuant to the preceding sentence is recycled back into the Plan under Section 3(c) below, the Plan will be credited with one and one-half (1 ½) Shares.
Any Shares subject to Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units with a per Share or unit purchase price lower than 100% of Fair Market Value on the date of grant that were granted on or after May 16, 2013, will be counted against the numerical limits of this Section 3 as one and nine-tenths (1.9) Shares for every one (1) Share subject thereto. To the extent that a Share that was subject to an Award that counted as one and nine-tenths (1.9) Shares against
the Plan Share reserve pursuant to the preceding sentence is recycled back into the Plan under Section 3(c) below, the Plan will be credited with one and nine-tenths (1.9) Shares.
(c)Lapsed Awards. If an Award expires or becomes unexercisable without having been exercised in full or, with respect to an Award of Restricted Stock Units, Performance Units or Performance Shares, is terminated due to failure to vest, the unpurchased Shares (or for Awards other than Options or SARs, the unissued Shares) which were subject thereto will become available for future grant or sale under the Plan (unless the Plan has terminated). Upon the exercise of a SAR settled in Shares, the gross number of Shares covered by the portion of the Award so exercised (i.e., Shares actually issued pursuant to a SAR, as well as the Shares that represent payment of the exercise price and any applicable tax withholdings) will cease to be available under the Plan. Shares that have actually been issued under the Plan under any Award will not be returned to the Plan and will not become available for future distribution under the Plan; provided, however, that if Shares issued pursuant to Awards of Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units are repurchased by the Company or are forfeited to the Company due to failure to vest, such Shares will become available for future grant under the Plan. Shares used to pay the exercise or purchase price of an Award and/or to satisfy the tax withholding obligations related to an Award will not become available for future grant or sale under the Plan. To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment will not result in reducing the number of Shares available for issuance under the Plan. Notwithstanding the foregoing and, subject to adjustment as provided in Section 18, the maximum number of Shares that may be issued upon the exercise of Incentive Stock Options will equal the aggregate Share number stated in Section 3(a), plus, to the extent allowable under Section 422 of the Code and the Treasury Regulations promulgated thereunder, any Shares that become available for issuance under the Plan under this Section 3(c).
(d)Share Reserve. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of the Plan.
(e)Outside Director Award Limitations. No Outside Director may be granted in any Fiscal Year Awards that exceed the lesser of (i) Awards covering 100,000 Shares or (ii) Awards with a grant date fair value (determined in accordance with GAAP) of greater than $1,000,000. Any Awards granted to an individual while he or she was an Employee, or while he or she was a Consultant but not an Outside Director, shall not count for purposes of this limitation. The foregoing limitation will be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 18.
4.Administration of the Plan.
(a)Procedure.
(i)Multiple Administrative Bodies. Different Committees with respect to different groups of Service Providers may administer the Plan.
(ii)Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Awards granted hereunder as “performance-based compensation” within the meaning of Section 162(m) of the Code, the Plan will be administered by a Committee of two or more “outside directors” within the meaning of Section 162(m) of the Code.
(iii)Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder will be structured to satisfy the requirements for exemption under Rule 16b-3.
(iv)Other Administration. Other than as provided above, the Plan will be administered by (A) the Board or (B) a Committee, which committee will be constituted to satisfy Applicable Laws.
(b)Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator will have the authority, in its discretion:
(i)to determine the Fair Market Value;
(ii)to select the Service Providers to whom Awards may be granted hereunder;
(iii)to determine the number of Shares to be covered by each Award granted hereunder;
(iv)to approve forms of Award Agreements for use under the Plan;
(v)to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator will determine;
(vi)to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;
(vii)to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws or for qualifying for favorable tax treatment under applicable foreign laws;
(viii)to modify or amend each Award (subject to Section 23(c) of the Plan) including, without limitation, the discretionary authority to extend the post‑termination exercisability period of Awards longer than is otherwise provided for in the Plan. Notwithstanding the previous sentence, the Administrator shall not institute an Exchange Program;
(ix)to allow Participants to satisfy withholding tax obligations in such manner as prescribed in Section 19;
(x)to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;
(xi)to allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant under an Award pursuant to such procedures as the Administrator may determine;
(xii)to grant in addition to the incentives described in Sections 6, 7, 8, 9, and 10 below, other incentives payable in cash or Shares under the Plan as determined by the Administrator to be in the best interests of the Company and subject to any terms and conditions the Administrator deems advisable; and
(xiii)to make all other determinations deemed necessary or advisable for administering the Plan.
