Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain Officers.
Compensation Arrangements
On February 21, 2017, the Board of Directors (the Board) of OraSure Technologies, Inc. (the Company) approved the
terms of (i) the Companys 2017 Management Incentive Plan (the 2017 MIP), (ii) an Amended Long-Term Incentive Policy (the Amended LTIP), and (iii) an Amended Compensation Policy for
Non-Employee
Directors (the Amended Director Policy). The 2017 MIP, Amended LTIP and Amended Director Policy had previously been approved by the Compensation Committee of the Board (the
Committee).
2017 Management Incentive Plan
Pursuant to the 2017 MIP, incentive cash bonuses may be paid out of a cash pool to be funded based on the Companys achievement of certain
financial objectives. For 2017, specific financial objectives were established for consolidated revenues and operating income. These objectives will each be weighted at 50% in determining the pool funding amount. The impact of acquisitions and
divestitures, exchange rate fluctuations and new litigation will be excluded in calculating consolidated revenues and operating income for purposes of determining bonus pool funding.
Under the 2017 MIP, Threshold, Target, High and Maximum performance levels have been established for each of the financial objectives to be
used to fund the bonus pool. The Threshold levels represent the Companys actual financial results for 2016. The Target levels reflect the Companys annual budget or operating plan for 2017. The High and Maximum performance levels
represent performance at 105% and 110% of the results reflected in the Companys 2017 operating plan, respectively.
Subject to Board
approval, adjustments to the financial objectives may be made, where deemed appropriate, to reflect unexpected events, circumstances or market conditions.
Funding of the Bonus Pool.
If the Company meets the Target performance levels for each of the objectives, then the pool would be
funded at 100% of the aggregate target bonuses for all participants in the 2017 MIP, which currently is approximately $2.3 million. If only the Threshold performance levels are achieved, then the pool would be funded at 50% of those aggregate
target bonuses or approximately $1.16 million. If the High performance levels are achieved, then the pool would be funded at 150% of those aggregate target bonuses or approximately $3.48 million. If the Company achieves a Maximum
performance level, the pool can be funded up to 200% of the aggregate target bonuses or approximately $4.64 million.
Performance
below Threshold will accrue no bonus pool funding for the applicable objective. Thus, our management must deliver performance above our actual 2016 financial results in order to receive funding for a particular objective. Performance between
Threshold and Target, and between Target and High performance levels, will result in
pro-rated
funding on a linear basis for the applicable objectives.
The Committee and the Board have the discretion to approve bonus pool funding less than or in excess of amounts generated by the formula set
forth in the 2017 MIP; provided that any such discretionary adjustments to pool funding shall be limited to +/- 10% of the pool amount otherwise determined by the plans self-funding formula.
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Payments from the Bonus Pool
. Specific bonus payments from the pool to the
Companys senior management (other than the Chief Executive Officer (CEO) and Chief Financial Officer/Chief Operating Officer (CFO/COO)) will generally depend on an evaluation of the participants achievement of
individual performance objectives for 2017. Bonus payments for the CEO and CFO/COO will be based on an assessment of the Companys overall performance. Bonus payments will be based on the target bonus amounts set forth below, which are
expressed as a percentage of annual base salary. These targets were established with input from an independent executive compensation consultant engaged by the Committee, and are similar to bonus targets offered at medical diagnostic and healthcare
companies comparable to the Company.
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Title
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Target Payouts
(% of Base Salary)
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President and CEO
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70%
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CFO/COO
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50%
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Executive Vice President
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40%
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Senior Vice President
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35%
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Based on an assessment of performance, as described above, bonus payments of up to 150% of the
participants target percentage may be awarded. Awards may be adjusted on a pro rata basis as determined in the Committees or Boards discretion to the extent any participant is employed for only a portion of the year.
The Committee recommends for Board approval any bonus awards for the CEO and CFO/COO. The CEO recommends individual awards for the other
executive officers for approval by the Committee. The Committee and the Board shall have the right, in their sole discretion, to reject any or all of the recommended bonus awards or approve different bonus awards, even if the bonus pool has been
funded and any and all applicable performance criteria have or have not been satisfied, based on the business conditions of the Company or other factors deemed relevant by the Committee or Board. All bonus awards under the 2017 MIP are subject to
the Companys Compensation Recoupment Policy (i.e. clawback policy).
Amended Long Term Incentive Policy
The purpose of the LTIP is to establish a framework for granting annual incentive equity awards to the Companys senior management
(including the Companys named executive officers (NEOs)) that are performance-based and competitive in the marketplace. In addition, awards under the LTIP are intended to help align the actions of management with the interests of
our stockholders.
