ITEM 8.01. OTHER EVENTS.
Patrick W. Smith, Founder and Chief Executive Officer of Axon Enterprise, Inc. (“Axon”), adopted a prearranged trading plan on September 10, 2021 (the “Plan”), in accordance with guidelines specified by Rule 10b5-1 under the Securities Exchange Act of 1934, and with Axon’s policies regarding transactions in Axon securities by insiders.
Mr. Smith’s Plan contemplates the exercise of fully vested employee stock performance options to purchase Axon stock as well as the sale of a sufficient number of shares underlying such options to pay the exercise price and related tax withholding obligations, but only if the stock price is at or above a minimum price as specified in the Plan. The remaining exercised shares are subject to a 2.5-year holding period from the date of exercise per the terms of Mr. Smith’s CEO Performance Award. The Plan also contemplates the sale of certain of Mr. Smith’s long held shares. Any transactions under the Plan will be disclosed publicly on Form 4, and, if applicable, in a Form 144, in each case filed with the Securities and Exchange Commission.
Mr. Smith’s Long-Term Commitment to Axon:
As of September 9, 2021, Mr. Smith beneficially owned 430,516 shares of the Company's common stock. Assuming all exercise and sale transactions are made under the 10b5-1 Plan, Mr. Smith's ownership will increase approximately four fold and he will continue to be Axon's largest individual shareholder, showcasing his commitment to delivering on a long-term vision that can contribute to increasing shareholder value.
All of Mr. Smith’s exercisable options (approximately 4.2 million as of September 9, 2021) are subject to a 2.5-year post-exercise holding period, with exceptions only to settle tax obligations and to cover the exercise cost.
Mr. Smith’s recent vesting under the CEO Performance Award, combined with his intended option exercise and settlement of shares, triggers employee tax withholding obligations and exercise costs. The 10b5-1 Plan represents a mechanism for prudent treasury management with orderly selling of shares to settle these obligations.
Background on CEO Performance Award:
In February 2018, Axon CEO and founder Rick Smith relinquished his executive-level salary(1) and cash bonus for 10 years in return for a stock performance award tied to achieving market capitalization and financial performance milestones that would make Axon one of the most valuable companies in the public safety sector.
Axon's Board of Directors designed the plan to maximize alignment with shareholders while accounting for future unforeseen events. They chose the design because it represented pay for performance, motivated a long-term commitment, and aligned CEO compensation with value creation for stakeholders including employees, customers and shareholders.
For the award to fully vest, Axon's market capitalization would have to grow ten-fold from under $1.5 billion at the time to $13.5 billion, and significant revenue and profitability goals would also have to be achieved.
Since shareholders approved the CEO Performance Award in 2018, Mr. Smith has not received new equity compensation grants excepting 60 performance shares granted every employee in 2019. He can only be compensated if Axon generates extraordinary shareholder value and achieves significant financial performance milestones.
The CEO Performance Award consists of a 10-year grant of stock options that vest in 12 tranches. Each of the 12 tranches vests only if a pair of milestones are both met.
| ● | Market Capitalization Milestones: The first set of milestones are based on Axon's six-month and thirty day trailing average market capitalization with the first milestone at $2.5 billion, which was nearly double Axon's market capitalization when the plan was announced in February 2018. |
| ● | Financial Performance Milestones: To meet the financial performance milestones, Axon must achieve escalating revenue or adjusted EBITDA targets chosen to incentivize both top-line growth and bottom-line operational rigor. Revenue milestones started at approximately two times pre-2018 levels and adjusted EBITDA milestones started at approximately three times pre-2018 levels. |