(c)Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations will be final and binding on all Participants and any other holders of Awards and will be given the maximum deference permitted by Applicable Laws.
(d)No Liability. Under no circumstances will the Company, its Affiliates, the Administrator, or the Board incur liability for any indirect, incidental, consequential or special damages (including lost profits) of any form incurred by any person, whether or not foreseeable and regardless of the form of the act in which such a claim may be brought, with respect to the Plan or the Company’s, its Affiliates’, the Administrator’s or the Board’s roles in connection with the Plan.
5.Eligibility. Nonstatutory Stock Options, Restricted Stock, Stock Appreciation Rights, Restricted Stock Units, Performance Units, Performance Shares and such other cash or stock awards as the Administrator determines may be granted to Service Providers. Incentive Stock Options may be granted only to Employees of the Company or any Parent or Subsidiary of the Company.
6.Stock Options. Subject to the terms and conditions of the Plan, an Option may be granted to Service Providers at any time and from time to time as will be determined by the Administrator, in its sole discretion.
(a)Limitations.
(i)Each Option will be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate fair market value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, the portion of the Options falling within such limit will be Incentive Stock Options and the excess Options will be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options will be taken into account in the order in which they were granted. The fair market value of the Shares will be determined as of the time the Option with respect to such Shares is granted.
(ii)Subject to Section 3(e), the following limitations will apply to grants of Options:
(1)No Service Provider will be granted, in any Fiscal Year, Options or SARs to purchase more than 1,000,000 Shares.
(2)In connection with his or her initial service, a Service Provider may be granted Options or SARs to purchase an aggregate of up to an additional 1,000,000 Shares, which will not count against the limit set forth in Section 6(a)(ii)(1) above.
(3)The foregoing limitations will be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 18.
(4)If an Option or SAR is cancelled in the same Fiscal Year in which it was granted (other than in connection with a transaction described in Section 18), the cancelled Option or SAR, as applicable, will be counted against the limits set forth in subsections (1) and (2) above. For this purpose, if the exercise price of an Option or SAR is reduced, the transaction will be treated as a cancellation of the Option or SAR, as applicable, and the grant of a new Option or SAR, as applicable.
(b)Term of Option. The term of each Option will be seven (7) years from the date of grant or such shorter term as may be provided in the Award Agreement as determined by the Administrator in its sole discretion. Moreover, in the case of an Incentive Stock Option granted to a Participant who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option will be five (5) years from the date of grant or such shorter term as may be provided in the Award Agreement.
(c)Option Exercise Price and Consideration.
(i)Exercise Price. The per Share exercise price for the Shares to be issued pursuant to exercise of an Option will be determined by the Administrator, subject to the following:
(1)In the case of an Incentive Stock Option
(A)granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price will be no less than 110% of the Fair Market Value per Share on the date of grant.
(B)granted to any Employee other than an Employee described in paragraph (1) immediately above, the per Share exercise price will be no less than 100% of the Fair Market Value per Share on the date of grant.
(2)In the case of a Nonstatutory Stock Option, the per Share exercise price will be determined by the Administrator, but will be no less than 100% of the Fair Market Value per Share on the date of grant.
(3)Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a transaction described in, and in a manner consistent with, Section 424(a) of the Code.
(ii)Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator will fix the period within which the Option may be exercised and will determine any con-ditions that must be satisfied before the Option may be exercised.
(iii)Option Agreement. Each Option grant will be evidenced by an Award Agreement that will specify the exercise price, the term of the Option, the acceptable forms of consideration for exercise (which may include any form of consideration permitted by Section 6(c)(iv), the conditions of exercise, and such other terms and conditions as the Administrator, in its sole discretion, will determine.
(iv)Form of Consideration. The Administrator will determine the acceptable form(s) of consideration for exercising an Option, including the method of payment, to the extent permitted by Applicable Laws. In the case of an Incentive Stock Option, the Administrator will determine the acceptable form of consideration at the time of grant.
(d)Exercise of Option.
(i)Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder will be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share.