Equity awards under the LTIP are made on an annual basis, and are discretionary and subject to approval by the
Committee and/or Board. Awards to individual participants under the LTIP are based on an evaluation of a number of factors, including:
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A periodic assessment of practices of comparable companies.
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Organizational level of the executive.
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Performance of the executive.
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Relative contribution of the executive to the organization.
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History of the executives equity awards with the Company
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Other factors that the President/CEO, the Committee and/or the Board deem important.
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Each
participants individual performance for the applicable year is evaluated against his or her individual performance objectives for that year. The performance of the CEO and CFO/COO is evaluated
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against the Companys overall performance for the year. A fully satisfactory or Meets Requirements performance is typically the threshold requirement to receive an equity award
under the LTIP. Awards below this performance level may be considered on an exception basis in the discretion of the Committee and/or the Board.
Value of Awards
. The value of an equity award is initially calculated as a percentage of the participants annual base
salary based on performance during the applicable year. The following guidelines are used to determine the size of awards for the NEOs:
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Award as a % of Annual Base Salary
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Title
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Lower End
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Target
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Maximum
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President and CEO
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150%
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200%
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250%
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CFO/COO
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105%
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140%
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175%
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Executive Vice President
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95%
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125%
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155%
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Senior Vice President
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70%
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90%
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115%
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The ranges of percentages set forth above reflect levels that the Committee believes represent an appropriate
long-term incentive compensation value for each executive. These ranges were developed from a competitive assessment of long-term incentive awards at peer group companies developed by the Committee in consultation with an independent compensation
consultant. In February 2017, the ranges were increased somewhat by the Committee for the CFO/COO (i.e. from 90%/125%/160% to 105%/140%/175%), Executive Vice President (i.e. from 75%/100%/125% to 95%/125%/155%), and Senior Vice President (i.e. from
55%/75%/95% to 70%/90%/115%), based on advice from an independent compensation consultant, in order to bring the ranges more closely in line with market levels.
Once the aggregate dollar value of an award is established by applying the appropriate percentage to a participants base salary, the
award is converted into shares based on a valuation of the restricted stock or units as of the date of grant. Restricted stock and restricted units are valued based on the average of the high and low stock price on the grant date as reported on the
NASDAQ Stock Market. Fractional shares are rounded up to the next whole share.
Structure of Awards
. Annual awards to the
NEOs will consist of fifty percent (50%) performance-vested restricted units and fifty percent (50%) time-vested restricted stock. The performance-vested portion will vest only if (i) the participant remains employed by the Company for three
years following the date of grant and (ii) the performance criteria determined by the Committee and/or Board are met. The time-vested portion of each annual award will vest in equal annual installments over the three-year period following the
grant date, subject to the recipients continued employment by the Company.
Vesting of NEO awards will be accelerated upon a change
of control or in the event of the death or disability of the participant (with performance-vested restricted units vesting at target or
pro-forma
performance levels if the termination event occurs prior to the
end of a performance period or at actual levels when a performance measure has already been met, as determined by the Committee or Board) and shall otherwise be subject to the terms of applicable employment agreements and the Companys standard
terms and conditions for equity awards. If a participants employment is terminated due to retirement, the performance-vested restricted units shall vest at the end of the three-year service period on a
pro-rata
basis through the date of retirement to the extent the applicable performance measure has been met prior to retirement.
Structure of Performance Awards
. For the portion of each annual award consisting of performance-vested restricted units,
one-half
of that portion shall be earned based on achievement of a compound annual growth target for consolidated net product sales for the three fiscal year period
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beginning with the year of award (Sales Target) and the remaining half shall be earned based on achievement of an annual consolidated earnings per share target for the year of award
(EPS Target). The performance targets shall be determined by the Committee and/or Board prior to or on the award grant date. Notwithstanding the foregoing, the Committee and/or Board retain discretion to select performance targets and
measures different than the Sales Target or EPS Target.
Other Terms
. Awards may be adjusted on a pro rata basis to the
extent an employee is employed for only a portion of a year. The CEO will recommend individual awards for all participants (other than himself) to the Committee based on the factors described above. The Committee will evaluate the performance of the
CEO and the CFO/COO and recommend for Board approval appropriate awards in accordance with the LTIP and such evaluation. All awards are discretionary and the Committee and Board may approve or disapprove any recommended award, in whole or in part,
and may approve awards within or outside of the ranges indicated above, in their sole discretion, based on circumstances occurring at the time of the award and other factors. Awards may also be proportionately adjusted if necessary to reflect burn
rate limits, overhang targets or other similar restrictions. All awards under the LTIP are subject to the Companys Compensation Recoupment Policy.