An Option will be deemed exercised when the Company receives: (i) notice of exercise (in such form as the Administrator specifies from time to time) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised (together with applicable tax withholdings). Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Award Agreement and the Plan. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 18 of the Plan.
(ii)Termination of Relationship as a Service Provider other than Death, Disability or Misconduct. If a Participant ceases to be a Service Provider, other than upon the Participant’s termination as a result of the Participant’s death, Disability or Misconduct, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for three (3) months following the Participant’s termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If after termination the Participant does not exercise his or her Option within the time specified by the Administrator, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
(iii)Disability of Participant. If a Participant ceases to be a Service Provider as a result of the Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following the Participant’s termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If after termination the Participant does not exercise his or her Option within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
(iv)Death of Participant. If a Participant dies while a Service Provider, the Option may be exercised following the Participant’s death within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of death (but in no event may the Option be exercised later than the expiration of the term of such Option as set forth in the Award Agreement), by the Participant’s designated beneficiary, provided such beneficiary has been designated prior to Participant’s death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Participant, then such Option may be exercised by the personal representative of the Participant’s estate or by the person(s) to whom the Option is transferred pursuant to the Participant’s will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following Participant’s death (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). Unless otherwise provided by the Administrator, if at the time of death Participant is not vested as to his or her entire Option, the Shares covered
by the unvested portion of the Option will immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
7.Restricted Stock.
(a)Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Administrator, at any time and from time to time, may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator, in its sole discretion, will determine.
(b)Restricted Stock Agreement. Each Award of Restricted Stock will be evidenced by an Award Agreement that will specify the Period of Restriction, the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion, will determine. Notwithstanding the foregoing sentence, for Restricted Stock intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, during any Fiscal Year no Participant will receive more than an aggregate of 500,000 Shares of Restricted Stock; provided, however, that in connection with a Participant’s initial service as an Employee, for Restricted Stock intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, an Employee may be granted an aggregate of up to an additional 500,000 Shares of Restricted Stock. The foregoing limitations will be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 18. Unless the Administrator determines otherwise, Shares of Restricted Stock will be held by the Company as escrow agent until the restrictions on such Shares have lapsed.
(c)Transferability. Except as provided in this Section 7, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction.
(d)Other Restrictions. The Administrator, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate.
(e)Removal of Restrictions. Except as otherwise provided in this Section 7, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan will be released from escrow as soon as practicable after the last day of the Period of Restriction or at such other time as the Administrator may determine. The Administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed.
(f)Voting Rights. During the Period of Restriction, Service Providers holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise.
(g)Dividends and Other Distributions. During the Period of Restriction, Service Providers holding Shares of Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares unless the Administrator provides otherwise. If any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid.
(h)Return of Restricted Stock to Company. On the date set forth in the Award Agreement, the Restricted Stock for which restrictions have not lapsed will revert to the Company and again will become available for grant under the Plan.
(i)Section 162(m) Performance Restrictions. For purposes of qualifying grants of Restricted Stock as “performance-based compensation” under Section 162(m) of the Code, the Administrator, in its discretion, may set restrictions based upon the achievement of Performance Goals. The Performance Goals will be set by the Administrator on or before the Determination Date. In granting Restricted Stock that is intended to qualify under Section 162(m) of the Code, the Administrator will follow any procedures determined by it from time to time to be necessary or appropriate to ensure qualification of the Award under Section 162(m) of the Code (e.g., in determining the Performance Goals).
8.Stock Appreciation Rights.
(a)Grant of SARs. Subject to the terms and conditions of the Plan, a SAR may be granted to Service Providers at any time and from time to time as will be determined by the Administrator, in its sole discretion.
(b)Number of Shares. Subject to Section 3(e), the Administrator will have complete discretion to determine the number of SARs granted to any Participant, provided that during any Fiscal Year, no Participant will be granted SARs or Options covering more than 1,000,000 Shares. Notwithstanding the foregoing limitation, and subject to Section 3(e), in connection with a Participant’s initial service as an Employee, an Employee may be granted SARs or Options covering an aggregate of up to an additional 1,000,000 Shares. The foregoing limitations will be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 18.
(c)Exercise Price and Other Terms. The Administrator, subject to the provisions of the Plan, will have complete discretion to determine the terms and conditions of SARs granted under the Plan, provided, however, that the exercise price will be not less than one hundred percent (100%) of the Fair Market Value of a Share on the date of grant. Notwithstanding the foregoing provisions of this Section 8(c), Stock Appreciation Rights may be granted with a per Share exercise price of less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant pursuant to a transaction described in, and in a manner consistent with, Section 424(a) of the Code and the Treasury Regulations thereunder.
(d)SAR Agreement. Each SAR grant will be evidenced by an Award Agreement that will specify the exercise price, the term of the SAR, the conditions of exercise, and such other terms and conditions as the Administrator, in its sole discretion, will determine.
(e)Expiration of SARs. A SAR granted under the Plan will expire upon the date determined by the Administrator, in its sole discretion, and set forth in the Award Agreement; provided, however, that the term will be no more than seven (7) years from the date of grant thereof. Notwithstanding the foregoing, the rules of Section 6(d) also will apply to SARs.
(f)Payment of SAR Amount. Upon exercise of a SAR, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying:
(i)The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times
(ii)The number of Shares with respect to which the SAR is exercised.
At the discretion of the Administrator, the payment upon SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof.
9.Restricted Stock Units.
(a)Grant. Subject to the terms of the Plan, Restricted Stock Units may be granted at any time and from time to time as determined by the Administrator. After the Administrator determines that it will grant Restricted Stock Units under the Plan, it will advise the Participant in an Award Agreement of the terms, conditions, and restrictions related to the grant, including the number of Restricted Stock Units. Notwithstanding anything to the contrary in this subsection (a), for Restricted Stock Units intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, during any Fiscal Year of the Company, no Participant will receive more than an aggregate of 500,000 Restricted Stock Units. Notwithstanding the limitation in the previous sentence, for Restricted Stock Units intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, in connection with his or her initial service as an Employee, an Employee may be granted an aggregate of up to an additional 500,000 Restricted Stock Units. The foregoing limitations will be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 18.
(b)Vesting Criteria and Other Terms. Subject to the terms of the Plan, the Administrator will set vesting criteria in its discretion, which, depending on the extent to which the criteria are met, will determine the number of Restricted Stock Units that will be paid out to the Participant. The Administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit, or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws, or any other basis determined by the Administrator in its discretion.
(c)Earning Restricted Stock Units. Upon meeting the applicable vesting criteria, the Participant will be entitled to receive a payout as determined by the Administrator. Notwithstanding the foregoing, at any time after the grant of Restricted Stock Units, the Administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout and may accelerate the time at which any restrictions will lapse or be removed.
(d)Form and Timing of Payment. Payment of earned Restricted Stock Units will be made as soon as practicable after the date(s) determined by the Administrator and set forth in the Award Agreement or as otherwise provided in the applicable Award Agreement or as required by Applicable Laws. The Administrator, in its sole discretion, may pay earned Restricted Stock Units in cash, Shares, or a combination thereof. Shares represented by Restricted Stock Units that are fully paid in cash again will not reduce the number of Shares available for grant under the Plan.
(e)Cancellation. On the date set forth in the Award Agreement, all unearned Restricted Stock Units will be forfeited to the Company and become available for grant under the Plan.
(f)Section 162(m) Performance Restrictions. For purposes of qualifying grants of Restricted Stock Units as “performance-based compensation” under Section 162(m) of the Code, the Administrator, in its discretion, may set restrictions based upon the achievement of Performance Goals. The Performance Goals will be set by the Administrator on or before the Determination Date. In granting Restricted Stock Units which are intended to qualify under Section 162(m) of the Code, the Administrator will follow any procedures determined by it from time to time to be necessary or appropriate to ensure qualification of the Award under Section 162(m) of the Code (e.g., in determining the Performance Goals).
10.Performance Units and Performance Shares.
(a)Grant of Performance Units/Shares. Subject to the terms of the Plan, Performance Units and Performance Shares may be granted to Service Providers at any time and from time to time, as will be determined by the Administrator, in its sole discretion. The Administrator will have complete discretion in determining the number of Performance Units/Shares granted to each Participant provided that during any Fiscal Year, for Performance Units/Shares intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, (i) no Participant will receive Performance Units having an initial value greater than $5,000,000, and (ii) no Participant will receive more than 500,000 Performance Shares. Notwithstanding the foregoing limitation, for Performance Units/Shares intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, in connection with a Participant’s initial service as an Employee, an Employee may be granted an aggregate of up to an additional 500,000 Performance Shares. The foregoing limitations will be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 18.