Non-Employee
Director Compensation Policy
Fees
. Pursuant to the Director Policy,
non-employee
members of the Board receive fixed
annual fees for service on the Board and for service on Committees of the Board, as set forth below. In February 2017, the Board increased the fees payable to the Chairmen of the Audit Committee (i.e. from $18,000 to $20,000) and Nominating and
Corporate Governance Committee (i.e. from $8,000 to $10,000) to reflect the increasing responsibilities of these committee chairs and to bring their fees more in line with market levels. The fees are payable quarterly in arrears.
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Position
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Annual Fee
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Board Chairman
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$
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60,000
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Non-Chairman
Board Member
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$
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40,000
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Audit Chairman
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$
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20,000
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Compensation Chairman
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$
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15,000
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N&CG Chairman
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$
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10,000
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Non-Chairman
Audit Member
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$
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8,000
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Non-Chairman
Compensation Member
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$
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6,000
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Non-Chairman
N&CG Member
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$
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4,000
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Initial Equity Awards
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Non-employee
Directors receive an
initial grant of 40,000 stock options for the Companys Common Stock upon joining the Board (the Initial Grant). An additional grant of 40,000 stock options is also made to any
non-employee
Director who becomes Chairman of the Board (the Chairman Grant). The options granted to
non-employee
Directors are nonqualified stock options and have an exercise price equal to the mean between
the high and low sales prices of the Companys Common Stock as quoted on the NASDAQ Stock Market on the grant date. Each Initial Grant and Chairman Grant generally vest on a monthly basis over the 24 months immediately following the grant date.
Payment of the exercise price may be made in cash or by delivery of previously acquired shares of Common Stock having a fair market value equal to the aggregate exercise price.
Annual Equity Awards
. Each
non-employee
Director receives an annual grant of restricted
shares (the Annual Grant) on the date of the Companys Annual Meeting of Stockholders pursuant to the values set forth in the following table:
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Board Position
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Value
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Chairman
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$
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120,000
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Non-Chairman
Director
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$
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95,000
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In February 2017, the Board amended the Annual Grant valuation for
non-chairman
Directors from $80,000 to $95,000, based on advice from an independent compensation consultant, in order to bring the level of equity compensation more in line with current market levels. The
dollar value of each Annual Grant is converted into restricted shares by dividing the above values by the average of the high and low sales prices of the Companys Common Stock, as reported on the NASDAQ Stock Market on the grant date. Annual
Grants of restricted stock generally vest on the date of the Companys next Annual Meeting of Stockholders following the grant date.
Non-employee
Directors are permitted to direct the Company to withhold
restricted shares in order to pay tax withholding obligations arising upon the vesting of such shares.
Other Terms of Director
Equity Awards
. The Board and/or Compensation Committee retain the discretion to make equity awards that are different than as described above. In particular, the Board and/or Compensation Committee may adjust the number of shares awarded to
an individual Director or to all Directors as a group, as deemed necessary or appropriate, in light of market or other conditions or if deemed necessary to meet burn rate limits, dilution or overhang targets or other restrictions set forth in
applicable corporate governance or proxy advisory firm guidance.
Any unvested stock options and restricted shares granted to
non-employee
Directors will vest in their entirety immediately upon the occurrence of a change of control of the Company. As defined in the Companys Stock Award Plan, a change of control means a
change of control that would be required to be reported under the Securities Exchange Act of 1934, as amended, and would be deemed to have occurred at such time as (i) any person, or more than one person acting as a group within the meaning of
Section 409A of the Internal Revenue Code (the Code), acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total
voting power of the stock of the Company; (ii) any person, or more than one person acting as a group within the meaning of Section 409A of the Code, acquires (or has acquired during the
12-month
period
ending on the date of the most recent acquisition) ownership of stock of the Company possessing 30 percent or more of the total voting power of the Companys stock; (iii) a majority of the members of the Board is replaced during any
12-month
period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of the appointment or election; or (iv) a person, or more than one person
acting as a group within the meaning of Section 409A of the Code, acquires (or has acquired during the
12-month
period ending on the date of the most recent acquisition) assets from the Company that have a
total gross fair market value equal to or more than 40 percent of the total gross fair market value of all the assets of the Company immediately before such acquisition or acquisitions. In addition, if a
non-employee
Director leaves the Board for any reason other than a change of control, prior to the end of the vesting period for the 2012 Transitional Grant or any Annual Grant of restricted shares, such award
shall immediately vest on a
pro-rata
basis based on the actual duration of such Directors service to the Board during such vesting period.
Director Retirement
On February 21, 2017,
Roger L. Pringle advised the Company of his intention to retire as a Director of the Company, effective May 16, 2017. A press release dated February 24, 2017 announcing Mr. Pringles retirement is attached as Exhibit 99.1 to this
Report and is incorporated by reference herein.
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