(b)Value of Performance Units/Shares. Each Performance Unit will have an initial value that is established by the Administrator on or before the date of grant. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant.
(c)Performance Objectives and Other Terms. Subject to the terms of the Plan, the Administrator will set performance objectives or other vesting provisions (including, without limitation, continued status as a Service Provider) in its discretion which, depending on the extent to which they are met, will determine the number or value of Performance Units/Shares that will be paid out to the Service Providers. Each Award of Performance Units/Shares will be evidenced by an Award Agreement that will specify the Performance Period, and such other terms and conditions as the Administrator, in its sole discretion, will determine. The Administrator may set performance objectives based on the achievement of Company-wide, divisional, business unit, or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws, or any other basis determined by the Administrator in its discretion.
(d)Earning of Performance Units/Shares. After the applicable Performance Period has ended, the holder of Performance Units/Shares will be entitled to receive a payout of the number of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance objectives or other vesting provisions have been achieved. After the grant of a Performance Unit/Share, the Administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such Performance Unit/Share.
(e)Form and Timing of Payment of Performance Units/Shares. Payment of earned Performance Units/Shares will be made as soon as practicable after the expiration of the applicable Performance Period, or as otherwise provided in the applicable Award Agreement or as required by Applicable Laws. The Administrator, in its sole discretion, may pay earned Performance Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period) or in a combination thereof.
(f)Cancellation of Performance Units/Shares. On the date set forth in the Award Agreement, all unearned or unvested Performance Units/Shares will be forfeited to the Company, and again will be available for grant under the Plan.
(g)Section 162(m) Performance Restrictions. For purposes of qualifying grants of Performance Units/Shares as “performance-based compensation” under Section 162(m) of the Code, the Administrator, in its discretion, may set restrictions based upon the achievement of Performance Goals. The Performance Goals will be set by the Administrator on or before the Determination Date. In granting Performance Units/Shares which are intended to qualify under Section 162(m) of the Code, the Administrator will follow any procedures determined by it from time to time to be necessary or appropriate to ensure qualification of the Award under Section 162(m) of the Code (e.g., in determining the Performance Goals).
11.Other Cash or Stock Awards. In addition to the incentives described in Sections 6 through 10 above, and subject to the terms of the Plan, the Administrator may grant other incentives payable in cash or Shares under the Plan as it determines to be in the best interests of the Company and subject to such other terms and conditions as it deems appropriate, provided that in any Fiscal Year, a Participant will not receive a cash Award under this Section in excess of $5,000,000.
12.Performance-Based Compensation Under Code Section 162(m).
(a)General. If the Administrator, in its discretion, decides to grant an Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the provisions of this Section 12 will control over any contrary provision in the Plan; provided, however, that the Administrator may in its discretion grant Awards that are not intended to qualify as “performance-based compensation” under Section 162(m) of the Code to such Participants that are based on Performance Goals or other specific criteria or goals but that do not satisfy the requirements of this Section 12.
(b)Performance Goals. The granting and/or vesting of Awards of Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units and other incentives under the Plan may be made subject to the attainment of performance goals relating to one or more business criteria within the meaning of Section 162(m) of the Code and may provide for a targeted level or levels of achievement (“Performance Goals”) including cash flow; cash position; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; earnings per Share; economic profit; economic value added; equity or stockholder’s equity; market share; net income; net profit; net sales; operating earnings; operating income; profit before tax; ratio of debt to debt plus equity; ratio of operating earnings to capital spending; return on net assets; revenue; sales growth; Share price; or total return to stockholders. Any Performance Goals may be used to measure the performance of the Company as a whole or, except with respect to shareholder return metrics, to a business unit or other segment of the Company, or one or more product lines or specific markets, and may be measured either on a growth basis or relative basis to a peer group or index. The Performance Goals may differ from Participant to Participant and from Award to Award. Prior to the Determination Date, the Administrator will determine whether to make any adjustments to the calculation of any Performance Goal with respect to any Participant for any significant or extraordinary events affecting the Company. In all other respects, Performance Goals will be calculated in accordance with the Company’s financial statements, generally accepted accounting principles, or under a methodology established by the Administrator prior to or at the time of the issuance of an Award, which is consistently applied with respect to a Performance Goal in the relevant Performance Period. In addition, the Administrator will adjust any performance criteria, Performance Goal or other feature of an Award that relates to or is wholly or partially based on the number of, or the value of, any stock of the Company, to reflect any change in the Company’s capitalization as described in Section 18.
(c)Procedures. To the extent necessary to comply with the performance-based compensation provisions of Section 162(m) of the Code, with respect to any Award granted subject to Performance Goals and intended to qualify as “performance-based compensation” under Section 162(m) of the Code, on or before the Determination Date (i.e., within the first
twenty-five percent (25%) of the Performance Period, but in no event more 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 Administrator will, in writing, (i) designate one or more Participants to whom an Award will be made, (ii) select the Performance Goals applicable to the Performance Period, (iii) establish the Performance Goals, and amounts of such Awards, as applicable, which may be earned for such Performance Period, and (iv) specify the relationship between Performance Goals and the amounts of such Awards, as applicable, to be earned by each Participant for such Performance Period.
(d)Additional Limitations. Notwithstanding any other provision of the Plan, any Award which is granted to a Participant and is intended to constitute qualified performance-based compensation under Section 162(m) of the Code will be subject to any additional limitations set forth in the Code (including any amendment to Section 162(m)) or any regulations and ruling issued thereunder that are requirements for qualification as qualified performance-based compensation as described in Section 162(m) of the Code, and the Plan will be deemed amended to the extent necessary to conform to such requirements.
(e)Determination of Amounts Earned. Following the completion of each Performance Period, the Administrator will certify in writing whether the applicable Performance Goals have been achieved for such Performance Period. A Participant will be eligible to receive payment pursuant to an Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code for a Performance Period only if the Performance Goals for such period are achieved. In determining the amounts earned by a Participant pursuant to an Award intended to qualified as “performance-based compensation” under Section 162(m) of the Code, the Administrator will have the right to (i) reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Administrator may deem relevant to the assessment of individual or corporate performance for the Performance Period, (ii) determine what actual Award, if any, will be paid in the event of a termination of employment as the result of a Participant’s death or disability or upon a Change in Control or in the event of a termination of employment following a Change in Control prior to the end of the Performance Period, and (iii) determine what actual Award, if any, will be paid in the event of a termination of employment other than as the result of a Participant’s death or disability prior to a Change in Control and prior to the end of the Performance Period to the extent an actual Award would have otherwise been achieved had the Participant remained employed through the end of the Performance Period.
13.Compliance With Code Section 409A. Awards will be designed and operated in such a manner that they are either exempt from the application of, or comply with, the requirements of Code Section 409A such that the grant, payment, settlement or deferral of Awards will not be subject to the additional tax or interest applicable under Code Section 409A, except as otherwise determined in the sole discretion of the Administrator. The Plan and each Award Agreement under the Plan is intended to meet the requirements of Code Section 409A and will be construed and interpreted in accordance with such intent, except as otherwise determined in the sole discretion of the Administrator. To the extent that an Award or payment, or the settlement or deferral thereof, is subject to Code Section 409A, the Award will be granted, paid, settled or deferred in a manner that will meet the requirements of Code Section 409A, such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Code Section 409A.
14.Leaves of Absence/Transfer Between Locations. Unless the Administrator provides otherwise and except as required by Applicable Laws, vesting of Awards granted hereunder will be suspended during any unpaid leave of absence. A Service Provider will not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, or any Subsidiary. For purposes of Incentive Stock Options, no such leave may exceed three (3) months, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then six (6) months following the first (1st) day of such leave, any Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option.
15.Transferability of Awards. Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, such Award will contain such additional terms and conditions as the Administrator deems appropriate.
16.Termination of Relationship as a Service Provider due to Misconduct. If a Participant ceases to be a Service Provider due to his or her Misconduct or should a Participant engage in Misconduct while holding an outstanding Award, then all Awards that the Participant then holds will immediately terminate and the Participant will have no further rights with respect to such Awards. Upon such a termination, the Shares covered by the Awards that so terminate will revert to the Plan.
17.Minimum Vesting Requirements.
(a)General. Except as specified otherwise in Section 17(b), no Award will vest in full earlier than the 1-year anniversary of the Award’s date of grant, unless the vesting of the Award is accelerated pursuant to a Change in Control, certain terminations of a Participant’s status as a Service Provider on or after a Change in Control, a Participant’s death, or a Participant’s Disability (each, an “Acceleration Event”).
(b)Exception to Minimum Vesting Requirements. Awards that result in issuing up to 5% of the maximum aggregate number of Shares authorized for issuance under the Plan (the “5% Limit”) may be granted to any one or more Employees or Outside Directors without respect to the minimum vesting requirements set forth in Section 17(a). All Awards that have their vesting discretionarily accelerated (except if accelerated pursuant to an Acceleration Event) are subject to the 5% Limit. For purposes of clarification, the Administrator may accelerate the vesting of any Award pursuant to an Acceleration Event without such vesting acceleration counting toward the 5% Limit. The 5% Limit applies in the aggregate to Awards that do not satisfy the minimum vesting requirements set forth in Section 17(a) and to the discretionary vesting acceleration of Awards as specified in this Section 17(b).
18.Adjustments; Dissolution or Liquidation; Merger or Change in Control.
(a)Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan, will adjust the number and class of Shares that may be delivered under the Plan and/or the number, class, and price of Shares covered by each outstanding Award, and the numerical Share and unit limits set forth in Sections 3, 6, 7, 8, 9, and 10.
(b)Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator will notify each Participant as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed action.
(c)Change in Control. In the event of a merger of the Company with or into another corporation or other entity, or Change in Control, each outstanding Award will be treated as the Administrator determines, including, without limitation, that each Award be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. The Administrator will not be required to treat all Awards similarly in the transaction.
In the event that the successor corporation does not assume or substitute for the Award (or portion thereof), (and for the avoidance of doubt, notwithstanding the vesting limitations under Section 17) the Participant will fully vest in and have the right to exercise all of his or her outstanding Options and Stock Appreciation Rights that are not assumed or substituted for, including Shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock, Restricted Stock Units, and Performance Shares/Units not assumed or substituted for will lapse, and, with respect to Awards with performance-based vesting not assumed or substituted for, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels (unless specifically provided otherwise under the applicable Award Agreement or other written agreement between the Participant and the Company) and all other terms and conditions met. In addition, if an Option or Stock Appreciation Right is not assumed or substituted for in the event of a Change in Control, the Administrator will notify the Participant in writing or electronically that the Option or Stock Appreciation Right will be fully vested and exercisable for a period of time determined by the Administrator in its sole discretion, and the Option or Stock Appreciation Right will terminate upon the expiration of such period.
With respect to Awards granted to Outside Directors that are assumed or substituted for, if on the date of or following such assumption or substitution the Participant’s status as a Director or a director of the successor corporation, as applicable, is terminated other than upon a voluntary resignation by the Participant, then the Participant will fully vest in and have the right to exercise Options and/or Stock Appreciation Rights as to all of the Shares subject thereto, including Shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units will lapse, and, with respect to Awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met.
For the purposes of this subsection (c), an Award will be considered assumed if, following the Change in Control, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, or other securities or property) or, in the case of a Stock Appreciation Right upon the exercise of which the Administrator determines to pay cash or a Restricted Stock Unit, Performance Share or Performance Unit which the Administrator can determine to pay in cash, the fair market value of the consideration received in the merger or 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 is 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 an Option or Stock Appreciation Right or upon the payout of a Restricted Stock Unit, Performance Share or Performance Unit, for each Share subject to such Award (or in the case of an Award settled in cash, the number of implied shares determined by dividing the value of the Award by the per share consideration received by holders of Common Stock in the Change in Control), 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.
Notwithstanding anything in this Section 18(c) to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more performance objectives (including any Performance Goals) will not be considered assumed if the Company or its successor modifies any of such performance objectives without the Participant’s consent; provided, however, a modification to such performance objectives only to reflect the successor corporation’s post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.
Notwithstanding anything in this Section 18(c) to the contrary, if a payment under an Award Agreement is subject to Section 409A of the Code and if the change in control definition contained in the Award Agreement or other agreement related to the Award does not comply with the definition of “change in control” for purposes of a distribution under Section 409A of the Code, then any payment of an amount that is otherwise accelerated under this Section will be delayed until the earliest time that such payment would be permissible under Section 409A of the Code without triggering any penalties applicable under Section 409A of the Code.
19.Tax Withholding
(a)Withholding Requirements. Prior to the delivery of any Shares or cash pursuant to an Award (or exercise thereof) or such earlier time as any tax withholdings are due, the Company will have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, local, foreign or other taxes (including the Participant’s FICA obligation) required to be withheld with respect to such Award (or exercise thereof).
(b)Withholding Arrangements. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit a Participant to satisfy such tax withholding obligation, in whole or in part by (without limitation) (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable cash or Shares having a fair market value equal to the minimum statutory amount required to be withheld, (iii) delivering to the Company already-owned Shares having a fair market value equal to the minimum statutory amount required to be withheld, provided the delivery of such Shares will not result in any adverse accounting consequences as the Administrator determines in its sole discretion, (iv) selling a sufficient number of Shares otherwise deliverable to the Participant through such means as the Administrator may determine in its sole discretion (whether through a broker or otherwise) equal to the amount required to be withheld or (v) retaining from salary or other amounts payable to the Participant cash having a sufficient value to satisfy the amount required to be withheld. The amount of the withholding requirement will be deemed to include any amount which the Administrator agrees may be withheld at the time the election is made, not to exceed the amount determined by using the maximum federal, state or local marginal income tax rates applicable to the Participant with respect to the Award on the date that the amount of tax to be withheld is to be determined. The fair market value of the Shares to be withheld or delivered will be determined as of the date that the taxes are required to be withheld.
20.No Effect on Employment or Service. Neither the Plan nor any Award will confer upon a Participant any right with respect to continuing the Participant’s relationship as a Service Provider, nor will they interfere in any way with the Participant’s right or the right of the Company, or Parent or Subsidiary, as applicable, to terminate such relationship at any time, with or without cause, to the extent permitted by Applicable Laws.
21.Date of Grant. The date of grant of an Award will be, for all purposes, the date on which the Administrator makes the determination granting such Award, or such other later date as is determined by the Administrator. Notice of the determination will be provided to each Participant within a reasonable time after the date of such grant.
22.Term of Plan. Subject to Section 26of the Plan, this Plan as adopted by the Board in its amended and restated form will become effective as of the date of the Company’s 2016 Annual Meeting of Stockholders and will continue in effect for a term ending on the ten (10) year anniversary of such meeting, unless terminated earlier under Section 23of the Plan.
23.Amendment and Termination of the Plan.
(a)Amendment and Termination. The Administrator may at any time amend, alter, suspend or terminate the Plan.
(b)Stockholder Approval. The Company will obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. Without limiting the foregoing sentence, the number of Shares
available under the Plan pursuant to Section 3 herein may not be increased without approval of the Company’s stockholders, except as provided in Section 3.
(c)Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan will impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of the Plan will not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.
24.Conditions Upon Issuance of Shares.
(a)Legal Compliance. Shares will not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares will comply with Applicable Laws and will be further subject to the approval of counsel for the Company with respect to such compliance.
(b)Investment Representations. As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.
25.Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction or to complete or comply with the requirements of any registration or other qualification of the Shares under any state, federal or foreign law or under the rules and regulations of the Securities and Exchange Commission, the stock exchange on which Shares of the same class are then listed, or any other governmental or regulatory body, which authority, registration, qualification or rule compliance is deemed by the Company’s counsel to be necessary to or advisable for the lawful issuance and sale of any Shares hereunder, will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority, registration, qualification or rule compliance will not have been obtained.
26.Stockholder Approval. The Plan will be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.
27.Forfeiture Events. The Administrator may specify in an Award Agreement that the Participant’s rights, payments, and benefits with respect to an Award will be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Notwithstanding any provisions to the contrary under this Plan, an Award shall be subject to the Company’s clawback policy as may be established and/or amended from time to time (the “Clawback Policy”). The Administrator may require a Participant to forfeit, return or reimburse the Company all or a portion of the Award and any amounts paid thereunder pursuant to the terms of the Clawback Policy or as necessary or appropriate to comply with Applicable Laws.
